4 minute read
E&O/Growing Concern of Insurance to Value
Be Aware of the Growing Concern of Insurance to Value
by Curtis M. Pearsall, CPCU, AIAF, CPIA President – Pearsall Associates, Inc. and Consultant to the Utica National E&O Program
Advertisement
Several recent industry articles have noted that many personal and commercial properties are potentially vastly undervalued and underinsured. An article from GenRe, authored by James Kenworthy and Shannon Dowd), reported that upwards of 60%
of homes and 70% of commercial buildings are undervalued – primarily because the cost of building materials has risen significantly over the last 6-12 months.
The GenRe article and a recent Wall Street Journal article noted the following:
• Lumber costs up 50%-100% • Labor costs up 8% • Crude oil, a major component of paint, roof shingles and flooring, up 80% from October 2020 • Prices for granite, insulation, concrete blocks and brick at record levels • Costs up $9,000 per unit for apartment construction • Rising costs for PVC production/availability due to recent hurricanes
The Potential for Claims Issues
For many years, E&O claim statistics have shown that issues involving personal property (HO, Dwelling coverage, etc.) and commercial property have been a leading cause of E&O claims. Because the values are traditionally higher in commercial property, the losses can be among the most significant, so simply applying an increase property limit factor at renewal may not be enough.
This means that virtually every agency likely has some customers whose property insurance values are insufficient, potentially resulting in claim issues at the time of a loss.
Choosing Limits and Your Role in It
Virtually every E&O carrier follows the premise that customers should choose their own property values, with agents/brokers, outside appraisers and various valuation services offering information customers can reference. This provides an element of protection for the agency if a problem arises. It is highly recommended on commercial accounts, and it is suggested that a
property disclaimer be provided annually to commercial accounts. In addition, agencies should require customers to sign an applicable statement of value forms.
Valuing contents has long been an issue because of the lack of standard industrywide tools available to evaluate most contents exposures. This is another area where customers must play a pivotal role in determining property limits. Issues including the following have been noted:
• Machinery and equipment reconstruction costs that may be significantly more expensive as replacement parts might no longer be available • Contents customized for the operation • Discounts and concessions no longer available from suppliers/original equipment manufacturers (OEMs)
Some articles raise serious concerns for agents who use various insurance-to-value tools and benchmarks as these tools may be outdated and not reflect current conditions. Plus, it is important to distinguish between replacement cost and reconstruction cost. The key item addressed and factored into some valuation tools states that reconstruction cost includes “additional expenses related to repair and restoration contractors’ fees, the construction process itself, the location of the property, demolition costs and debris removal.” These factors create a higher valuation than a new construction.
Agencies should have dialogue with their customers about this issue, which can help to minimize the problem if a customer suffers a loss that is not adequately covered.
Protect the Reputation and Assets You’ve Worked Hard to Build: Choose the Right Agents’ Errors and Omissions Program!
Utica National and Agents Service Corporation can help. More than 10,000 agencies have placed their trust in Utica National over the last 50 years because they offer: › Access to staff, including a claims team, who is dedicated 100% to Agents’ E&O › Tailored levels of coverage based on your needs › Risk management services that stay ahead of emerging issues to help you prevent claims › A variety of ways to pay your premium without premium financing or interest charges Invest a few minutes in the future security of your agency. Go to www.uticanational.com/eo to get started on an Easy Estimate, and then add and subtract coverages to get the combination of protection and premium you need!
Contact Heidi Hodel at PIA Wisconsin by phone at 608-274-8188 or via email at hhodel@piaw.org for more information.
Don’t just join a company, join a club.
AAA is a membership-based organization; we’re a club, not just a company. This means we have an entirely different level of commitment to customers. All with an unbeatable combination of savings and security for customers. And the potential for success for you. Learn more, contact me.
Insurance • Membership • Travel • Banking
AAA Independent Agents are not employees of AAA The Auto Club Group; but, rather are independent contractors. Insurance underwritten by one of the following companies: Auto Club Insurance Association, MemberSelect Insurance Company, Auto Club Group Insurance Company, Auto Club Property-Casualty Insurance Company, Auto Club South Insurance Company, Auto Club Insurance Company of Florida, or non-affiliated insurance companies. ©2019 The Auto Club Group. All rights reserved. 19-IN-0147
