ADJUSTERSINTERNATIONAL.COM 3 An indication of the growing recognition of demand surge as a post-disaster cost factor came in 2012 with the introduction of a standardized commercial, an organization that develops standardized policy forms used as the basis of policies issued by most property/casualty insurers. The endorsement, titled “Increase in Rebuilding Expenses Following Disaster,” provides for additional insurance beyond a policy’s limits in situations when the costs of rebuilding a structure damaged by a covered peril during a federally or statedeclared disaster increase as a result of the disaster and exceed the policy’s applicable limit. Insurers are allowed to adjust policy limits (and corresponding premium) to reflect any improvement or additions that increase the replacement cost of the building by 5 percent or more. ACV Loss Settlement Fortunately, property risk professionals do not have to rely solely on construction cost calculations to implement adequate property coverage. Careful attention to policy provisions over which risk counselors and their clients have more control will pay dividends at the time of a loss. Next in importance to the building property limit is the loss settlement condition, which comes down to a choice between two basic approaches: actual cash value and replacement cost settlement. Actual cash value (ACV) loss settlement has the benefit of costing less in premium than replacement cost valuation. Public concern over underinsurance generally does not extend to ACV policies, since they are not intended to cover the cost of reconstructing destroyed buildings. That’s not to say it’s impossible to be underinsured with an ACV policy, however. That’s because determining the actual cash value is not the last word in an ACV settlement; the building property limit is. Actual cash value will be determined at the time of loss, but loss recovery will be subject to a pre-determined limit —which could be less than the ACV. Except in unique arrangements, ACV provisions do not automatically increase a building ... property risk professionals do not have to rely solely on construction cost calculations to implement adequate property coverage. WHAT TO WATCH FOR Does the building property limit under ACV loss settlements reflect up-to-date construction cost appraisals?
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