Are your property assets underinsured?

Supply chain disruption has caused all manner of business issues driven by the pandemic and the current global conflict. But many leadership teams may fail to consider its impact on insured property values.

CoreLogic data shows construction costs are increasing faster than at any time since the introduction of the GST, with timber, metal products and plumbing supplies experiencing the largest spikes, while equipment costs have risen too.

This can increase loss exposure for any company that needs to repair or replace facilities or equipment damaged or destroyed by climate risks, machinery breakdown and other causes.

The situation may get much worse if you need to relocate to a new site, with JLL research showing that east coast commercial land values increased by up to 60 per cent during 2021.

Although FM Global typically advises clients to reassess insured values at least every five years, any valuation now that is more than a year old risks unwanted exposure.

If your business property hasn’t been appraised recently, now is a good time to do so. 

We are seeing many cases where property losses are much higher than valuations, which in some cases is leaving businesses underinsured.

Don’t leave yourself at risk

Having accurate values is just as important as taking efforts to prevent or mitigate loss in the first place. It’s part of a holistic risk management approach.

Let’s imagine the unimaginable – you have a warehouse on the fringes of a major city that is damaged or destroyed by bushfire.

Records show that it was last valued at $40 million in 2017, but the cost to rebuild a new facility is now $80 million.

Risk managers would likely want to avoid a situation where they need to flag inadequate insurance coverage with their senior leadership team after an incident.

Property loss is only the start of the problem. In addition to repairing or replacing a damaged facility or piece of equipment, the savviest risk managers factor in a range of other impacts including potential for longer term loss of future earnings, increased cost of supplies, increased cost of capital and reputational damage that may convince customers to switch suppliers.

These wider business impacts are sometimes more costly than the initial property damage and all can be managed, in part, by ensuring values are understood correctly.

Don’t go it alone

Risk managers and senior leadership teams have had a lot to deal with in the past few years and partnering with the right insurer is a great way to ease that burden.

They can help you understand what it would cost at that time to repair, rebuild or relocate facilities in the event of a significant loss will minimise the impact of that loss to the business.

Additionally, risk quantification based on accurate values is vital to help decide where to prioritise capital expenditures to reduce risk and in determining the right level of coverage needed to transfer the remaining risk.

By taking these steps risk managers can gain a better understanding of risk and be more confident about how to appropriately insure their commercial property portfolio.

And in today’s times of uncertainty, that gives you one less thing to worry about.

Greg Duncan is vice president, Client Service Manager at FM Global.