Insurance to Value (ITV) is a critical property underwriting staple and while it is a simple concept, it can be very challenging to achieve due to several factors: 

•    Building values can vary significantly by region and building type, making it difficult to identify an average cost per square foot. 
•    Dynamic economic conditions like the recent COVID-19 pandemic and resulting inflation trends have led to construction costs reaching a 40-year high. 

What is Insurance to Value (ITV)?

The International Risk Management Institute defines ITV as "insurance written in an amount approximating the value of the subject of insurance or that meets coinsurance requirements."

What happen when ITV is wrong?

Companies face many risks when ITV is not accurate including, inadequate premium for the insured exposures and potential claims settlement challenges. This could mean being partially reimbursed and having to bridge the gap from their balance sheet. Agents are not immune and could face Errors and Omissions (E&O) exposure. 

While it is the insured and retail agent’s responsibility to determine accurate building limits of insurance, it is the responsibility of underwriting to verify their adequacy.  

What can you do?

To get accurate valuations we strongly recommend the use of building cost estimating tools. For example, software and appraisals that account for region and building attributes are available to document value.  Also, carriers can include annual inflation guard percentage increases to help combat the issue of underinsurance.  It is important that agents and insureds see the benefits rather than the costs of appraisals and purchasing licenses for building cost estimating software from vendors like CoreLogic, Verisk and E2Value.

We are here to help

We continue to see ITV issues during underwriting reviews despite its importance and an increased awareness.  The reasons range from fear of E&O exposure to confusion as to who is responsible for ITV. At a time of high inflation, it is essential that insurers obtain adequate ITV. Our focus is to guide customers so that they can educate retail agents and insureds on the importance of maintaining ITV on insured structures and personal property. We also believe in including ITV as a component of periodic underwriting reviews.

If you would like to more please contact Annette Suloff, Underwriting Technical Administrator: Annette.Suloff@bellclementsinc.com

Source: MRSI Underwriting Guideline – Insurance-to-Value (ITV), March 2022