Why Insurance Appraisals are Critical in Today’s Property Market

February 15, 2024

Insurance Appraisals

The world of property insurance has been significantly impacted by a myriad of factors, from construction cost spikes to unprecedented CAT losses to global events like the COVID-19 pandemic and armed conflicts. These events have reshaped the way insurers view and rate risks, making it essential for property owners to maintain accurate data and valuations on their exposed assets. Keeping abreast of these changes ensures that appraisals reflect current market realities.

Construction Markets Dictate Changes In Appraisal Practices

The relationship between construction markets and appraisal practices is intricate and constantly evolving. As market conditions shift, so do the approaches to property valuation. There are a myriad of factors which which need to be considered when contemplating your next property renewal, including: 

Current indications suggest that the market will continue to evolve, influenced by various economic and societal factors. Staying ahead of these changes requires a keen eye on market developments and an understanding of how they might impact property valuations.

Key Strategies for Effectively Managing Your Property Valuations

Amidst the constant flux in the market, property owners need to stay informed and responsive to these changes to ensure their valuation practices remain effective. Our team at HCA Management emphasizes several strategies when performing property appraisals for large property owners / insurers: 

  1. Frequency of Appraisals: Adjusting the frequency of property appraisals to ensure up-to-date valuations. We recommend a 3-5 year appraisal cycle in response to market changes.
  2. Appraisal Thresholds: We find that a more aggressive approach to appraisal thresholds can lead to more accurate overall valuations while resulting in a more complete SOV for your next renewal.
  3. Type of Valuation Methodology Used: At a recent conference, a nationally-recognized speaker was quoted as saying “Replacement Cost for your property is what your policy says it is!”  Exactly… knowing precisely what your policy covers (or does not cover) is the first step in developing the right valuation plan.
  4. Annual Trending of Values: Ensuring the annual adjustment (trending) of property values to reflect current market conditions. This involves using consistent and reliable resources to adjust property values yearly. Options for identifying and/or subscribing to these sources of data have evolved dramatically in recent years. Employing the correct ones is critical to maintain accuracy between onsite appraisals.
  5. Data Accuracy and Completeness: Emphasizing the importance of accurate and comprehensive data collection, especially secondary data like roof details, which are increasingly important for underwriters and reinsurers. Adapting new technologies and methodologies in the appraisal process helps with this. Annual reviews of your SOV with brokers, underwriters, reinsurers will also assist in identifying the most important components for eventual CAT loss modeling.

Understanding the intricacies of property appraisals has never been more crucial. Navigating the complexities of these issues in today’s market requires a blend of adaptability and precise data handling, as well as effective communication among everyone involved. At HCA Asset Management, we understand market changes that impact property values, and draw upon decades of experience to help our clients navigate these challenges effectively.