Issue 1: May 2016
IN THIS ISSUE
IN THIS ISSUE
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Insurance to Value
Insurance to Value Vs. Market Value
How iv3CUS Ensures Accurate
Building Values
Implications for the Insurance Carrier
and Broker
o Under-insurance
Considerations for Valuations
o Total Loss Considerations
o Heritage Building
Considerations
o Unusual Construction
Debris Removal
Closing Remarks
Valuations
Insurance to Value
Insurance to value is a crucial aspect of your property insurance. Insurance to value
reflects the relationship between insurance coverage limits and the actual cost to
completely rebuild, repair or replace your property after a loss. Typically, insurance
carriers require 100 percent insurance to value, ensuring that your policy limits are
sufficient to replace the covered property in the event of a loss.
Sadly, many properties throughout Canada are not insured to their total value, leaving
home and business owners with unexpected expenses when they experience a loss. As
the cost of construction rises, it is imperative that buildings are appraised on regular
basis (every 3-5 Years) to ensure coverages are current and accurate.
“One in three Canadians believe insurance pays whatever
it costs to rebuild a home.”
Insurance Bureau of Canada, 2016
How Insurance to Value differs from the Market Value of your property
All homeowners should insure their home according to what it would cost to rebuild it. This amount is called the replacement cost, or
total insurable value. A common misconception is that the amount of homeowners or commercial insurance is directly related to the
market value of a property
Market value is what a buyer will pay for the property, including the cost of land. Market Value is also based on comparable market
trends, seasonality, and other available statistics of the neighborhood. The market is based on supply and buyer demand, essentially
determining the final price of a property.
Replacement cost differs greatly from the market value of a property, and could potentially be higher, or lower than what an individual
paid for the building. Replacement Cost is the cost of rebuilding your home completely from the ground up. This takes into
consideration things such as the cost and availability of skilled labourers, new and updated building codes, by-laws, and debris removal.
How iv3CUS Ensures Accurate Building Values
At iv3CUS, we proudly support the use of CoreLogic and e2Value products as trusted industry standard ratings. A qualified inspector
will complete an on-site visit of the property and review a number of factors, including, but not limited to the age of your building,
construction materials, quality of construction, unique features, and geographic location.
Implications for the Insurance Carrier and Broker
Under-insurance happens when policyholders:
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Do not account for the effects of inflation on insurance coverage
Misjudge the replacement costs of buildings and their contents
Do not factor in professional costs (architectural, engineering, etc.)
Do not consider the influence of rising material and labour costs, building
codes and other regulations
Do not update the value of their properties on a regular basis.
According to Canadian Underwriter, about
80% of Canadian houses today are
undervalued by 27%, and approximately 60%
of commercial buildings are undervalued by
40%.
What does this mean for the insurance carrier? Canadian Underwriter estimates that the value of the uninsured properties totals
almost $11 billion in lost premiums based on the discrepancies between the reconstruction values of buildings and the premium
collected to rebuild them.
Considerations for Valuations
Heritage Building Considerations
Unusual Construction
Total Loss Considerations
Typically, there is usually no legal
requirement to replicate the original
structure of your heritage property if it
suffers a total loss, however, in some
municipalities, bylaws may state
otherwise. Replicating the look of the
original building would be significantly
more costly than similar repairs to a
modern building. Obtaining an accurate
building replacement cost is important
for heritage properties, and requires the
skills of a knowledgeable appraiser who
understands the unique features of the
construction and reconstruction.
Features such as green roofs, solar
panels, building automation, waste
water treatment systems, bulk and
water filtration system are becoming
more frequent in building design. With
rapidly evolving technologies and
building materials, architects and
designers are able to create one of a
kind properties like never before.
Some new technologies are difficult to
reproduce or replace, so it is important
to ensure you have an accurate value
of these unique features to ensure that
you are able to rebuild, or replace.
Having an adequate amount of
insurance is incredibly important. If an
insured buys too little insurance and
suffers a total loss, the recovery will be
limited by the amount of insurance,
leaving the insured with inadequate
funds to reconstruct the building.
Debris Removal
Debris removal indemnifies the insured for the cost of removing debris of insured property that is caused by an insured peril.
In most policies, the amount payable under the Debris Removal extension should not exceed 25% of the sum of: the total
amount payable for the direct loss or damage to the insured property; and the amount of the deductible (if applicable).The
amount of debris removal is not capped by the amount of insurance, nor does the amount of insurance increase. Anticipating
debris removal is difficult because the expense depends on the loss, and in some cases a major loss may leave less debris than
a minor loss.
Closing Remarks
To be fully protected by an insurance policy, it is important to be diligent in reviewing and updating your coverages. Insuring
your property to the correct value and ensuring that the value is reviewed every 3-5 years is critical, and can help the insured
avoid paying out of pocket expenses, and will ensure the insurance carrier is able to pay for a total loss, while earning accurate
premiums.
CONTACT US
50 Minthorn Blvd., Suite 301
Markham ON. L3T 7X8
p. 905.660.4006 | tf. 1.877.995.2651
[email protected]
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