Why you shouldn’t rely on Banks for Building Insurance Valuations
Today we have a guest blogger, Andrew Nock of Andrew Nock Valuers. Andrew’s business and LMI work together often with his firm doing the property values and LMI the business interruption calculations. In my long term dealings with Andrew I have found his valuations to be accurate when it really matters, that is at the time of a loss. What I particularly like is that Andrew has taken the time to understand insurance policies and even went to the trouble of purchasing my ISR book so that he and his team fully understood the various components of cover and the difference between Declared Values, Sums Insured and Limits and Sub-Limits of Liability.
His short paper below highlights a common issue that I and my colleagues at LMI see at claim time. That is the valuation used for insurance was not prepared with insurance in mind. At best it is an after thought and sometimes ignored completely.
It is certainly an important message that I am pleased to share with readers.
A Bank “Insurance” Valuation Report
When clients require Bank valuations for mortgage, security and or refinancing purposes their Bank will appoint one of their preferred panels of valuation Companies to carry out the valuation. Included in their Bank valuation report will be one paragraph referring to insurance purposes and an estimate for replacement for the building/s.
The primary objective of the Bank valuation is to determine the market value of the land and buildings if they had to be sold by a Bank. For this purpose, the Bank is only interested in the lettable floor areas. A lower insurance value makes it easier to produce a lower market value, i.e. the relativity of the insurance value to the depreciated value of the improvements is important. A “narrower gap” between the insurance value and the depreciated value makes it easier to produce a lower or more conservative market value.
We have witnessed up to a 50% difference in insurance values between an independent specialist insurance valuation and a one-paragraph Bank “insurance” valuation. If a client uses this Bank “insurance” valuation for insurance purposes, they are risking relying on incorrect sums insured for their building/s.
In many if not all Bank “insurance” valuations, the valuer, who generally has little building insurance valuation experience, does not allow for:
- Purpose-built buildings
- Purpose-built improvements
- Site improvements
- Car parking areas
In addition, many Bank “insurance” valuations do not allow for:
- Escalation costs during the rebuild period
- Demolition and removal of debris
We cannot stress enough the importance of Clients and Brokers not relying on Bank valuations for insurance purposes. Only an independent insurance valuation conducted within the last three years can adequately protect your clients should disaster strike. Don’t wait for an insurance claim to find out your clients are insured incorrectly.
Should anyone want to discuss this further please drop me a line via the “Contact Me” button above or contact Andrew. I provide his details below.
Andrew Nock Valuers
Level 4, 2 Barrack Street Sydney NSW 2000
GPO Box 4493 Sydney NSW 2001
t: 02 9262 1533 m: 0439 998 190 f: 02 9262 6163