Scott Simmonds - Insurance Newsletter

Insurance from an Unbiased Point of View
www.ScottSimmonds.com

August, 2007
Issue #87 - Since 2000

How Is Property Valued?
The value of your buildings, contents, and other business property can be determined in many ways:

--Real estate value (the price you could sell at)
--Tax assessment value
--Replacement cost
--Book value (purchase price minus depreciation)
--Actual cash value (replacement cost minus depreciation)

Two forms of valuation are used in property insurance. The traditional (meaning old-fashioned) valuation is "actual cash value." The term is defined by most policies as replacement cost minus depreciation. In some states, you must also consider market value in the determination of the actual cash value of property.

Replacement cost valuation within property insurance looks at the replacement cost of a building. How much will it cost to rebuild the building if it burned to the ground using the current cost of materials and labor?

Ninety percent of the time, you want your insurance to be written on a replacement cost basis. The policy agrees to pay the full cost of reconstruction without deduction for depreciation.

In rare instances, you will insure a building for its actual cash value. My recommendation is to carry actual cash value coverage only when you would not replace a building after a fire, a relatively rare plan.

Personal property also can be valued at replacement cost or on its actual cash value. Again, in most cases replacement cost is the most desirable valuation.

Actual Cash Value – Building Example
Suppose that a 30-year-old building would cost $1,500,000 to replace. The structure is well maintained and in no way obsolete. The roof was replaced last year. Plumbing and electrical have been updated recently. A fire destroys the building.

The insurance company adjuster determines that 20% depreciation is called for. She issues a check to the insured for $1,500,000, less 20%, minus the deductible.

Actual Cash Value – Personal Property Example
Suppose that a pipe in the ceiling of a bank branch office bursts, damaging a conference table, chairs, audiovisual equipment, and several computers. The cost to replace the items is $35,000.

The insurance company adjuster determines that the equipment was obsolete and the furniture was in poor repair. Based on photographs and interviews it is determined that 60% depreciation is in order. You are offered $14,000 (40% of $35,000), less your deductible.

Simmonds On Bank Insurance

While I work with many different industries, banking is one area of specialty. I'm in the final phases of getting my book, Simmonds on Bank Insurance, ready for publication.

The work covers all aspects of bank insurance - bond, d&o, property, workers' comp, mortgage impairment, forced placed property, liability, and e-banking. I include sections on selecting agents, the bid process, and a glossary. At over 220 pages, the book is designed to be a practical and useful reference for bankers who manage their bank's insurance program.

Several bankers around the country have reviewed drafts and have offered suggestions. Many thanks to those who have helped. Everyone has agreed its a great tool.

Send me an email if you'd like to be put on the list for pre-publication pricing - Scott@ScottSimmonds.com.

Tentative publication date is October 1.

Podcast on Insurance Issues Faced By Law Firms

Ed Poll of LawBiz Management interviewed me a few weeks ago on the insurance issues that law firms should consider as they manage their insurance. Listen to the session here.

Workers Comp Tool - Looking for Guinea Pigs

The experience modification is a big part of the final premium you pay for your workers' compensation. I've developed a simple tool that will evaluate the inner workings of your mod. The software provides detailed information and benchmarks so employers can measure their performance.

I'm looking for a few companies to test this out. I've used it with several clients. I'd like some outside feedback. Let me know if you're interested - Scott@ScottSimmonds.com. For helping me out, I'd be glad to spend some time with you on how you can improve your future experience modification.

Maine and Other Stuff

On August 15, I became a grandfather. Some would say that I'm a step-grandfather. My wife, Kathy's son, Brandon and his wife, Amanda, are the proud parents of Brooklyn Audie; 9 pounds, 3 ounces. How amazing!

Do You Have The Right Insurance? Contact me to discuss an unbiased review of your insurance program. Do you have the right coverage? Can your policies be fine-tuned to improve the protection? Can changes be made to ease the administrative burden insurance causes? Are you getting the service you should from your broker? I can help. Remember, I don't sell insurance so I'm unbiased.

Need A Speaker? I'm pleased to speak to trade, business, or service associations about insurance topics. See my speaker's page.

Please Forward This Newsletter To Your Business Associates

Scott Simmonds, CPCU, ARM
Insurance Consulting
Phone 207-284-0085
Fax 802-992-4027
Scott@ScottSimmonds.com
www.ScottSimmonds.com

See My Insurance Blog - www.InsuranceBuzzer.com

Comments regarding insurance policies or products in this newsletter do not constitute an endorsement. I accept no fees of any kind from any company mentioned in this newsletter.