New Business

Although it is a good idea to look at all property before writing a policy, the agent in a valued policy state has an extra responsibility. Most valued policy laws say that the value as written is agreed by the company, agent, and insured to be the total value of the property insured, at the time the policy is written.

The agent should obtain at least two photographs of the property (front and rear) and complete a replacement cost estimator. Most insurers make estimators available to their agents at no charge. The most common method for determining the replacement cost of a building is based on the square footage of the building with indications as to custom features such as kitchens, marble floors, and other high end features. The unit count, which at one time was popular, is considered to be inaccurate for today's homes.

Obtaining the square footage of a building may be somewhat difficult, but worthwhile in arriving at a final replacement cost. Although easy, it is not advisable to just “walk off” a building to determine its dimensions. A good method is to buy a “wheel.” This wheel is similar to a pedometer that measures how far a person walks. By placing the wheel on the ground and pushing it along side of a building, it will give the length of each side. Once all the dimensions are figured, the square footage is easily calculated.

It is also possible that the square footage may be available from the county department responsible for recording property transfers or property taxes. If so, obtaining that information is worth the usually nominal fee charged by the county.

Once the square footage is calculated, the agent just plugs it into the cost estimator provided by the insurer. This gives a base replacement cost. Added to that are amounts for various features such as central air conditioning, built in appliances, etc. That total is multiplied by a “location factor” which will increase or decrease that initial amount based on building costs in that particular ZIP code.

The evaluation should always be discussed with the insured. He or she should be given a copy of the evaluation and photograph, with the agent's file documented accordingly. Any questions by the insured should be noted and, if the insured disagrees with the evaluation, the agent should work with the insured until a mutually agreeable replacement cost is determined. It should be stressed to the insured that replacement cost and the value of the home on the market are two different things, especially in today's economy. A home may sell for much less than the cost to rebuild it should there be an extensive loss.

Existing Business

Most agents are far too busy trying to generate new business and service existing accounts to take time to look at properties between renewals. However, it is the agent's duty to maintain his book of business and protect his insureds. If there is a claim, that may be a good time for the agent to review the amount of insurance on a piece of property. Also, it is a good idea to advise the insured when writing the policy, that he or she should report any changes in the property to the agent in a timely fashion. Many insureds do not realize that finishing off a basement, adding a patio or room may affect the replacement cost of their property.

Renewals

If an agent does not keep an expiration list in the office, such a list is probably available from the insurers he or she represents. Sixty to ninety days prior to renewal, the agent should once again look at the insured property. This inspection certainly does not need to be as thorough as the initial one, but the agent should look for certain things: the addition of a new part of the building; the deletion of part of the building; the installation of improvements and betterments; whether or not the building has deteriorated; has the neighborhood changed so that insuring to 100 percent of value now creates a moral hazard; etc.

Benefits

The suggestions made in this article may sound like a lot of work. However, it will pay off in the long run with satisfied clients, contented insurers, and a better image for the agency. By making sure that a piece of property carries enough (but not too much) insurance, the agent will have done his or her best for the insured in case of a loss, and for the insurer in case of a total loss. In a valued policy state, if the agent has done his or her job properly, the insurer can be certain that it will not be overpaying for total losses.