Caution: Equipment Values May Be Higher Than You Think

Every risk manager and business owner needs to be aware of the importance of adequately protecting machinery and equipment before damage occurs--and before discovery that the insurable value is too low.

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

Recently, 70 percent of risk managers and business owners surveyed confessed that they arrived at a policy's insurable value by relying on a depreciation schedule or a "guesstimate" to determine fair market value. Unfortunately, neither of these methods accurately reflects what the machinery and equipment is really worth today.

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

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

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

Promulgated by Congress and the Appraisal Foundation, USPAP is the leading authoritative guide for appraisals. A Certified Appraisal Report is accurate, irrefutable, defensible and descriptive. The report includes photographs, model and serial numbers, and other descriptive information that will withstand scrutiny.

Assignment of value is based on extensive research, personal inspection, making contacts with manufacturers, suppliers and the marketplace of sold comparable items--all in an effort to determine what the machinery and equipment is really worth.

Without an appraisal, an adjuster or insurance company is hard pressed to substantiate or determine value and condition prior to damage.

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

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

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

With the risk of catastrophes high on every risk manager's radar screen, equipment appraisal has become a top priority. Many business owners and risk managers understand the importance of updating appraisals every two to three years.