Why Should I Pay For an Insurance Appraisal?
by Gabe Lanteigne
“…Isn’t that the insurance company’s job?”
This question has been posed to me often through-out my career. The quick answer is “No” but let me explain why.
Although some companies will provide appraisals on a side-by-side basis with the dreaded “Loss Prevention Inspection”, most companies don’t. The onus to ensure your property is valued correctly always lands back on you. That is a big responsibility for most business & building owners because if you’re like me, you’re the expert at what you know, not what you don’t. As a business owner you’re busy building your widgets, running your business, selling your mouse traps or doing whatever it is that you do. So unless you are involved in the contracting/construction industry on a daily basis, you probably have only a slim, if not no idea what it costs to replace that building you own.
In recent years, building costs have increased significantly. It is with this in mind that I strongly urge all my clients that own buildings (of any type) to
review the limit that is carried on their property to make sure they are insured for full “Replacement Cost” value.
There are a number of resources that can be utilized to determine the replacement cost value. The best method is to contract the services of a qualified appraiser. A listing of appraisers can be found in your local yellow pages. I recommend to my clients to do this exercise every 3-4 years.
Why so often?
As recently illustrated to me in a “Construction Cost Index” that was sent to me by one of the insurance companies my brokerage represents, over the past 3 years the average cost of construction has risen approximately 35% in Canada. In major centers & cities that are “booming” it can even climb much higher than the average. In rural area’s there could additional costs for transportation of the materials & additional labour costs.
This means that if in 2005 your building was worth $1,000,000 it’s now worth at least $1,350,000. The cost of a $1,000 appraisal* doesn’t sound too bad compared to a possible $350,000 loss out of your pocket in the event of a total loss. Even in the event of a partial loss there could be costly disadvantages to being under insured (see my article on Co-Insurance).
To add to the mounting evidence, re-construction costs are even higher than regular construction costs because of the added expense of factors like debris removal & complying with by-laws (i.e.: set backs, sprinkler systems, construction material, easements, etc) that might not have existed when your building was originally constructed. So make sure your appraiser is local & well versed in the city by-laws that exist to ensure nothing gets missed.
*Check with appraiser for actual costs as it varies depending on a number of factors.
Gabe Lanteigne is a commercial property & casualty insurance broker working for Canada’s largest insurance brokerage.
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