16 | NOVEMBER 2017 | Claims Magazine | PropertyCasualty360.com
Business owners are often so busy that they rarely have time to step back to re-evaluate their business insurance policies. While this determination and work ethic are admirable, it could leave
a business vulnerable and unprepared should disaster strike.
In the wood niche, building material
dealers, manufacturers and sawmills
are often so focused on running the
business that they don’t ensure that the
company and its growth are insured.
New inventory, machinery and equipment; building expansions; additional
warehouse facilities and more all need
to be properly insured so if a catastrophe arises, the business can rebuild.
Claims adjusters see this all the time.
They enter a building after a fire or other
devastating event, finding on site is very
different from what is described in the
business owner’s policy.
The insurance coverage is not enough
to remove the debris, pay for the increased cost of building materials, and
complete renovations to update the new
building with the latest building codes,
let alone cover new equipment and a
A growing problem
The issue of insurance-to-value (ITV) is
an ever-growing concern for all insurers.
The Pennsylvania Lumbermens Mutual
Insurance Company conducted a study
on a sampling of its book of business
using valuation software. The company
found that its portfolio paralleled the industry with underreported values.
This raises a number of concerns,
including the possibility of exposing
agents and brokers to errors and omissions claims. Often after a loss, business
owners are unable to build a new, comparable facility because they were un-der-insured.
Consider a property claim on a manufacturing site where the policyholder was
underinsured. The damage was estimated
at $1,415,000, while the insured only carried $924,000 – nearly 20% less coverage
A hardware store was devastated by an
accidental fire. A visit from the claims adjuster revealed the property was underinsured with coverage of $139,000 or only
39% of the $392,000 building valuation.
The sweet spot
With today’s technology and predictive
tools, determining accurate ITV estimates should not be difficult. After the
policy is bound, don’t wait until a claim
to check in with the policyholder.
Building valuations must not only
adjust with the rate of inflation, but the
rising cost of building materials, electrical, plumbing and HVAC work, along
with the cost of getting a new building
to comply with updated building codes.
Too many businesses – nearly 40% of
small businesses – are unable to afford to
rebuild and simply close up shop after a
devastating loss, according to the Federal
Emergency Management Agency.
Insurance adjusters can play an important role in correcting this problem.
Adjusters who are on site after disasters
that do not result in a total loss can bring
the current value of the property to the
attention of the referring agent or broker,
the carrier, and in some cases the policyholder. This can serve as a reminder for
the agent or broker to check in with their
insureds and let them know the coverage
they have and what an updated estimate
of rebuilding their property would be.
By performing this due diligence,
agents, brokers, adjusters and carriers, can
be sure their policyholders are getting the
best service they can, while agents and
brokers are protected from E&O claims,
and carriers avoid costly litigation.
Jeff Hendershot (jhendershot@
plmilm.com) is loss control manager
for Pennsylvania Lumbermens
Mutual Insurance Company, based in