Business Valuation Review a.k.a Business Valuation Appraisal
Obstacle or Opportunity for a Property Insurance Program?
The most common defect in a business’ property insurance program – usually discovered after the loss and most often not considered when there is a review of the required coverage values prior to a loss – is the insured’s failure to report and maintain values that correspond to the costs they are likely to incur in replacing lost property and to understand the basics of the valuation clauses in their insurance policy. Some of the most frequently misunderstood valuation terms include: Actual Cash Value, Replacement Cost, Reproduction Cost, Agreed Value and Selling Price/Market Value.
Not surprisingly, the misunderstanding of these terms frequently causes establishment of incorrect values. Insureds often are providing values based upon mostly stale data. How many brokers can say that all of their clients have had a current property insurance business valuation review or a business valuation appraisal? How often do brokers see their clients simply use acquisition costs for property values?
The insured’s misunderstanding of terms is often exaggerated by the time constraints imposed by the renewal process. In most cases, they merely guess at the time of the review. There are, however, a number of things brokers for the property insurance program can do to help their clients avoid the “valuation gap,” by planning for a business valuation review or business valuation appraisal.
Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes. Wikipedia
This issue of Adjusting Today explains how the valuation gap can be an obstacle to a client’s stability and success. Or how it can be an opportunity for the broker to help them understand the importance of an accurate property insurance business valuation review, or a business valuation appraisal. To do so will help them to be properly insured so that they can recover fully at the time of a loss.
Adjusters International can Help!
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Adjusting Today is provided free of charge as a public service by Adjusters International, Inc., disaster recovery consultants. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases.
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