property manager and board member should recognize the need to provide
proper insurance coverage for their association. Insurance appraisals
are often used to provide replacement cost values to accurately
insure the property. Many managers and board members have some basic
questions regarding what insurance appraisals are and what they
contain. The purpose of this article is to answer some of the most
frequently asked questions about them.
It must be understood
exactly what an insurance appraisal is. In basic terms, it†is
a replacement cost analysis that provides an accurate estimate of
the amount of insurance required to replace each structure and amenity
insured exactly as it stands when the report was prepared. It should
provide both a hazard and flood insurable value (if the association
is located in a flood zone). Simply defined, the hazard valuation
is used by an insurance company to determine the Insurable Replacement
Cost of a building if it is damaged by perils other than flood (e.g.,
fire, windstorm, pipe breaks).
property managers and board members are familiar with hazard coverage,
there seems to be several questions regarding flood coverage. It
must be noted that the insurable values for flood coverage are higher
than for hazard. The reason for this difference is that most insurance
companies do not include coverage for the foundations or unit interiors.
FEMA, which regulates most flood coverage policies, usually recommends
the inclusion of unit interior finishes and foundations in the insurable
is aware of the flood damage that can be caused by storms or hurricanes.
The fact that the heaviest damage done by storms is not due to rising
water but storm surge that can damage the foundation of the structure
is not always recognized. There have been cases where the building
seemed to have survived the storms, only to have building inspectors
discover foundation and structural degradation so severe that the
building had to be demolished and rebuilt. The flood policy written
through NFIP does provide coverage for the foundation, not just
the lower floors.
Why should a
condominium association have an insurance appraisal performed for
their property? The primary reason is to accurately inform the property
manager, board, insurance agent and unit owners of the correct amount
of insurance coverage needed to replace the structures on the property
in the event of a catastrophic loss. Without an appraisal there
is a risk of the structures being under- or over-insured. Underinsuring
a property places the association at risk financially should there
be a catastrophic loss resulting in structures needing to be rebuilt.
With insurance premiums at the highest level ever, being overinsured
will result in an association paying unnecessary premiums. An appraisal
also provides an unbiased third-party valuation that demonstrates
due diligence on the part of property managers, board members and
their insurance agents.
insurance appraisal provider is a major decision on the part of
the property manager and/or board. How does an association determine
which provider is best for them? There are several questions that
can be asked.
stable is the provider? This can be determined by
asking how long the company has been in business. Generally, a company
that has been in operation for a number of years has proven itself
in the marketplace.
experienced are the appraisers? The appraisers should
have a number of years experience in construction cost valuation
and should be knowledgeable of construction cost data in your specific
the provider a large company or a oneman shop? Should
your appraiser retire, become ill or leave the business, there should
be a guarantee of continuity of service. In choosing a larger provider,
there will always be someone to assist you. When it is time to update
your appraisal, the cost is much lower by using the same company.
a sample report be provided? As a client, you have
the right to see the type of report you will receive.
method does the appraisal company use to determine the insurable
values? The company should provide a thorough onsite
inspection and utilize the construction plans for each improvement
on the property in order to determine accurate estimated insurable
D. Riemann is Certified Construction Inspector #6206 and is the senior
appraiser at GAB Robins North America Inc.
Michael Sanders, CPCU, CIC, AAI, ARM, AMIM, ASLI, ARe, AIC, is president
of Sanders Insurance Management Co. Inc. and is a Florida resident
countersigning agent for Joseph Held Co. Inc.