Imagine your ministry is expanding and you are observing how it positively impacts everyone around you. Suddenly, you learn that one of the key buildings of your ministry is destroyed. You think this is a small setback; after all, you have great insurance coverage through Adventist Risk Management, Inc. (ARM).Then, you learn the policy will only partially pay to rebuild. Now you are devastated. Not only are you going to have to deal with a time-consuming construction process, but you also are losing funds important to your ministry.
No one wants to be in this position! So, how did this happen and what can you do? How do you make sure you avoid this scenario? Knowledge and planning are powerful tools, and ARM is here to help.
First, it is important to note that the current economic environment has significantly changed. Recently, we’ve seen dramatic increases in the cost of lumber, steel, and labor, as well as overall inflationary pressures. The geopolitical situation also adds challenges, contributing to elevated energy prices. If a loss should occur, all of this directly or indirectly affects the cost to rebuild or repair your property with comparable quality and materials.
It’s also important to know that insurance policies will compensate, but only to a certain degree. Even the inflationary protective provisions will run into a limit at some point. For example, the commercial property policies that ARM sells in the United States have a beneficial provision which will provide additional limits beyond the limit scheduled on your policy.
Specifically, this means that up to an additional 25 percent per location, but up to $2,000,000 per location, is provided by the policy. (Only locations with replacement cost valuation condition are considered eligible for this provision. Also, multiple buildings could be considered one location. Careful consideration is needed before relying on this provision). One might think this should be enough protection for the annual term of the policy. The problem is that a lot of locations have not been evaluated by our clients for many policy terms. Yes, for a very long time.
So, what can be done ahead of time?
- Thanks to an automatic Marshall & Swiftâ estimator, ARM has the capability to assess and identify buildings that may be potentially underinsured. These indications are not as precise because they are based only on information that is needed to price the policy and do not include extensive information needed to determine the true replacement cost. While not a perfect tool, these estimates are able to identify those buildings that need further investigation, and that is a good starting point. Your account executive can provide you with a listing of those potential discrepancies.
- A great practice is to adopt an annual evaluation of the current situation in your local commercial real estate market. This includes cost of supplies, materials, labor, and overall economic trends. That way you will determine a percentage figure to apply to all buildings on your policy at renewal. Remember to focus on what it would cost to rebuild, not what you can buy or sell the property for in the real estate market. It is very important not to overlook this process at every renewal, without exception. Making small adjustments each year will keep you at the right value rather than having to make big adjustments when this hasn’t been addressed in a number of years.
- ARM pays for a vendor called ISO/Verisk to conduct surveys every five years for every church, school, camp, or other building in the United States. A specialist visits your property and evaluates the structures, using much more detailed inputs compared to the process in item 1 (above). It is very important to analyze the findings of such surveys, especially to zero in on the replacement cost figure found on that survey to compare it to the limits scheduled on your policy so you can take appropriate action to correct the limit as soon as possible.
These steps will help you address the problem of being underinsured and help you set appropriate replacement cost limits for your properties, which is always a moving target. If you do not know where to start, item 1 (above) is a good starting point. Ultimately, item 2 will secure that you are moving in the right direction, while item 3 can verify if you are where you need to be. The actions outlined above will help us partner together to be faithful stewards of the resources entrusted to us and further the mission of the Seventh-day Adventist Church.
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