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April 2026
Growth in the pallet industry often means new assets such as nail lines, grinders, forklifts, kilns, and expanded facilities. These investments drive production and revenue, but they also introduce risk. One of the most common and costly mistakes companies make is insuring assets at the wrong value or describing them incorrectly on their policy.
At first glance, undervaluing an asset may seem like a way to control premiums. In reality, it creates a hidden financial exposure that only shows up after a loss, when cash flow matters most.
“Many companies don’t realize they’re underinsured until a claim is paid, and by then, it’s too late to fix.”
Insurance companies rely on the values and descriptions you provide. If a pallet plant lists a piece of equipment at $250,000 when the true replacement cost is $400,000, the policy is built on incorrect information from day one.
Most commercial property policies include a coinsurance clause requiring coverage equal to 80% to 100% of an asset’s true value. If that requirement is not met, claim payments are reduced proportionally. Underinsurance doesn’t just affect large losses; it impacts most claims.
Here is how carriers typically calculate a payout when assets are undervalued:
(Insurance Carried ÷ Insurance Required) × Loss = Payout
Example:
Actual replacement cost: $1,000,000
Coinsurance requirement: 80%
Required insurance: $800,000
Insurance carried: $400,000
Loss: $200,000
Final claim payment:
($400,000 ÷ $800,000) × $200,000 = $100,000
Even though the loss is $200,000, only half is paid. The business absorbs the remaining $100,000.
“If you insure assets at 50% of their value, you should expect to recover about 50% of most losses.”
This is not unusual. Many companies undervalue assets by 20% to 50%, often due to outdated costs, inflation, or incomplete reporting. In these cases, the business effectively becomes a co-insurer, sharing the loss.
Accurate valuation is only part of the equation. How assets are described on the policy matters just as much. Common issues include:
Listing upgraded machinery as standard equipment
Missing automation or custom modifications
Misclassifying mobile versus fixed equipment
Underreporting peak inventory levels
These gaps can delay claims, create disputes, or reduce payouts.
“Insurance policies are built on disclosure. If the description is wrong, the outcome can be too.”
Today’s pallet operations face increasing exposure. Equipment costs are rising, replacement values often exceed original purchase prices, and many facilities have customized or upgraded equipment without updating coverage. At the same time, growth can push asset values and inventory levels beyond policy limits.
Take a quick look at your operation:
Have equipment values been updated in the last 12–24 months?
Are values based on replacement cost, not purchase price?
Have upgrades or modifications been reported to your broker?
Do limits reflect peak inventory, not average levels?
Do you know your coinsurance requirement?
If you answered “no” to any of these, there may be a gap in your coverage.
Protecting your business starts with accurate information. Update asset values regularly, understand your coinsurance requirement, document upgrades, and align coverage with real operating conditions. A small increase in premium is predictable. A reduced claim is not.
When a loss occurs, insurance should protect your balance sheet and keep operations moving. Undervaluing assets or providing incomplete descriptions creates a gap between what you expect and what you receive, and at the worst possible time.
“The goal isn’t just to have insurance; it’s to have it respond the way you expect when it matters most.”
In an industry built on tight margins, that difference can define recovery.
Brint Walker is a commercial insurance client advisor specializing in the pallet and wood container industry. He works with manufacturers and recyclers to align insurance, risk control, and operational strategy—helping businesses reduce claims, stabilize insurance costs, and prepare for what comes next.
WPM