Underinsurance with respect to replacement cost of buildings is a major concern across the industry. As the largest valuation advisory firm, Kroll launched a new solution in November 2022 that helps insurers, brokers, and the insured to obtain automated independent valuations globally, accurately, at scale, and in seconds. It does so by combining its valuation expertise with the latest technology. Underlying these capabilities is a vast proprietary dataset, the result of 10’s of thousands of appraisals conducted by our 250+ valuation experts every year. This is a unique and compelling competitive advantage that firmly underpins the accuracy of our valuations.
In 2022, Kroll’s research found that 67% of buildings were underinsured by an average of 64% and 31% of such properties were underinsured by more than 50%.
Inflation affects the replacement cost accuracy and increases the need for frequent valuations. The resulting valuation gap has rapidly increased over the last three years due to the strong increase in inflation. Therefore, it is crucial that companies understand the impact of inflation on their assets and regularly reevaluate their portfolio to stay properly insured.
Replacements costs for many buildings are only revalued every 3-5 years and very few properties in a portfolio are independently valued. This is either due to capacity or cost constraints. Our technology enables clients to assess a larger portfolio of properties. Some of which they were unable to have assessed earlier by a valuation expert due to cost and capacity constraints. With valuation experts usually deployed only for the largest buildings (with the highest premiums), this typically leaves the question as to how to value the remainder, i.e., vast majority, of the portfolio. This is usually done by doing a simplified adjustment for inflation. While this approach was causing discomfort before Covid, it has now largely broken down with the rapid increase in inflation.
Uniqueness of the project
Our innovative technology addresses this issue of underinsurance head-on. It does not just try to take one inflation number and adjust this annually. It considers more than 20,000 data points. This is supplemented by our local material and labour cost surveys. This is then combined with our proprietary data set referred to above. All this data sits behind the valuation models to drive accuracy. Because the automated valuations are only a fraction of a typical site appraisal of a valuation expert – this opens the door for insurers, brokers, and the insured to determine both the width and the depth of underinsurance across their entire property portfolio globally and in near real-time.