Now is the time to update your insured property values

Rising inflation, labor shortages, and supply chain issues can wreak havoc with replacement costs and insurance valuations.

Risk managers planning their next property insurance renewals should start the process this year with a thorough assessment of their insured values — not only of their real estate portfolios but also with respect to their equipment and inventory of finished goods, raw materials, and components.

While inflation is driving up costs across the board, supply chain issues are contributing to higher costs along with delays in shipping needed parts, raw materials and building supplies. Besides understanding the impact of these factors on real property values and replacement costs, risk managers need a sound estimate of their potential time element risks to make sure they have adequate business interruption and contingent business interruption (BI) insurance coverage.

At the same time, property insurers are acutely concerned about their heightened aggregated exposures given the spate of natural catastrophes that already have occurred this year with, among other things, flooding, the extremely active convection storm season, wildfires in multiple states, and the arrival of the peak months of the 2022 Atlantic Hurricane season.

Given the convergences of these issues, risk managers should revisit their valuations. They should also keep in mind the potential risks of inaccurate values — such as when assets are undervalued or overvalued for insurance purposes.

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 the 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.

Thanks to steady advances in technology, risk managers now have access to a wider range of cost-effective appraisal and valuation options that may be ideally suited to their immediate needs and resources, industry, and the location of their operations.

Besides on-site surveys and appraisals, which provide a great level of detail for office buildings, resorts, high-end hotels, luxury malls, and manufacturing facilities, risk managers with businesses in other sectors might have faster and lower cost options, such as limited appraisals conducted on a portfolio basis or desktop solutions.

The portfolio solutions leverage specialized technology platforms that can be used to check accuracy of valuations across a portfolio of buildings. Required input typically includes address and zip code, square footage, total stories, construction type and occupancy.

For greater detail typically required for industrial buildings, shopping malls and low- to mid-rise hotels, desktop solutions might be suitable.

To analyze business interruption values with greater precision, a growing number of risk managers are turning to solutions that quantify their supply chain exposures. These approaches help pinpoint vulnerabilities that help determine efficient and accurate ways to allocate resources to help mitigate potential outages based on cost and business impact.

In addition to facilitating more educated insurance purchasing decisions, accurate property, business interruption and contingent BI valuations help generate more reliable catastrophe modeling outputs, probable maximum loss estimates and loss expectancies.

Given the challenging economic environment, increasing threats posed by natural disasters, and uncertainty surrounding the availability, obtaining up-to-date and accurate property and business interruption valuations is critical for risk managers to feel comfortable that their enterprises remain adequately protected.

Taken from https://www.propertycasualty360.com/2022/08/24/now-is-the-time-to-update-your-insureds-property-values/

Specific Technologies Driving Insurtech Investment in 2024

Understanding the Funding Decline The decrease in funding does not necessarily spell trouble for the insurance sector but instead highlights a strategic shift, the report suggests. “The insurance industry, like many sectors, is focusing on the most promising ventures with substantial insurance potential,” the report explains. “Insurers are directing their investments toward key areas and current trends such as embedded insurance, employee benefits, and cyber risk management. This strategic investment approach signals a forward-looking mindset within the industry.” Three Key Insurtech Trends for 2024 The report identifies three major trends shaping insurtech investments in 2024: Public Insurtech Companies: Financial and Growth Strategies The report also notes that public insurtech companies are prioritizing revenue growth as their main goal. These firms are restructuring their financial strategies to boost cash flow and capitalize on rising revenue streams. Their growth prospects are supported by expanding asset portfolios and strong market demand. “Public insurtech companies are focusing on revenue growth and optimizing their financial frameworks to increase cash flow,” the report states. “The growth potential for these companies is driven by increasing revenue opportunities, broadening asset bases, and a robust market for their services.” In summary, while global insurtech funding saw a decline in 2023, the industry’s focus on GenAI, digital process management, and connected insurance technologies is setting the stage for a dynamic and forward-looking 2024.

Business

Insurer Secures Unanimous Supreme Court Victory in New York Choice of Law Dispute

In the world of sports, a clean sweep, a shutout, or a perfect game is the ultimate achievement. In the legal arena, a unanimous decision from the U.S. Supreme Court is equally rare and significant. In a notable legal triumph, Great Lakes Insurance SE achieved a unanimous 9-0 victory in the Supreme Court on February 21, 2024. This victory follows a protracted legal battle that began in the District Court of Pennsylvania, advanced to the U.S. Court of Appeals for the Third Circuit, and culminated in the Supreme Court’s decisive ruling. Background of the Case: Great Lakes Insurance SE v. Raiders Retreat Realty Company The heart of the dispute was the insurance contract’s clause selecting New York law to govern any future legal conflicts. Although the financial implications of this case were relatively minor compared to the broader marine insurance industry, the insurer’s determination to uphold a crucial maritime legal principle has significant long-term implications for marine insurance. Faced with the insured’s counterclaims—including allegations of breach of fiduciary duty, insurance bad faith, and violations of Pennsylvania’s Unfair Trade Practices Law—the insurer was confronted with serious risks. Such claims could lead to the shifting of attorney’s fees, treble damages, and more, which might normally encourage insurers to settle rather than risk pursuing justice. However, Great Lakes Insurance, supported by The Goldman Maritime Law Group, opted to challenge the Third Circuit’s decision and seek clarity from the Supreme Court. Supreme Court Ruling: A Landmark Decision In a landmark ruling, Justice Brett Kavanaugh affirmed that choice of law provisions in maritime contracts should be upheld by default. This ruling is a major victory for establishing a consistent federal standard in maritime law and avoiding a patchwork of state laws that could complicate marine insurance disputes. The Supreme Court’s decision overturned the Third Circuit’s earlier judgment, which had questioned whether Pennsylvania’s public policy concerns might override the insurance contract’s choice of New York law. By upholding the New York choice of law clause, the Supreme Court eliminated the extra-contractual bad faith claims under Pennsylvania law, thereby ensuring that the dispute could be resolved based on the merits of the insurance claim itself. Significance of the Supreme Court’s Decision This ruling represents a significant advancement in maritime law, affirming that choice of law clauses in maritime contracts are generally enforceable. The decision establishes a clear, uniform legal framework for resolving maritime contract disputes, which will streamline the process and ensure fair adjudication of future insurance claims. Justice Clarence Thomas’s concurring opinion was particularly notable for its criticism of the 1955 Wilburn Boat v. Fireman’s Fund Insurance decision, which had previously influenced maritime insurance law. Thomas argued that Wilburn Boat was incorrectly decided and stressed that a uniform and enforceable set of rules is essential for the development of maritime law. Impact on the Marine Insurance Industry The Supreme Court’s decision sets a “bright-line” rule affirming that choice of law clauses are valid unless there is a strong argument against the selected jurisdiction. By endorsing New York’s insurance laws as a reasonable choice, the ruling supports a more consistent and predictable legal environment for marine insurers. This decision represents a major step forward in maritime law, helping insurers better assess risks, determine premiums, and ensure fair and efficient resolution of maritime insurance disputes.

Now is the time to update your insured property values