Every risk manager and business owner needs to be aware of theimportance of adequately protecting machinery and equipment beforedamage occurs--and before discovery that the insurable value is toolow.

No particular industry, nor its machinery and equipment, infact, is immune from damage caused by wind, fire, flood, quake,tornado or storm. Significant money and time can be lost if a trueand accurate value of machinery and equipment is not determinedprior to damage.

Recently, 70 percent of risk managers and business ownerssurveyed confessed that they arrived at a policy's insurable valueby relying on a depreciation schedule or a "guesstimate" todetermine fair market value. Unfortunately, neither of thesemethods accurately reflects what the machinery and equipment isreally worth today.

Why don't more risk managers obtain Certified Machinery andEquipment Appraisals?

The answer is simple--those who haven't obtained an appraisalare generally unaware of how to protect their assets. Butbeware--not all appraisal reports are created equal.

To withstand scrutiny by the courts, underwriters, attorneys andothers, a Certified Appraisal Report needs to be comprehensive anddetailed, consistent with the ethics and guidelines mandated by theUniform Standards of Professional Appraisal Practice.

Promulgated by Congress and the Appraisal Foundation, USPAP isthe leading authoritative guide for appraisals. A CertifiedAppraisal Report is accurate, irrefutable, defensible anddescriptive. The report includes photographs, model and serialnumbers, and other descriptive information that will withstandscrutiny.

Assignment of value is based on extensive research, personalinspection, making contacts with manufacturers, suppliers and themarketplace of sold comparable items--all in an effort to determinewhat the machinery and equipment is really worth.

Without an appraisal, an adjuster or insurance company is hardpressed to substantiate or determine value and condition prior todamage.

A case in point is a construction company in Texas which lostseveral items including cranes, bulldozers and graders damagedduring a flood. The equipment was severely undervalued because thecompany failed to obtain an appraisal. As a result, the businessowner's loss was more than $400,000.

Another situation occurred with a machine shop in Florida thatalso was severely undervalued. The business owner had insured allof the equipment for $300,000. Fire ripped through the shopdestroying every piece of equipment. The business owner suffered ahuge loss, because had the owner obtained an appraisal, theequipment would have been valued at more than $1.2 million.

Needless to say, an appraisal of equipment is vital to anybusiness. A substantiated appraisal obtained before any type ofdamage occurs will provide all parties with a cleaner, quicker andmore accurate settlement award. An appraisal also will lessen thechance of arbitration and litigation. It's a win-win for allparties and alleviates the needless loss of money and time.

With the risk of catastrophes high on every risk manager's radarscreen, equipment appraisal has become a top priority. Manybusiness owners and risk managers understand the importance ofupdating appraisals every two to three years.