Waypoint Insurance - Risk & Business Magazine Waypoint Insurance Magazine Winter 2017 - Page 30

GROUP BENEFITS COMMERCIAL BUILDINGS BY: billy-joe checko INSURANCE BROKER, WAYPOINT INSURANCE Insuring To Value: Commercial Buildings A n estimated 70 percent of commercial buildings in Canada are underinsured by up to 40 percent of replacement cost value, according to Risk Management Services. Setting a value for a commercial building can be difficult, especially since there are several valuation methods available: 1. A depreciation value reflects the actual value of the building, beginning with a replacement value and deducting depreciation based on the building’s age and condition. 2. An appraiser can provide you with a market evaluation, usually used for the sale of a property. 3. Property tax assessments provide a value on which your property taxes are based. While all of these valuation methods are accurate for their intended purpose, none of them will provide you with a true replacement cost calculation. A depreciation cost can be valuable when a building owner doesn’t want to (or can’t) replace a structure in the event of loss, whereas the market evaluation and tax assessment are accurate only for their intended purposes—selling a home and paying property taxes, respectively. A replacement cost insurance policy aims to get you back to where you were 30 before the loss, so what a building is worth to the CRA, a prospective buyer, or a municipality is irrelevant. What is important is what it will cost to rebuild your building to where it was before the loss. There are two more methods of valuation specific to your insurance: 1. Your insurance broker may have evaluation tools available that can assist in setting an appropriate replacement value. 2. Your best and most accurate option is an insurance appraisal, which will evaluate the building based on the cost to rebuild the structure at current market prices. It is important to make the distinction between new construction and rebuilding costs. Costs associated with rebuilding are often higher than new construction or original construction costs. Rebuilding a structure after a loss needs to be done in a quick time frame, around existing infrastructure, and includes the removal of debris as well as meeting current bylaw requirements. These additional costs are reflected in an insurance appraisal. How does underinsuring a building, or any property for that matter, affect the owner in the event of a loss? For a total loss, the limit on the insurance policy will be paid but will be insufficient to rebuild the building. Where it becomes a little more complicated is in a partial loss. Most insurance policies contain a co-insurance clause that requires you to insure to replacement value. A co- insurance clause states that an insured must insure the property to the full value (or a stated percentage, usually 90 percent) or the insured will participate in paying for a partial claim to the extent they are underinsured. This is a lot to consider when valuing your building for insurance, and it’s easy to see why so many commercial buildings are underinsured. To prevent this, it is critical to set an accurate limit of coverage, and the best way to ensure a proper value is to obtain an insurance appraisal from an accredited appraiser. Unlike market appraisals, insurance appraisals take all of the contributing factors into consideration and make sure that in the event of loss, your insurance limit will be correct. + Billy-Joe Checko is a commercial insurance broker based out of the Nanaimo Waypoint Insurance office. A passion for business inspired him to become a commercial broker. Having been in business for himself, knowing what it is like to pay commercial insurance premiums, Billy-Joe looks to provide value that exceed his clients expectations. To contact Billy-Joe, or any one of our Waypoint brokers, please call 310-8442 or visit us online at waypointinsurance.ca