Policyholders should have an insurance valuation or reinstatement cost assessment for several reasons:
- Determine Adequate Insurance Coverage: An insurance valuation helps a policyholder determine the replacement value of its assets, including buildings, equipment, plant, and other property. By knowing the replacement cost of these assets, the company can ensure that it has adequate insurance coverage to protect against loss or damage.
- Ensure Accurate Insurance Premiums: Insurance premiums are based on the value of the assets being insured. An accurate insurance valuation ensures that a policyholder is not paying too much or too little for insurance coverage. Paying too much for insurance can lead to unnecessary expenses, while paying too little can result in inadequate coverage.
- Support Claims Settlement: In the event of a loss or damage to property, a valuation can help support the company’s claim by providing immediate confirmation to insurers and loss adjusters that declared values were correct. If a detailed inventory of the assets was prepared as part of an insurance valuation exercise, that information will assist all parties in determining what was lost or damaged. This can help the policyholder receive the appropriate compensation from its insurance provider.
- Comply with Regulatory or Third Party Requirements: Certain regulatory bodies may require policyholders to have an insurance valuation to comply with guidelines or regulations. In other situations, lenders may require an insurance valuation to be regularly carried out to ensure that any assets used as collateral for a loan are adequately insured.
- Protect Directors and Officers: In the event of a loss, a third party independent assessment can help Directors and Officers demonstrate that they took all reasonable measures to ensure that assets were adequately insured, protecting them from personal exposure.
Overall, having an insurance valuation or reinstatement cost assessment is an important part of risk management for policyholders. It helps ensure that they have the appropriate insurance coverage, accurate premiums, and can provide detailed documentation to support a claim in the event of a loss or damage.