Charterfields publish latest Plant & Equipment Insurance Values
Insuring Property, Plant and Equipment
For several years now, Charterfields, experienced plant and equipment valuers, have collated an annual survey of declared values for clients’ property portfolios as well as their plant and equipment. Charterfields under-insurance survey (as it’s become known in the industry) is based on the comparison of existing declared values with assessment results. This year the survey has been updated and covers the three-year period from 2015 to 2018.
Our results reveal the continuing problem of under-insurance of plant and machinery in the UK and international markets, and the real risk posed by the inadequate cover in the event of loss.
- Most cases analysed, covering real estate and plant and equipment, were under-insured by between 11% and 50%.
- Only 17% of real estate and 15% of plant and equipment cases were within +/- 10% of the required declared values.
- 18% of real estate and 21% of plant and equipment cases were found to be under-insured by between 51% and 100%.
The Survey results – Charterfields Under-Insurance Survey 2015-2018
The answer to the issue is surprisingly simple
Regular assessments and annual updating of valuations is the best protection for a clients’ insured position. It’s important to cover all assets in a business including property and plant and machinery.
It’s also worth noting that in this digital age we live in there are other assets such as intellectual property and databases that should also be considered for valuation.
Charterfields provide a free Declared Value Health Check (DVHC)
This market leading service provides brokers and their clients with an initial investigation to determine whether existing declared values are reasonable. Contact us to find out how it can help clients, or find out more here.
What are the top ten causes of under-insurance in business?
The following common factors seem to influence errors in declared values: –
1. Misunderstanding over basis of cover and the misuse of market value or other bases of valuation
This was the most common factor identified.
2. No history of valuations having been carried out
3. Absence of valuations or periods in between reviews exceeding three years.
4. Misuse of inflation indices
Inflation factors affecting construction costs are sector specific. General inflation is an incorrect basis but is commonly used. For manufacturing assets, the profile for most UK companies comprises a range of countries of original supply. Typically, less than 30% of an asset base may be of UK origin. Therefore, it is incorrect to apply UK inflation rates as a means of updating. Monitoring must consider the inflation rate of the country of supply and the influence of exchange rate movements and the insured currency.
5. Listed buildings
The building costs applying to listed buildings cannot be compared with standard building construction costs.
6. Reliance on fixed asset register data
Too often, companies rely on asset registers when assessing insurable values for plant and machinery as well as other assets and discover that, in the event of a claim, under-insurance is revealed. This is why Asset registers are suitable only for financial analysis and depreciation, and should not be used as a basis for estimating declared values for insurance.
7. Capitalisation thresholds
Most companies do not capitalise all assets and, below a given level of expenditure, costs may be written off to revenue in accounts. For insurance, all assets are required to be included, regardless of any financial accounting threshold.
8. Written-down values
Confusion concerning the relationship between written-down values for accounting and declared values is a key factor. In practice, there is no relationship between the two and written-down values should always be avoided. Whenever companies relate insurable values to depreciated values in financial records, there is inevitably an underinsurance position created.
9. Second-hand acquisitions
The ability to source quality assets in the open market is now commonplace with the price paid being the amount capitalised in accounts. Accordingly, where accounts are used for declared values, the value under these circumstances is immediately below true replacement cost. Rental / leased assets In the majority of industrial / commercial concerns, third-party assets may exist for which insurable liability attaches. These classes of asset are often missed.
10. Discounted costs
For insurance, it is not appropriate to assume that discounts in normal trading will be available as, in a loss situation, the power of negotiation often moves from the buyer to the manufacturer.
For more information about the Charterfields survey or how to find out if businesses have the appropriate insurance cost assessments and valuation of their property, plant and machinery, Contact Neil Warburton at Charterfields:
+44 (0)330 202 0116