insurance for property managers

A Comprehensive Guide to Insurance for Property Managers

May 17, 2023

When purchasing or renewing commercial property insurance, property managers need to ensure such coverage includes accurate property valuations. Doing so can make all the difference in providing sufficient protection and preventing property loss. That’s where conducting accurate value calculations comes into play.

Insurance for Property Managers: Mitigating Liability and Protecting Your Assets

Businesses may end up with inaccurate values for a wide range of reasons. Whether it stems from leveraging ineffective methods, intentionally underestimating costs in efforts to secure lower premiums, or being impacted by factors outside of their control. Regardless, such inaccuracies are all too common. An estimated 75% of commercial properties are underinsured by 40% or more, according to industry data.

With these findings in mind, it’s evident that businesses need to take commercial property valuations seriously.

How to Determine the Value of Your Commercial Property

An accurate calculation is as close to an equal ratio as possible between the amount of insurance a business obtains and the estimated value of its commercial property—thus ensuring adequate protection following property losses.

However, it’s important to keep in mind that a property may be assigned several different values, including the following:

  • Market value—This value is an estimate of what a property could be sold for in the present real estate market.
  • Assessed value—This value is an estimate generated by the municipality where a property is located.
  • Replacement value—This value is an estimate of the current cost to replace or rebuild a property.

Generally, insurance professionals recommend using the replacement value of a property to concur accurate value estimates. Common approaches to accurately estimating this value include getting a property appraisal. While appraisals often require more time and resources than other methods, they’re largely deemed the most thorough.

Factors Impacting Property Value

  • Direct and indirect expenses
  • Property age
  • Building codes
  • Property accessibility
  • Unique features

Consequences of Property Undervaluation

Businesses could face several ramifications if they undervalue their properties. Namely, businesses may lack sufficient coverage following property losses, forcing them to pay out-of-pocket expenses to fully rebuild. Depending on the severity of the associated rebuilding expenses, paying these costs out of pocket could lead to major financial setbacks or bankruptcy.

Ways to Improve Property Valuations

Here are some additional best practices businesses can review to help ensure accurate property valuations:

  • Find a reputable appraiser. Third-party appraisals are considered the gold standard by insurers, as they offer reassurance that calculations were conducted by experienced professionals. As such, it’s vital to secure a trusted and reputable appraiser.
  • Seek additional resources. In addition to getting an appraisal, there are additional resources, guides, and validated tools available to help ensure accurate property valuations. Specifically, the Marshall & Swift Valuation Service Cost Manual is a tool that is widely accepted by insurers.
  • Consult other parties. Determining the value of a property should be a team effort. Make sure to compile a variety of property data from multiple qualified parties when making valuation decisions.
  • Make updates as needed. The value of a property is always changing. This means you must update property valuations regularly. For instance, appraisals should be conducted at least every three to five years. Take note that property valuations may need to occur even more often. The frequency will depend on factors like changing property exposures, altered operations, building upgrades or modifications, the implementation of new technology or equipment, shifting market conditions, and property construction trends. It’s best to work closely with trusted insurance professionals when updating property valuations to maintain proper coverage.


Additional Resources for Property Managers: