Why Review Your Commercial Building's Replacement Cost?
The number on your insurance policy may not tell you what your building would cost to rebuild today.
It may come from an old valuation, a rough estimate, a prior insurance value or a number that has simply been increased over time.
A replacement cost review helps you find out:
Where the number came from
When it was last reviewed
What building information was used
What was assumed
What costs are included
What may need to be updated
The goal is not to produce a bigger number.
The goal is to know whether the number on your policy still makes sense.
What is the number based on?
Start by finding the valuation or calculation behind your insured value.
If there is no report or clear calculation, you may not know how the number was produced.
Ask:
What building and area does it cover?
When was it prepared?
Has the building changed since then?
Were additions or renovations included?
What construction details were confirmed?
What was assumed?
What costs are included?
These questions turn an unknown number into something you can actually review.
Is replacement cost the same as the property’s value?
No.
A building’s sale price, market value or municipal assessment answers a different question.
Replacement cost asks what it may cost to rebuild the building within the scope of the valuation.
Land is not part of the building replacement cost.
The valuation should also explain whether site work or other costs are included.
Using a purchase price or property assessment as the insurance value can give you the wrong number if it was not prepared for that purpose.
What can change after a valuation?
Buildings change. Construction costs change. Your valuation may need to change too.
Review the value when:
The building is renovated or expanded
The use of the building changes
The building area was wrong or has changed
New construction details are identified
Construction costs have moved significantly
Your policy is coming up for renewal
But there is an easier way to manage this than starting from scratch every year.
Do you need a new valuation every year?
Not necessarily.
The building itself may not change much from year to year. Its replacement cost can.
That is why Remit takes a different approach.
We assess the building once, then keep the replacement cost current as construction costs change.
Our initial valuation looks at the building’s actual characteristics and the costs needed to rebuild it.
After that, we can update the value as construction costs move each quarter. You do not need to start the valuation process over every time costs change.
This gives you a current replacement cost value without needing a new site visit every quarter, assuming the building itself has not materially changed.
One site assessment. Ongoing updates. A value that keeps moving with construction costs.
Why does this matter to your insurance?
Your replacement cost value can affect how much insurance you choose to carry.
Some policy rules also use the values behind your insurance.
For example, a margin clause can limit the amount that may be paid for a location based on the value reported for that building.
A co-insurance rule can reduce a claim payment when the amount of insurance carried is below the amount required by the policy.
The exact rules depend on your policy.
A better replacement cost valuation does not change your policy or guarantee a claim payment. It gives you a better basis for the insurance value you report.
What should you gather for a review?
Information | What it helps clarify |
|---|---|
Existing valuation and date | How old the current number is and how it was calculated |
Building address, use and area | Which building the value describes |
Drawings and renovation records | Changes that may need to be included |
Unusual building systems or site features | Details that may need a closer look |
Insurance renewal date | When the updated value is needed |
You do not need to have every document before starting a review.
If something is missing, identify what you have. A valuation expert can determine what additional information or inspection may be needed.
What happens if the building changes?
Quarterly cost updates work best when the building itself has not materially changed.
If you add space, renovate the building, change its use or make other significant changes, the valuation should be reviewed.
Remit can identify when a new assessment may be needed rather than simply continuing to update an old value.
A number on a policy is not the same as a current value
Your insurance policy needs a number.
That does not mean the number is current, well supported or based on the right information.
A replacement cost review helps answer a simple question:
If we had to rebuild this building, does the value on our policy still make sense?
Remit takes it one step further.
We assess the building once and keep the replacement cost moving with construction costs each quarter, so you are not starting over every time the market moves.
For related reading, see Can you rely on an automated replacement cost estimate?.
Remit RCV prepares independent insurance replacement cost valuations for commercial buildings.
Send us the property address and we will take it from there.
