INSURANCE VALUATIONS

Property valuations | Insurance valuations

INSURANCE VALUATION SERVICES

While many people understand the value of insurance, not many understand the significance of insurance valuation. Too often, businesses will find that the sum insured is inadequate, leaving them to fund the rest of the replacement costs from their own pockets.

Although it is common to assume that insurance coverage should be adjusted based on increase in the Consumer Price Index (CPI), there are actually a number of factors that influence these numbers. LMW is dedicated to providing a tailored insurance valuation that considers all of these elements, to ensure that each client is fully aware of the appropriate insurance coverage.

WHEN DO YOU NEED US?Unless a business has recently had an insurance based valuation, the sums insured are often inadequate and potentially represent only 50-75 per cent of the ‘true’ replacement amount. There are of course exceptions, and we do find cases of more accurate or sometimes over stated replacement values.

You may need a professional insurance valuer if:

1. You require independent valuations.

2. You have never engaged a qualified valuer to assess your declared value for insurance.

3. You are reviewing your business interruption cover.

4. It has been more than two years since your last independent insurance valuation.

5. Your asset base has changed through acquisition or downsizing.

6. You are undertaking an insurance risk assessment.

50-75% of the true replacement value is represented by sums insured

OUR SERVICESWe Know Insurance ValuationsLMW considers the underlying issues that affect the reinstatement value. Deciding on a level of cover is a management decision, however being independently and fully informed is also critical so you can decide the level of insurance cover you need. With our vast experience in insurance valuations, we know that getting it right involves obtaining an understanding of our clients’ business and assets.

Our Value PropositionsWe advise our clients to undergo insurance valuations of their property and plant & equipment assets on a regular basis. There are three types of insurance valuations services that we offer:

Extensive valuation Insurance review On-desk revaluationRequired if inadequate levels of sums insured have been detected (or may be suspected) or if there has been a significant time gap (over 3 years) after the last revaluation have been undertaken

Required to ensure that your assets are adequately covered

Offered as part of a long-term insurance valuation program for our clients

Both under-insurance and over insurance have ways of ‘creeping up’ even on those with the best intentions

The Pitfalls of Inadequate Insurance CoverageInadequate insurance coverage is usually caused by two main problems. The first is an error in the initial assessment of the value of an asset, or how large a liability can be after a loss. The second problem occurs when initial assessments are incorrectly inflated or adjusted compounding the problem year after year.

Many people increase the value being insured each year by the Consumer Price Index (CPI), but prices move in different directions and it can be difficult to grasp all the factors that influence the numbers.

Property valuations | Insurance valuations

Valuation ReviewsIt is clear that there is a need to ensure that assets are adequately insured. Our services can include an annual ‘desk review’ to ensure that the assessed values are relevant for a three-year period, not just for the year when your assets were valued.

Additional ServicesLMW also provides its clients with non-valuation services that complement the valuation process

or address specific asset needs, such as:

• effective life reviews

• asset register reconciliation and reconstruction services

• asset tagging and location audits

• project management of large valuation assignments.

Why LMW

Following a major loss, though not necessarily a total loss, only 28 per cent of businesses continue to operate

TYPES OF VALUATIONS Types Purpose• Replacement with New Value• Reproduction Cost New Value

• Insurance

• Fair Value• Market Value (In use)• Depreciated Replacement Cost

• Financial reporting• Mergers and acquisitions• Tax consolidation and other

tax purposes• Equity investment and

participation• Partnership

• Market Value• Orderly Liquidation• Forced Sale Values

• Lease and financial security• Corporate restructuring• Asset management• Disposals

We can help save you money, protect ownership interests and your physical assets by ensuring the insurance value is accurate

We have a history of working with clients throughout Australia and globally

We help you ensure that your insurance cover is matched to your insurance risk

We understand how important it is to consider all the various elements that impact on rebuilding and replacement costs

We help to remove the risk of under-insurance, which may lead to delayed and reduced claims payments that potentially can cripple a business if it suffers a severe loss

Our work will help to reduce the exposure of directors, officers and shareholders who are ultimately responsible for correct sums insured

We are independent and experienced

• Port Facilities

• Education

• Scientific

• Information Technology

• Aged care

• Food Technology

• Superannuation

• REIT’s

• Religious

OUR EXPERIENCEOur valuation experience covers almost every industry and includes:

• Manufacturing

• Mining

• Distribution

• Aviation

• Oil & Gas

• Not for Profit

• Paper & Packaging

• Energy

• Transportation

• TV & Media

• Telecommunications

• Gaming

• Healthcare

• Infrastructure

• Engineering

• Printing

• Heritage

• Government

CASE STUDY

A REIT (Real Estate Investment Trust) has had its portfolio valued seven years ago, for insurance purposes. The CFO was aware that good corporate governance was to have a physical insurance valuation completed every three years, he decided that the original valuation plus CPI for each subsequent year would be sufficient and that would save on the cost of valuations.

Upon a natural disaster, a number of the properties in the portfolio were damaged (partial loss not total loss), after the insurance assessor came out the REIT was happy that they had the correct sums insured. What happened next took them by surprise.

Although the reinstatement amount fell within the sum insured it was discovered that the insured amount fell 33per cent below that of the correct insured sum.

The insurer, in noticing the under-insurance, invoked the co-insurance clause and averaged the amount (the amount insured was $310 million and the correct insured sum was $412 million). The insurance company had assessed the damage at $60 million and therefore paid a sum of $40 million, leaving a shortfall of $20 million. The shareholders then took legal proceedings against the Board of Directors and the Officer in charge of insurance to recoup the shortfall.

The issue arose because many people increase the value being insured each year by the Consumer Price Index (CPI), but prices move in different directions and it can be difficult to grasp all the factors that influence the numbers.

Not all costs are linked to the CPI. Construction costs have risen much faster than the CPI. For instance, steel works costs jumped on average by 25 to 70 per cent in the seven years ending 2011, while reinforced concrete edged up by 22 per cent and labour costs increased by 12 to 18 per cent. Over this period, the CPI only rose 15.4 per cent.

Insurers are becoming increasingly sensitive to the risks of under-insurance and are scrutinising organisations which do their own insurance value assessments more closely.

Some are also looking for assurances that declared values have been independently verified. Given the difficulties and risks involved, it makes good business sense to have an effective plan in place to avoid under- insurance.

CONTACTFor further information on our Insurance Valuation Services, please contact:

Brenton Salmon

National Head of Insurance ValuationsPhone: (02) 9099 1400 Mobile: 0410 338 811Email: brenton.salmon@lmw.com.auWeb: www.lmw.com.au

Professional ExpertiseBrenton has been active in the property industry since 1996, gaining experience across a broad spectrum of sectors. Brenton’s experience includes insurance valuation of a wide range of commercial, retail, senior living and specialised properties.

Brenton is a member of the Australian Property Institute, RICS, and of the Appraisal Institute (AI), and holds a Masters of Business (Property). In addition to his national experience, Brenton also has international valuation experience including Europe, USA, ASIA and New Zealand.

Areas of SpecialisationInsurance – Commercial, Industrial, Retail, Government, Financial, and specialised.

Qualifications• MBA (Property)• Member, Australian Property Institute (AAPI)• Member, REIV• Member, Royal Institute of Chartered Surveyors (MRICS)• Member of Appraisal Institute (MAI)

Recent Examples and Experience• RACV Portfolio – 11 Properties (QLD, VIC, TAS)• Stihl Australia• AMP Portfolio• Grovedale Hotel• Servier Laboratories• JR Richardson• Charter Hall• Incitec Australia• St Michael’s College• Church of Christ• Open Door Pub Co.• Ridgeway Portfolio• Mulpha Australia – Hayman Island, Sanctuary Cove (QLD), & Intercontinental Sydney (NSW)• Mondelez Australia

© 2017 LMW

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Liability is limited by the Accountant’s Scheme under the Professional Standards Legislation.

Property valuations | Insurance valuations

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