Insuring your camp’s buildings and contents
Buying proper insurance to protect the full value of your camp buildings and contents is fundamental to good risk management. However, many camps overlook this issue and run the risk of being incompletely reimbursed for damages under their insurance policies.
Why is this issue missed by many camp directors in the risk management process? One reason is that most people tend to respond only to the most visible items the ones crying out for attention at any given time. Some of these issues are urgent and important. But sometimes the apparently urgent and important items obscure other equally important issues. Property insurance value is a risk area that doesn’t cry out for attention but that requires attention and diligence.
Inflation is another reason camps often neglect property value. Unless your camp has recently undergone renovation or new construction, you may be unaware of the current costs of labor and material. In addition, camp directors may not understand certain terms or they may be confused about how insurance values are determined.
Actual cash value
Actual cash value is an insurance valuation method that starts with the replacement value of a building or its contents. Then, the insurance company subtracts the item’s depreciation. Deprecation is based upon the item’s age and condition, which can sometimes be complicated to determine. Most older camp buildings are fully depreciated by accounting definitions, but not by insurance definitions. Consequently, even though a building is 50 years old, it may not be depreciated more than 25 or 30 percent.
Factors that reduce depreciation include proper maintenance, renovation, and repair practices. While there is some subjectivity in determining depreciation and actual cash value, detailed records of repair, maintenance, and improvements will help you negotiate successfully on this issue.
Replacement cost valuation
Replacement cost valuation, in contrast, theoretically replaces damaged property with material of like kind and quality, without deduction for depreciation. In essence, it replaces the old with new. Replacement cost settlements are complicated by the fact that some camp buildings are constructed from materials that are no longer available.
Consequences of too little insurance to value
Depending on how your property insurance is set up, you might incur a penalty on a loss if you are caught short on insurance to value. Under these circumstances you might be paid a proportion of your total loss. This amount usually bears a relationship to the amount of insurance you had versus the amount you should have carried.
If you plan to rebuild and have not planned properly to secure full value for your loss, you might be forced to borrow money or spend money you have set aside for other purposes. This situation could have severe financial implications for your business and your future.
Avoiding surprises
What should you do to avoid property insurance valuation surprises?
Obtain estimates
You can obtain estimates of construction costs to replace camp buildings from local building contractors or real estate appraisers. Be cautious if you do use professional appraisers. The commercial appraisal systems generally used today do not have information that translates completely to camp buildings, especially unique buildings. Consequently, estimates of insurable values may be misstated. Valuation estimates prepared through these professional appraisal sources should be checked against common sense and, when available, recent actual replacement cost expenditures. Your insurance company can help you test the accuracy of these estimates.
Insure personal property values
Markel Insurance Company’s claims department consistently finds that camps underestimate the value of their personal property. Resident camps should consider a limit of 25 percent of their real property (buildings) insurance for personal property. Day camps should consider between 15 to 20 percent of their real property limit for contents. Remember, these figures are not absolutes. Consider creating a personal property inventory and ask your suppliers to help develop current values for your personal property. You may be surprised at what you discover.
Buy the right amount of insurance
Buy an appropriate amount of insurance to comply with the provisions of your property insurance policy. Ask your agent to explain the coinsurance clause and its relationship to your total property insurance limit. On subsequent renewals of your property insurance, increase the values slightly to keep pace with inflation, about 4 percent today. Obviously, if you add new buildings or make additions or repairs to existing buildings, you should change your property values. Renovations do not necessarily directly increase the value of your buildings. It is a good idea to ask your contractor for advice about added value from renovation projects. Consult with your insurance agent or consultant, too.
Keep information in a safe place
Keep the square footage, a brief description, and pictures of each building in a safe place. You can also videotape your facilities while describing each building and its content. By preserving evidence of your facilities, you will make it easier to prove your loss if your property is damaged.