Ask the Construction Consultant: Building Limits

How can I help my commercial lines customers better understand the need to increase building limits in today’s economy?

Building valuation is a hot topic in the insurance industry, and for good reason. For more than two years, the construction industry has been facing unprecedented increases in material costs, supply-chain bottlenecks, and a tight labor market. 

These factors need to be contemplated in creating building valuations. In today’s market, I believe a 20 percent profit and overhead in a building valuation is not out of line due to the increased soft costs that projects incur. 

It's also important that you consider other factors that may increase the value or replacement cost of a building. For instance, does it have unique and ornate features that may increase the value? Are you accounting for permanently attached equipment such as walk-in coolers and freezers, canopies, awnings, or stained-glass windows? These additional features can be included in our CoreLogic calculation if selected when processing the valuation. 

Also, certain areas of the country are seeing even greater construction cost pressure. For instance, highly desirable locations and resort areas have higher building values and higher construction costs due to both demand and the expectation of higher quality construction materials and methods requiring the use of expert tradesmen and artisans, additional approval fees, and more. This is additional justification for considering higher contractor overhead and profit as well as architectural and engineering fees in creating a building valuation.

Now, the good news is that many producers I have spoken with say their customers are requesting updated building valuations more frequently. However, other customers may balk at significantly increased building valuations.

Acuity can help agents explain the increase by providing data-backed building valuations. Our underwriters regularly review building limits on our policies to make sure they accurately reflect today’s costs to avoid underinsuring a building and can provide agents with this information. We also offer several endorsements to provide comprehensive coverage for commercial property. 

As difficult as these conversations with customers can be, correct insurance to value is important to ensure customers are fully protected. Adequate limits also help agents avoid E&O situations and improve underwriting results on their book of property business.

John Lack is Acuity’s Construction Consultant. Have a question for John? Just email him.