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Commercial property underinsurance gap linked to outdated values
A Kroll study found 68% of commercial buildings appraised from 2020 to 2021 were underinsured by at least 25%, often due to property values not being updated to match replacement costs.
Insurance Business reports that commercial property policies can leave clients short at claim time when property values are not updated, even if a broker placed the coverage correctly. In total losses, that shortfall can reach tens of thousands of dollars, according to the article.
Insurance Business, citing a Kroll study, says 68% of commercial buildings appraised from 2020 to 2021 were underinsured by at least 25%. Sophie Bird, senior vice president of commercial lines at IMA Financial Group, describes the gap as a recurring baseline issue on new accounts rather than an exception.
The article says IMA uses a CoreLogic estimated replacement cost analysis on new prospects and repeats the exercise annually for existing clients. Bird adds that carriers have become more aggressive over the past five to seven years about scrutinizing declared values and requiring higher property limits when buildings appear underinsured, although the trend may be moderating.
To address the valuation gap early, the article says IMA shares CoreLogic results with clients who resist a full valuation review and warns that estimated values can be conservative versus current contractor rebuild quotes. Bird also points to real-world examples from major and total losses to frame how underinsurance affects what clients would need at claim time, including the limits required to rebuild or the outcome under actual cash value terms.