I have heard it said that time gives one perspective and I can only hope that is true. As I look back over the 45 years of my career being an insurance agent and observing insurance agents, several issues seem to be perpetually of concern.
One is valuations of property and how insurance policies handle valuations.
When you sit down and think about it, property, both real and personal, can have many values. Some values are more apparent to property owners and some values are more relevant to insurance policies. The different ways that property owners think about property values and how insurance policies handle values often seem to be in conflict. Insurance agents need to be more sensitive to how property owners understand property values, so they can educate property owners on how insurance policies deal with values. Also, agents need to emphasis the benefits to the policyholder/insured for using the appropriate insurance value on their property. Managing client expectations is essential to a lasting relationship and to reducing E & O claims. Hopefully, what appear to be chronic misunderstanding may be avoided.
So, what are some of the values of property that are most familiar to property owners?
First, there is market value. Market value is the price a willing buyer will pay a willing seller. It may be a new piece of property and a piece of property that is pre-owned such as a used or an antique piece of personal property. However, it is the price that the buyer paid for the item and probably most remembered. Unfortunately, supply and demand is component of market value. Consequently, the market value of a piece of property can fluctuate noticeable over time, either gaining or losing value.
Second, there is tax value. This is more of an issue with real property, but every year a property owner gets a statement from the city or county stating the value of the property and taxes due based on that valuation. This value is established periodically, often using aggregated data, and can be arbitrary. It may not reflect the actual market value. In fact, under certain market conditions tax value may either overstate or understate the market value of the property.
Third, there is the value of jewelry, precious metals and stones or other collectibles. Often these types of items are valued by appraisal unless they are for sale where a market value will be established. Appraisals are estimations of value by someone knowledgeable about the market values of these types of property. I once owned a series of limited-edition prints which my wife did not like. Under specific instruction to tidy up “my stuff”, I called a dealer familiar with the artist and asked the price of a specific print. The dealer quoted me $800. I asked if they had ever sold one for that price and they said no.
Fourth, there is sentimental or historical value. This value occurs with family heirlooms or unusual antiques. I have an old family Bible in poor condition that is priceless to me, but I could not get $5 for it on the street.
While these are some of the values more recognizable by property owners/insureds, they are not values commonly used in insurance policies. It is important that agents understand the consumers’ attitudes about property values in order to be able to educate the consumer on why these values do not work for insurance purposes.
In the second blog in this series we will discuss the values that are more appropriate to property insurance and why the insurance concepts of value are different.