Underinsurance in Atlantic Canada

16th May 2016 by Roslyn Kozak

RMS (Risk Management Services), Canada’s largest risk management services company, has identified a crisis of under-insurance in Atlantic Canada. Under-insured properties result in lost premiums for insurance companies and lost commissions for brokers. In the event of a claim, clients find they are inadequately covered, leaving both insurance companies and brokers exposed to poor loss ratios, lawsuits, and bad press. RMS has examined the extent of the problem to provide detailed regional information to help minimize this expensive, distressing problem.

Insurance to Value an Industry Problem

Under insurance across Canada amounts to $11 billion in lost premiums, based on the discrepancies between the reconstruction values of buildings and the premiums collected to rebuild them. The Canadian average breaks down at 70% of commercial properties having and under-insured average of 40%, and 80% of residential properties having an under-insured average of 27%. The situation in Atlantic Canada, however, is far graver.

The Facts:

Commercial Properties

Based on all Commercial Appraisals completed in Atlantic Canada throughout 2015, RMS identified:

• 81% of all commercial properties were under-insured by an average of 81% or $1,259,835
• 19% of commercial properties were over insured in 2015.
• 13% of commercial properties were within +/- 10%.

The top three underinsured building value tiers were:
• $1,250,000 – $1,500,000 – underinsured by 119%
• $4,000,000 – $5,000,000 – underinsured by 159%
• $5,000,000 – $6,000,000 -underinsured by 108%

Residential Properties

Based on all of the Residential Valuations completed in Atlantic Canada throughout 2015 RMS, Identified:

• 87% of residential properties were under-insured by an average of 38% or $135,387
• 13% of residential properties were over insured in 2015.
• 27% of residential properties were within +/-10%

The top three underinsured residence value tiers were:
• $250,001 – $500,000 – underinsured by 40%
• $1,500,000 – $1,750,000 – underinsured by 60%
• $2,000,000 and up – underinsured by 36%

The Importance of Insuring to Value

Insuring to value should always be part of an Insurance Professionals business strategy. To ensure that your client’s property is accurately insured, you should order an on-site appraisal of the property, keep it up to date by requesting a recalculation each year, and get a new on-site appraisal every five years. Be sure that you are using a professional appraisal company, experienced in Insurance Replacement Cost (not a market appraisal).

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