Valuation services: Ensure accurate asset values today to close your underinsurance gap

Insurance valuation is a specialised practice that helps organisations set accurate declared values for physical assets, so insurance cover can respond more appropriately in the event of loss or damage. It typically involves physical inspection of assets and an insurance-specific valuation report prepared by property, plant, or equipment valuers. 

An asset’s market value reflects what it may sell for, but insurance valuation serves a different purpose. It estimates the cost to rebuild, replace, or reinstate physical assets after loss or damage, based on factors such as current labour and material costs. Relying on market or book value for insurance purposes can lead to underinsurance and leave organisations exposed to the average clause.   

Many companies are unknowingly underinsured due to outdated asset values — a risk that grows with inflation, changes in construction costs, and shifts in the asset base. Asia carries an estimated US$1 trillion of unprotected risk across property, liability, and business interruption coverage, and the protection gap continues to widen. Regular insurance-specific valuations help ensure your declared values keep pace with actual reinstatement costs and reduce the risk of a shortfall at the point of claim. 

Accurate insurance valuations provide a number of important benefits, such as:

• Minimising the risk of underinsurance and potential for adjusted claim settlements. 
• Reducing the risk of overinsurance and unnecessarily high premiums. 
• Protecting the interests of owners, directors, and officers by providing an auditable trail that assets have been insured appropriately.
• Potentially ensuring more competitive insurance covers, as the underwriters can see the clear methodology and process used to assess asset values. This leads to underwriters having more confidence in maximum loss calculations, which in many cases are used to determine their line size and price.
• Assisting risk engineers with Estimated Maximum Loss (EML) and Probable Maximum Loss (PML) inputs.

It is the responsibility of the insured to ensure accurate declared values. Engaging an experienced, specialist insurance valuer is the most widely accepted and reliable approach to ensure accuracy. Marsh’s valuation services provide access to qualified property, plant, and equipment valuers who conduct physical inspections and prepare insurance-specific reports, giving you and your insurers a clearer basis for declared values.

Here are a few key questions to consider:

• If there was a total loss, would your declared values be sufficient to cover full reinstatement of the assets? 
• Have you reviewed the methodology and basis on which your declared values are determined? 
• Have you captured all asset classes, not just buildings or major machinery? 
• Has your asset base changed considerably over the last three to five years?
• Have your declared values kept up with inflationary changes (e.g. construction materials, labour)?

Several factors can lead to declared values that understate actual reinstatement costs. The most common include: 

• Using the previous year's declared values or increasing values by a flat percentage.
• Declaring assets at market or book value rather than reinstatement value. 
• Declaring the value of what you would prefer to replace the asset with, rather than a like-for-like reinstatement.
• Using the original or acquisition value from an accounting fixed asset register.
• Relying on advice from in-house accountants or engineers rather than specialist insurance valuers. 
• Failing to account for changes in technology, and supply and demand issues.