Insurance Appraisals

What is an insurance appraisal?

An insurance appraisal is the current replacement cost estimate of the damages suffered to an insured asset.  When a policy holder or insurance company can not agree to the value of a loss, either party may execute the Appraisal Clause which is contained within most insurance policies.  Once the appraisal clause has been triggered, the policyholder and the insurer will then pick independent third parties to represent each of them in determining the applicable scope of work and its associated value. The selected appraisers will then deliberate over the values in dispute and forward unresolved matters to the umpire who will ultimately decide and award the final value of the claim. This method of settling an insurance claim is far less expensive and time-consuming than the filing of a lawsuit.

Is that the same as a real estate appraisal?

No, it is a completely different type of appraisal.  A real estate appraisal determines the current market value of a property.  An insurance appraisal estimates the current costs of repairs and damages to a property.  In other words, an insurance appraisal determines the true costs that will be incurred to replace an insured loss.  Land values and market conditions are not typically part of an insurance appraisal.  In a further effort to explain let’s apply a theoretical scenario.  We are all aware of the troubling economic times that our country has been recovering from. Let’s assume you’ve constructed a new commercial building for a cost of $5,000,000 in 2000.  In 2008 you performed a real estate appraisal and because of the suffering economy, there are a few vacant buildings in the business park that you are located.  You’ve lost a tenant and the market is currently saturated with commercial three story buildings such as yours.  As a result, your building is now valued at $3,000,000.  Now imagine a devastating fire that completely destroys your building.  Would the $3,000,000 real estate appraisal be what you are due to rebuild?  No, because this was a valuation performed on your properties market value and not its reconstruction value.  The costs to demolish, redesign to current building codes, permit and construct a three-story office building are more inclusive than the value of that same building as compared to the real estate market.  Reconstructing the same exact building that was lost in addition to the required building code upgrades may be far greater than the original $5,000,000 that it took to build it.  The complete costs to rebuild your asset is what you are insured for.

What is involved in an insurance value appraisal?

All insurance appraisals begin with an inspection of the documents at the basis of the disputes between the insurer and insured. Typically our appraisers will meet with a property manager or an authorized representative of the property to review specific details and discuss related concerns. After the document review and initial meeting, we will inspect the insured asset and analyze its construction type, finishes and identify its unique loss characteristics. We will then photograph, measure and quantify the assets that are in dispute.

A complete appraisal report will then be submitted to the opposing appraiser who will then review the documents and materials contained within each others report.  The two appraisers will attempt to settle the differences and identify the areas that they cannot agree upon. Those differences will then be submitted to an umpire for final review.  Typically, a settlement is reached when any two of the three persons agree.