Claims and Property Valuation
For the past several years, catastrophic insurance claims of all types have been occurring more frequently and with increasing severity. The Insurance Information Institute reports $25.5 billion of insured losses in the United States in 2019 as a result of natural catastrophes to include severe storms, wind, hail, wildfire, flood, and earthquake. Overall losses were nearly double that amount at $49.9 billion. It is critical that commercial property owners, including owners of self-storage operations, prepare for potential catastrophic losses resulting from natural events as well as manmade and accidental occurrences such as fire, roof leakage, slip-and-fall incidents, bodily injury, and others.
Property owners need to be aware that valuation affects the claim payment in the event of a covered loss. Replacement cost is the most popular insurance property valuation, and it provides coverage to repair or replace a building with materials of the same or comparable quality. This method of valuation does not include the value of any land. It does include the cost to purchase materials and hire professional contractors to repair or replace a building.
Here are some things to consider when discussing replacement-cost property valuation with your self-storage clients:
• Replacement cost coverage does not account for depreciation.
• The market cost of labor and materials to repair or replace a damaged building can fluctuate dramatically.
• Recent improvements and new construction should be considered when updating the insurance property valuation.
• If insuring with a policy that offers a blanket limit on signs, office contents, fences, etc., consider the value of everything that is covered by the blanket limit.
• The property valuation should include the cost of the foundation.
Ensuring that a self-storage operation is appropriately protected also includes the following:
• Purchasing adequate limits for customer goods legal liability is important in the event of a catastrophic event. The minimum limit available on MiniCo's BOP application is $25,000 and is typically not adequate in the event of a fire or other large loss.
• Business income (or business interruption) coverage is critical to an operation's survival in the event of a catastrophic loss. It is also one of the most complex, least understood, and most undersold insurance coverages available to property owners. Take the time to discuss the benefits of business income coverage with your self-storage clients.
• Risk management planning and performing maintenance tasks in a timely manner are more important than ever in helping to minimize potential claims and costly lawsuits.
The insurance industry is signaling that 2021 will bring significant premium increases of 8 to 15 percent for commercial property policies including the self-storage sector. It is necessary to evaluate premium costs in relation to potential out-of-pocket exposure in the event of a large loss, major liability claim, or catastrophic event. Be sure to address property valuation at the annual insurance review with each of your clients who are commercial property owners. If you have questions about property valuation or would like more information about MiniCo's specialty BOP for self-storage risks, contact an underwriter at 800-528-1056 or email@example.com.