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Understanding Your Dealership’s Insurance-to-Value Ratio

• Verify that Your Property is Properly Valued

By Jeff Heydlauff of Global Marine Insurance and John Logothetis of Clear Marine Risk SolutionsGlobal Marine Insurance is an MRAA Education Champion

In today’s economic environment with inflation a larger concern than in previous decades, it is even more important to protect the hard work that you have put into your business. That is why it’s critical to make sure your property insurance (both dry and wet property) is valued at an appropriate level. This will ensure adequate replacement cost at today’s pricing. Insurance to Value (ITV) approximates the costs associated to replace a given insured property. It is also the primary cause of property claim litigation in the U.S.

Your business may end up with an inaccurate ITV for several reasons, including:

  • Utilization of ineffective property valuation tools
  • Intentionally undervaluing values to pay less in premiums
  • Inflation can to an insufficient ITV for your buildings.

Ensure that your insurance agent is utilizing ITV tools to provide you with an accurate overview of the valuations of your dealership’s building(s). However, these ITV reports should not be held as the absolute correct valuation. Instead, they should be used alongside known benchmarking tools (cost per square foot) in the markets you are located. Alternatively, third-party appraisals done by reputable professionals are respected amongst insurance carriers.

4 main components of a valuation:

  • Square Footage
    • The most important factor of any valuation is square footage. If you’re not sure of the exact square feet of a building, records can be obtained through a tax assessors’ website.
  • Material Costs
    • Prices related to lumber, sheetrock or any other material used in construction of a building have a material impact on valuations.
  • Labor Costs
    • These costs include architect fees, engineering fees and the construction labor.
  • Building Features
    • An accurate calculation includes components such as electricity, finished vs unfinished spaces and mechanical equipment.

The impact on a business that has suffered a loss with inadequate ITVs may be big. After a large property loss, one in four businesses are forced to close. Significant out-of-pocket costs and business disruption are just a few of the extraordinary items businesses deal with by having inadequate ITVs.

Most of these scenarios are a result of co-insurance penalties. Under a coinsurance clause, policyholders are subject to a penalty if their coverage limit is not equal to a percentage — usually 80 or 90 percent — of the value of the property. For example, if a property is valued at $2 million but the coverage limit is $1.4 million and the policy carriers an 80 percent coinsurance, they would receive a $87,500 payout after incurring $100,000 in property damage from a covered event.

You need to work with your insurance agent to update your building values regularly. Your insurance premium may cost more in the short term, but you will be glad if any type of property claim arises and threatens your business.

About Global Marine Insurance

Global Marine has served the marine industry for over three decades for both boat/yacht insurance and commercial recreational marine insurance. We have worked closely with the MRAA on a variety of marine insurance programs and have been a major sponsor since 1988. Your marine business will receive competitive and comprehensive insurance coverage options from marine specialists that understand your risks.

About Clear Marine Risk

Clear Marine Risk Solutions is an MGA writing on National Casualty Company paper (Nationwide) specializing in Marinas, Boat Dealers, Boat Builders, Yacht Clubs, Boat Clubs, and Boat Rental operations. With over 50 years of underwriting expertise, Clear Marine can assist your preferred agent in getting superior coverage for General Liability, Marine Liabilities, Property, Auto, Crime, Equipment, and Excess Liabilities.