Gia Snape of Insurance Business sat down with Vanessa Sullivan property underwriting manager, E&S, Munich Re Specialty Insurance, to find out why property valuation is more important than ever in today’s hard market.

Property valuation is the foundation for getting the right coverage and premiums in an insurance policy.

In one of the hardest property insurance markets in decades, it’s taken on a critical role in safeguarding insureds from unnecessarily high premiums and ensuring they have adequate coverage, as well as helping insurers understand and manage their risk portfolios.

The pandemic masked the growing disparity in property values, and insurance companies saw that their losses were ballooning out of line with their expectations, Sullivan told Insurance Business.

To ensure that their clients are insured to value, agents and brokers should strongly urge them to get their properties appraised to the values in line with today’s prices.

Property appraisals in the last one to two years are still relevant, according to the underwriting leader.

“Insurance to value has always been a hot topic from an underwriting standpoint, but since COVID, it’s really jumped to the forefront of our minds,” Sullivan continued.

“With the help of our brokers and agents, everyone can get on the same page. It's up to all of us to educate the insureds and let them know that this is for their benefit.”

The danger of inaccurate property valuation is that it can leave policyholders unprotected. Some commercial clients might undervalue their properties in a bid to keep their premiums low amid rising costs. But they also risk severe consequences when it’s time to file a claim.

Underinsurance could result in policyholders receiving only a fraction of the actual cost to repair or replace their damaged property and could be financially crippling for them or their business.

“When you're increasing your values, that also increases the insurance pricing,” Sullivan noted. “But it's needed to make sure that the insureds are properly covered in case of a loss.”

However, other insureds may simply be unaware that their properties have gained value, or that the cost to replace or repair their properties has risen significantly.

The high rate of inflation, supply chain issues, increased labor costs, and changes in building ordinance have all driven up repair and replacement costs for insurers, Sullivan said.

Fewer  loss control surveys were conducted during the pandemic, therefore many properties were not up to date with appraisals. As property values increased with construction code changes and the rise in labor and material costs, many properties were left undervalued. In the event of a claims incident, this leaves potential for underinsurance  and can put the client in a precarious position.

The need for accurate property valuations puts agents and brokers in a space to provide added value to their clients.

Aside from offering valuable risk mitigation advice, they can help their clients leverage technology that can analyze a building’s values based on key information. That means using tools like those underwriters use, including third-party products that can analyze a property and provide an estimate of its worth. 

“Having those tools handy is so helpful because even if the insured plans to conduct an appraisal, we can run the data through the tool and then determine if we’re in the right ballpark,” Sullivan said.

There’s another added benefit for agents and brokers that take proactive measures to keep their insureds’ property valuations on point: a better relationship with their underwriters. 

If the insured is proactive in keeping their property values up to date, Sullivan said, it’s easier for an underwriter to work with them to provide proper coverage at competitive rate increases. 

“We value the important role our agents and brokers play in educating their insureds in this area, particularly when it comes t emphasizing the benefits of proper valuation,” she said. “After all, we are here to provide adequate coverage and be there for our clients in the event of a loss.”