Here are six reasons for risk, finance, and operations executives to consider reviewing their insurance valuations before their next renewal:

Rising inflation: Despite recent actions by the Federal Reserve Bank to raise interest rates, it may take a while to tame inflation given a variety of circumstances, including, among others, the conflict in Ukraine and rising costs for energy, labor, automobiles, housing and services. Although actual impacts on property values vary in different areas of the country, the high year-over-year inflation rate alone is ample reason to revisit valuations.

Increasing replacement costs: Besides the effects of inflation, costs of many building materials have seen double-digit increases in the past year with supplies insufficient to meet elevated demand. Multiple disasters in the U.S. this year due to tornadoes, floods and wildfires are spiking demand for building materials.

Lingering effects of COVID-19: In recent months, manufacturing in some parts of the world, especially China, has been slowed by regional shutdowns to limit outbreaks arising from new and highly communicable variants of the virus, widening the gap between latent demand and inadequate supply.

Acute supply chain issue: In addition to widespread manufacturing shortfalls arising from COVID-19 labor issues, international political disputes and other challenges, there have been enduring transportation problems. Although actions at major U.S. ports have helped address some backlogs, trucking labor shortages and higher fuel costs raise new concerns. In this context, new valuations are imperative, especially with respect to the adequacy of business interruption and contingent BI coverage limits.

Adjustments to inventory systems and onshoring strategies: In efforts to mitigate supply chain risks, some businesses have shifted from just-in-time to excess inventory systems, which increases the value of inventory at risk and may strain fire protection systems. At the same time, some companies are consolidating suppliers or shifting more manufacturing to North America, increasing inventory values at these facilities.

New NFIP valuation requirements. Among other recent changes for policyholders, FEMA's National Flood Insurance Program now requires building replacement cost values (which must be validated every three years) for new policies as well as for all renewals. Notably, this new requirement applies to nonresidential properties as well as condominiums, larger multi-family buildings and certain mobile facilities. Replacement cost valuations for a building, including the cost of the foundation, must be based on appraisals commonly used in the insurance industry.

Interestingly, in some cases, new appraisals might reveal that stated insured property values are higher than they should be, which may mean a reduction in insurance requirements and related premium costs.

Special Reports /

Now is the time to update your insured property values

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