Mind Uncharted Explore. Discover. Learn.
The Impact of Inflation on Property Insurance Coverage Gaps
A recent report from TUV SUD highlights how inflation can lead to unintentional underreporting of property and equipment valuations, resulting in coverage gaps for many companies.
The Coverage Gap Issue
When companies underreport their valuations to insurance carriers, coverage gaps arise. This occurrence can have serious ramifications for companies, as they may not receive enough payout to get their business back on track after filing a claim. This is especially an issue for construction companies, as many construction-related costs have spiked recently.
According to David Rix, Global Sales Manager at Global Risk Consultants, “Companies must defend their values because underwriters are now requiring more data on how they determine asset valuations. A lot of companies aren’t prepared for that, meaning claims won’t pay for rebuilding or replacement costs.”
Inflation Data Related to Construction and Labour Costs
The report provided year-over-year inflation data related to construction and labour costs, highlighting how the prices of construction-related items and services have risen significantly. Common mistakes made by companies, such as relying on market value or valuations more than three years old, can cause inaccurate claims.
Best Practices for Accurate Insurance Values and SOVs
The report offers guidance on how to establish credible insurance values and SOVs in an inflationary environment. Accurate property valuation is the foundation of property underwriting and impacts many aspects of the insurance risk transfer process. This includes projected claims values, replacement costs, adequacy of coverage, and inflation considerations impacting future physical asset and business interruption values. If a property’s value has not been assessed in three years or more, it is critical to update the SOV.
Justin Chen, Global Manager for Property Valuation Services at Global Risk Consultants, adds, “For companies with large real estate portfolios, updating the SOV can be a multi-year process.”
Inflation Concerns for Insurers
Inflation is a top concern for insurers, and this issue particularly impacts middle-market companies in sectors like transportation, energy, construction and retail, as per a recent report by Swiss Re.
It’s essential that companies pay close attention to their property and equipment valuations, updating them regularly to avoid coverage gaps and inaccurate claims. Accurate valuation is critical to ensure adequate insurance cover, and prevent lost time and productivity.
Have something to say about this story? Let us know in the comments below.
