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State Office of Risk Management 1 Insurance Appraisals – Why Bother?

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Presentation on theme: "State Office of Risk Management 1 Insurance Appraisals – Why Bother?"— Presentation transcript:

1 State Office of Risk Management 1 Insurance Appraisals – Why Bother?

2 Changes in Underwriting  Improved underwriting discipline dictated by the markets  Increased emphasis on a consistent, disciplined approach to underwriting: Exposure data analysis (valuation and COPE data) Loss experience analysis  Increased focus on geography  Appraisal requirements for insured properties  Ever-changing catastrophe models affect expected loss predictions (PML and AAL)  Carriers are requiring more data and many standard markets are cutting back capacity, especially in high hazard areas. State Office of Risk Management 2

3 Questions to Ask Yourself  Are you confident that your statement of values accurately reports all of your insurable property?  Have you kept pace with the change in assets within your facilities?  Do you know where your properties’ data came from?  How well was your statement of values received when last marketed? Did you receive pushback from underwriters? State Office of Risk Management 3

4 Cost Trends  1986-2003 (2% inflation/increases per year)  Significant construction inflation in 2004 (10.5%)  Slowing from 2005-2007  Commodities caused drastic increases in 2008  Prices fell back with economy in 2009  Inflation stabilized in 2010-2011  Most recent 12 months: 3%  Outlook for remainder of 2014: 2%  25% - 30% inflation in seven years State Office of Risk Management 4

5 COPE Data Defined  Underwriters are interested in receiving more than just a valuation, they also want COPE data: Construction (frame, brick, masonry, masonry veneer, etc.) Occupancy (how the building is being used) Protection (quality of the responding fire department, adequacy of water pressure & water supply, the presence or absence of smoke alarms, etc.) Exposure (risks of loss posed by neighboring property or the surrounding area -- takes into consideration what is located near the property, such as an office building, a subdivision or a fireworks factory) State Office of Risk Management 5

6 Why is COPE Data Important?  Used in catastrophe modeling programs Applied to individual insureds and insurance company property portfolios Uses historical data ‐Financial ‐Meteorological ‐Engineering Estimates losses for catastrophic (CAT) events Adopted by insurers and rating agencies in CAT management and financial analysis models Defaults to worst-case scenario if data is not available State Office of Risk Management 6

7 CAT Risk Modeling: True Impacts  The entire insurance industry is impacted by CAT Modeling, no matter which software package is used: RMS AIR EQECAT Proprietary/blended models  Models are constantly updated State Office of Risk Management 7

8 How do Insurance Companies use CAT Modeling?  The goal of CAT modeling is to lend consistency to the overall cost of risk  Manage aggregate exposure over their entire portfolio of risk  Purchase re-insurance protection  Underwrite individual risks (impact on the overall portfolio of risk)  Charge the appropriate premium for the risk State Office of Risk Management 8

9 How do Insureds use CAT Modeling?  See how the insurance industry views your risk  Have an idea of your expected losses and/or your Probable Maximum Loss (PML)  Identify high hazard locations  Aid in determining/purchasing “adequate” limits State Office of Risk Management 9

10 Primary COPE Data – most crucial information  Occupancy type  Number of Stories  Class of construction  Year of construction State Office of Risk Management 10

11 Secondary COPE Data  More detailed structural / location specific data elements, specific to Windstorm/Hurricane Earthquake  Primary COPE data must be reported for the Secondary factors to apply and matter  The concern relates to maintenance of the building envelope during an event to protect the contents: How solid are the walls? How strong is the roof & covering? How susceptible to peril are the contents? State Office of Risk Management 11

12 Benefits of Accurate COPE Data  CAT modeling for hurricanes and earthquakes has become an essential resource for all parties in the property insurance marketplace  Proper inclusion of data has significant impact on modeling results  Detailed info about a building’s construction and usage provide a predictive image of how the building will react in the event of a catastrophe  Accurate data can help the underwriter, broker and insured better understand true exposures  This knowledge of expected losses helps insureds and insurers set acceptable program structure and sublimits  Better data leads to better decisions State Office of Risk Management 12

13 Actual Renewal Results  Additional underwriting data has produced significant reductions in the PML and AAL estimates and lower premiums for many accounts  Additional underwriting data and has made it easier to buy more insurance coverage for many accounts  Additional underwriting data can make accounts more attractive to insurance carriers – increased competition can yield better results  Increased data can also help significantly post-loss: Eliminates argument on building valuations or condition of building State Office of Risk Management 13

14 Insurance Appraisal of Buildings – Methodology – How it’s done Component-Based Appraisal Methodology  Conduct an on-site inspection and appraisal of every structure  Measure dimensions/perimeter  Review as-built plans  Obtain GPS coordinates  Gather descriptive and locational details  Determine construction components  Review building services, interior and exterior finishes, etc.  Photograph each building  Develop replacement cost using local construction cost resources  Report values and COPE (primary and secondary) data by building Unique Structures  Universities (stadiums, libraries, hospitals, research facilities, historically significant)  Water and Wastewater Treatment Plants  Airport Facilities  Historic Properties State Office of Risk Management 14

15 Primary and Secondary Windstorm Data that is Collected Primary COPE Data  Occupancy  Address  Class of construction  Year of construction  Square feet of space  Number of stories  Average story height  Wall construction  Roof construction  Heating system  Cooling system  Fire alarm  Sprinklers  Entry alarm  GPS coordinates Secondary COPE Data  Construction quality  Roof covering and geometry  Roof age/condition  Roof anchor and equipment bracing  Basement  Appurtenant structures  Cladding type  Roof sheeting attachment  Frame/foundation attachment  Ground-level equipment  Opening protection  Flashing and coping quality  Content grade  Flood zone determination  RMS/AIR-specific construction codes  RMS/AIR-specific occupancy codes State Office of Risk Management 15

16 Historic Structures The most visible differences between historical and modern structures are the interior and exterior finishes:  Floors  Walls  Ceilings  Windows  Doors  Special architectural features Inspection and appraisal process is expanded for historical structures to identify and record the nature of interior and exterior finishes during the inspection process for consideration of the related costs during the final appraisal process. State Office of Risk Management 16

17 Valuation Solutions - Contents  Appraisal Programs ‐Contents/personal property valued by modeling approach Recommended when personal property is of much less significant value than real property Based on appraisal company’s prior full surveys of similar occupancies $/SF used and adjusted when necessary by appraisal staff Typical for public-sector occupancies 17 State Office of Risk Management

18 Valuation Solutions - Contents  Appraisal Programs ‐Detailed asset listing by comprehensive site inspection Recommended for capital-intensive manufacturing plants Inspected and inventoried ‐Asset number, description, model number, serial number and manufacturer Predetermined equipment listing cut-off (greater than $100,000 suggested) Logical production lines and single assets with replacement cost greater than $100,000 listed Asset below this cost grouped with like kind assets Assets repriced using a variety of sources Values reported by floor by building Typical for HPR (highly protected risk) occupancies 18 State Office of Risk Management

19 Sample Appraisal Report State Office of Risk Management 19

20 How to Order an Appraisal  Within the SORM program, discuss with Michelle Tooley and Chris Connelly/AJG to identify the structures to be appraised Will realize volume discount pricing that has been negotiated between SORM/AJG/American Appraisal  Outside the SORM program, contact Lori Flemming to discuss appraisal needs at your institution. Appraisal fees will be somewhat higher given the “one-off” nature request. State Office of Risk Management 20

21 How to Prepare for an Appraisal State Office of Risk Management 21  Contact your departments to alert them to our site visit  Provide name/contact details of department liaisons preferably plant operations or maintenance personnel who have knowledge of the buildings’ history  If blueprints or CADs are available, it would be useful for our staff to have access to review prior to inspection  Provide identification/badge or letter to let others know we have permission to be on site

22 Benefits of Insurance Appraisals through SORM  Determine the adequacy of insurance coverage  Improve risk management  Create confidence in the accuracy of values  Eliminate surprises at the time of loss  Ensure preferential underwriting treatment  Create a basis for preparation of “proof of loss” for clients  Substantial discounts by working with American Appraisal within the SORM program State Office of Risk Management 22

23 American Appraisal’s Insurance Appraisal Practice Established in 1896 to provide independent property appraisals for use in adjustments and settlements between insurance companies and property owners Full-time, permanent employees (no subcontractors) Serve numerous public entities (State govts, higher ed, healthcare) Dedicated Public Entity Practice Group Inspect/appraise 30,000+ buildings annually for insurance purposes Regional access to American Appraisal’s global reach Established Full-time Diverse Dedicated Global Accessible Text Here 23 State Office of Risk Management

24 Professional Qualifications Lori is a Managing Director of business development for American Appraisal in the southeast United States. She has served in her current position since 1992. Prior to joining American Appraisal, Lori spent five years as an officer in the United States Air Force, Space Command. Education  University of North Carolina at Chapel Hill, Bachelor of Arts - Psychology  Webster University, Colorado Springs, CO, Master of Arts - Satellite/Space Systems Management  Certification - SAPs Finance/Control Module Professional Affiliations  Risk and Insurance Management Society (RIMS)  University Risk Management and Insurance Association (URMIA)  Public Risk and Insurance Managers Association (PRIMA) Lori C. Flemming Managing Director Contact Information Phone: +1 704 953 9780 State Office of Risk Management 24

25 We look forward to working with you. Thank you for choosing American Appraisal. 25 State Office of Risk Management

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