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Help Your Customers Understand the Importance of Insuring Properties to Value

Tornado Damaged School in Wadena, MN.Although insurance to value (ITV) has always been a concern, it’s now more important than ever to understand the insurance coverage required to rebuild. Recent trends like the increasing frequency and severity of weather events and skyrocketing construction costs underscore the significance of ITV. So does the fact that an estimated 75 percent of commercial businesses are under-insured by an average of 40 percent or more.* Simply said, underinsurance can greatly impair, or even bankrupt, a business trying to recover from a disaster.

Rebuilding can be pricey

In recent years, the insurance industry has experienced devastating weather events, many unprecedented and unexpected. In 2011 alone, the U.S. experienced nearly $38 billion in insured losses, and experts predict that severe weather will likely continue.

Add to that increasing building costs. As communities rebuild, the demand for building materials and labor has intensified, driving up prices. For example, in the 15 months between the second quarter 2010 and the third quarter 2011, the following materials rose significantly:

>Copper pipe +26.5%
>Steel rebar +15.8%
>Structural steel +13.0%
>Drywall +5.5%
>Plywood +11.0%
>Lumber +11.7%

Bottom line – construction costs are increasing, and buildings constructed just two years ago may not be able to be rebuilt at anywhere near the original cost. It’s also important to remind retail producers that insurers evaluate the cost to rebuild the property, not its current resale or appraisal value. Even though the commercial real estate market has plummeted, property insurance costs may have not followed suit because of the increasing cost to replace the property.

Click here for a consumer-friendly ITV information sheet that you may share with your insureds. For more information contact your Concorde Commercial Underwriter at 800.726.1611.

Article Source: The Travelers Indemnity Company
* Researched by Marshall & Swift/Boeckh