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547 Posts |
 Posted - 08/29/2002 : 22:12:26
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Posted on Thursday, August 01, 2002 - 10:19 pm: Kile Anderson
Ok, Jim, here's a good question. What exactly gets depreciated on a building? I was taught only wearable surfaces depreciate? The paint and the drywall but not the framing, the carpet and pad but not the subfloor, the drywall on the ceiling but not the insulation. Is this the way it is done in most companies? I've had a manager in one company tell me to depreciate the shingles but not the felt or the sheathing while another manager in the same company told me to depreciate everything above the rafters, (sheathing, felt, shingles, drip edge, etc). How have you guys handled this? |
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547 Posts |
Posted - 08/29/2002 : 22:13:36
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Posted on Friday, August 02, 2002 - 7:31 am: Ghostbuster
Well, from a practical standpoint, that manager was right about depreciating only the wearable surfaces. But...
In fact, everything wears out, sooner or later. Whether it be from age, or exposure, or use, or obsolesense, or even a bad reputation, everything depreciates in value from it's orginal new cost. This includes those hidden structural members of a building like the framing, plumbing, electrics, etal. Eventually, it all diminishes in value from both a use standpoint and a monetary standpoint. It just depends on the extent the carrier wants to push the issue.
For an example, reflect on that old falling down barn you just drove by. The years of neglect have caused EVERY part of its structure to deteriorate to the point where no single part of it has retained any value at all. The entire building has depreciated 100%. Every part of this barn has become a 'wearable' surface.
But, in our everyday hum-drum, we deal with the more common items you have illustrated. And, like in everything else, it still comes down to doing what the boss of the day wants until the next boss of the day changes things...again. |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:15:42
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Posted on Friday, August 02, 2002 - 9:30 am: Eric Carlson
I've spoken with adjusters who have worked in Europe adjusting losses on 400 year old structures. These structures appreciate over the years. Certainly most structures in the U.S. aren't the same class or quality of construction but would not a well build stone or brick structure actually gain some value over time? |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:16:45
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Posted on Friday, August 02, 2002 - 11:34 am: Ghostbuster
Ahhh, now here's an interesting lil' fly in the ointment! That 'appreciation' of ancient or historic structures has much to do with the prevailing sentiment of public opinion. Here in the good ol' U.S. of A., ( the throw away capital of the world), various special interest groups form with the aim of preserving structures of special interest.
Here in the Big Enchilada, (aka, San Antonio), they are referred to as the lil' ol' ladies in tennis shoes. They, thru the use of such delicate feminine wiles as nagging the living Hell out of their politically connected husbands, have preserved and renovated a variety of structures and increased or 'appreciated' their perceived value. Examples include the Alamo and other old Spanish missions. Other buildings saved from the 100% depreciation of the wrecking ball date from the antebellum to the art deco era. These structures in their restored state have indeed appreciated from their depreciated state.
This analogy can also be applied to the automotive scene. My 1976 Triumph TR-7 in it's current state as a ACV of about $2000. As I continue to restore each componet back to a renewed state to where it is, in effect, showroom new, it will have appreciated to a value of $2500.
Obviously, this example shows the wisdom of having something worth restoring in the first place. But, that's another story involving certain character defects and a psychological predilection for trying to change the course of history and believing in lost causes. (Others of this ilk can be found in the ranks of Confederate Civil War reenactors who maintain that if Massa Bobbie Lee had kept pressing on the flank at Gettysburg's Little Round Top, the world would have been a better place. But, let's discuss that topic some other time.)
So, in conclusion and without further eloquence, no matter how superior the componets of a structure in comparision to their modern equivalents may be, they still are subject to the enivitable forces of degradation we lovingly call depreciation. That depreciation can be reversed, but it must be done prior to the loss. |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:18:49
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Posted on Sunday, August 04, 2002 - 1:43 pm: Todd Summers
I've often wondered why it is that , in Texas anyway, Big Red doesn't take any depreciation (on RCV policies) but FIG does ? ... Does this potential for bad faith you are talking about maybe have something to do with it ? I always thought it was just to cut down on expenses, supplements, etc.
Also I always use a F-9 note explaining the depreciation after each line item...
"Recoverable depreciation on drywall is based on 50 year old drywall divided by an expected lifetime of 100 years." or
"Recoverable depreciation on insulation is based on 50 year old insulation divided by an expected life time of 50 years."
Now... I don't like to take 100% on anything either, BUT , if you know the house is 50 years old and your depreciation schedule says the lifetime for insulation is 50 years, then don't you have to depreciate it 100%? |
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547 Posts |
Posted - 08/29/2002 : 22:19:46
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Posted on Monday, August 05, 2002 - 10:55 pm: Todd Summers
I'm in...
1-1: Determine the age and condition of the damaged property and divide it by the expected lifetime of that particular element using a depreciation schedule that has been approved by the carrier.
1-2: See above and compare to RCV.
2-1: Yes
2-2: If the adjuster didn't get the schedule he was using approved by the carrier.
2-3: See previous posts. I believe that the rationale is that the carrier is willing to include certain high risk materials for an additional premium with certain limitations (namely ACV).
2-4: This is pretty difficult but maybe I can come close...
Depending on the policy and the various endorsements it may be possible for the ACV to exceed the RCV IF there is coverage for appreciated value (as previously discussed), values that are determined as collectible, sentimental etc. (Hello Lloyds of London)or if demand has exceeded supply (as is often the case of a Cat 4 or 5).
2-5: As discussed below... if there is a partial loss where RCV benefits would apply versus a total loss where the policy limits would apply.
2-6: No, Yes, Because.
2-7: Common sense to understand + training to apply.
2-8: My answer is ... Yes, and Yes (with the provision that if a question came up that I did not know the answer to, my response would be , " I don't know, but I will find out and get back to you..")
3-? I don't see these questions posted.
4-1: "Non-recoverable depreciation"
4-2: If most of the loss is to the wall to wall carpeting and the carpeting is completely worn out prior to the loss and there is no endorsement for RCV of carpeting, then the indemnity would be far short of taking care of the necessary repairs.
4-3: Well one example is listed above and the second (of many) is if the contractors invoice is less than the adjusters estimate. Then the indemnity of RCV benefits would be less than what was calculated by the adjuster. ... no wait! You said "other than recoverable depreciation"... so hmmm...
OK got it! If the insured (who was unsure about the age of the curtains at the time of inpection) finds the receipt for when she bought them ! ???
so far so good ? |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:21:36
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Posted on Tuesday, August 13, 2002 - 2:58 pm: Alan Jackson
Does the agent use any formulas to determine the RCV when the policy is written? If so, does this have any bearing on determining (ADJUSTING) the RCV & ACV if and when a claim occurs?
Does it matter? |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:22:28
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Posted on Tuesday, August 13, 2002 - 5:26 pm: Ghostbuster
Well...this is an interesting can of worms. Let's pull this worm out and peruse it. Often, an agent or even the company will insure a property based on what the financed note is. (Yeah, I hear ya, we don't insure the dirt.) This increases the premium for the company and agents commission and keeps the finance company queiscent. Everyone's happy including the Insured as long as he remains ignorant.
In order to justify the Risk to underwriting, an inspector goes out, determines the square footage of the Risk, takes a couple of photos, then multiplies the Risk area by a replacement cost figure based on the quality of construction. After doing this the figure invariably comes out too low for the coverage amount listed. So, some fudge factoring is applied to bring this 'contrived' number in line with the policy amount.
I know this ain't a pretty and perfect picture, but it is the reality out in the field. It's called, 'Goin along to get along'. Eventually, the forces of real estate appreciation and inflation balance things out. Unless of course, the value of our money increases, (or the value of goods and services deflate), same thing, then our whole house of cards will come crashing down on our heads.
Gosh, this is all depressing me. Will someone out there please fix up a pitcher of Rum & Cokes medicinal elixer? |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:23:30
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Posted on Tuesday, August 13, 2002 - 5:36 pm: John A. Postava
Alan:
Sometimes the agent determines the value by using programs like MSB's valuation software or maybe manually by using their publications. I have also seen valuation booklets put out by certain insurance carriers. Some carriers take the agent's application and call the perspective policyholder and ask them questions which are fed into a software program (ususally MSB)and the carrier controls the coverage provided. Other carriers hire inspection companies who either use their own propreietary valuation software or MSB.
Before their merger, Marshall and Swift and E.H. Beockh controlled a very large part of the underwriting valuation market (and still do). Now that they have merged they were for a while the "only game in town" for structure valuations.
SIMSOL's valuation product using Craftsman's Building Cost Manual data or the R.S. Means Valuation Data has only recently begun to market a valuation software to underwriters and just recently won over our first valuation client.
The valuations done at the policy inception usually are not considered at the time of the claim unless the adjuster's valuation is far different and the policyholder will suffer as a result of the adjusters values (remember the Oakland Fires?).
Agents and carriers usually only have a few bits of information on a building when it is being insured. It is just to expensive to fully inspect and value every structure when you consider only a small percentage of buildings are total losses on any given year. Adjusters who have the advantage to walking through a building and getting loads of information on that building can complete far more accurate replacement cost values.
Hope this helps...jap |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:24:33
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Posted on Tuesday, August 13, 2002 - 6:31 pm: Gil C. Newton
would think the contract would be followed by the adjuster. If the adjuster has reservations about the content of the agreement,let it be known. After all the contract is approved by the underwriters and personally I would try to follow what they say. Adjusters with more time dealing with these RCV/ACV's may have another
approach. Take this as a question.This is one tough subject, it is all shades of gray to me.
Everytime I think I got a handle on it you guys come up with another what if. Don't stop....
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Admin
547 Posts |
Posted - 08/29/2002 : 22:25:27
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Posted on Tuesday, August 13, 2002 - 8:49 pm:Gil C. Newton
After reading these posts again and again,
got a lot out of the comments. I can relate to what "GB" says. Lake lots here run from a low of
75K up. The cabins, many of which are CB on Slab
2BR 900 sf. Nothing custom about them. At the most about 36K replacement. Yet when one of these cabins gets damaged, or destroyed a new two story 4BR goes up in its place.
It appears there is an under insurance and an over insurance which is not talked about. If you
are under-insured you pay if you are over-insured you make out like a bandit. In writing
clearance letters, I was privy to many of the transactions on the lake property here and this
is in line with what "GB" brought up.
I don't think the carrier would go along with an over insurance formula or would they?}
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Admin
547 Posts |
Posted - 08/29/2002 : 22:26:15
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Posted on Tuesday, August 13, 2002 - 9:36 pm: Ghostbuster
That's right, Gil. They are NOT supposed to overinsure...but they do. As John says, it is too expensive for them to pay for an exhaustive analysis of each Risk apon application for coverage. Actually, that's not completely correct. More accurately, the underwriters have a budget for inspections and are tightfisted about spending any more than they must. You should hear those women whine over paying an extra dollar for a photograph of a ramshackle shed or fence with gang graffitti on it.
So, in the end, it's all a crapshoot. And the easiest route for an agent and company to go is to just write the Risk, particularly new construction, for the amount of the mortgage loan, with maybe some minor tweaking of the deal.
Oh, and John, those valuation programs may be quite accurate, but, they are expensive. And here in the wild & wooly world of El Cheapo Grande underwriting inspections, anything over $1.98 is just not needed when a few cheatsheets with dollar figures and quality levels will suffice.
EXCEPT...that is, when Ms Underwriter wants to spend about $85/hr on a high dollar mansion inspection. |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:27:13
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Posted on Wednesday, August 14, 2002 - 5:43 am: Kelley
One major factor I have not noticed anyone mentioning while working on RC/ACV is the quality of the product. Quality is not based on the NAME brand, that does no mean quality, especially in the contents area.
There are many "big" names out there who have convinced ppl their product is great because they have big advertising bucks.
Take time to study the different type of veneers, overlays & particale board based products on the market.
Know if an item has been re-built, restored or properly reconditioned. Many items can have their useful life restored, they maybe 50 yrs old but in all reality you have to go to the restored date.
As Americans we get hung up on "name brands", which have become a joke !
Take advantage of your time off, go out & do some real reasearch on home building products & contents products & most of all, manf. techniques. |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:28:00
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Posted on Wednesday, August 14, 2002 - 10:11 am: Clayton Carr
Gil, lets go back to your 6.31PM 8/13 post, perhaps some things should be clarified for you and others not familiar with the "policy side" of a carrier.
You suggest the "contract" would be followed by the adjuster. I will conclude your reference to "contract" is that of the insurance policy - there is no room for slack here, the policy must be followed by the adjuster.
You suggest if the adjuster has "reservations" about the content of the "agreement", let it be known. I will conclude that your reference to "agreement" is that of the relevant data on the declaration page of the insurance policy. The adjuster must advise the carrier if he/she has "reservations" (a.k.a. different facts) relative to any information on the dec page - such as considerable difference in the amount of insurance, occupancy and use; etc.
You suggest the contract is approved by the "underwriters" and you would try to follow what they say. I will conclude your reference to "underwriters" (a.k.a. the British term of reference to an insurer) is what is commonly referred to as the carrier. If you are suggesting the "contract" (policy) is approved by an actual underwriter (an employee of a carrier), that is not the proper context of what happens. The actual u/w will approve the "terms" of the contract/policy and allow the policy to be issued. An actual u/w (other than negotiated commercial manuscript wordings) has no input whatsoever in establishing or approving the wording. To - as you suggest - follow what an u/w "says" will give you a quick one way ticket to hell and back. A claims adjuster should never take instructions from an actual u/w. In large commercial exposures, a commercial u/w may liaise with their claims department to relay "intent" or other data that should be conveyed through the claims department to the handling adjuster. |
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Admin
547 Posts |
Posted - 08/29/2002 : 22:28:53
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Posted on Wednesday, August 14, 2002 - 11:11 am:Clayton Carr
Alan, the Ghost and John have responded well to your inquiry regarding an agent's involvement and the use of "formulas" for establishing RC.
For years I found Marshall - Swift the best to use for high value / custom dwellings, and Boeckh best for regular / traditional structures up to about $300K or so.
The agents involvement in the process, like anyone else in the total picture, can supply right or wrong data; by design or otherwise. Some agents "sell" quality, some service, some both, some only "price".
My experience with carriers is for the most part (with exceptions) is that there was little or no credability to an agent reported RC. It boiled down to simple issues - getting the correct and sufficient amount of data from the insured, and interpreting and transposing that correctly onto a template RC form or basic software.
Then you have the lending institutions. If you purchase a property with a dwelling on it for $200K, you might as well talk to your Mouse regarding trying to convince them that $200K has no inferred direct relationship to the RC of the dwelling being $200K.
When I was doing a lot of these RC computations, I convinced my insurer clients to remove the dwelling limit of insurance from the assignment form. It provides nothing but distraction to the appraiser setting out to determine the RC of a dwelling. Hindsight now tells me that generated a lot more assignments over time. Once you convince the underwriting manager and the rank and file actual underwriters that the RC appraisal process is a technical endeavor - void of any agent's concern of a "sale" of a policy and void of a lender's concern to cover a purchase price - then the printed policy or application amount is of no consequence to the exercise. I believe that there is a significant "underinsured" ratio for dwelling insurance.
getting back to some things Gil brought to the subject, it is in the carrier's best interests that their underwriting departments c0-operate fully with the claims department and vise versa. Adjusters within a carrier's office (especially regarding commercial risks) should always review the "guts" of a policy - the application, the u/w notes, the agent's memos, the inspection report - before heading out to deal in an intelligent manner with an insured. Good claims departments will always make their field I/As aware of the "guts" of a policy. Far too often the written communication from an agent about a risk did not get properly transposed into a wording that covered the exposures as detailed by the agent. That is "fixable" with a carrier with integrity before the situation turns sour; and you would well know its' basically burnt bagels if the communication was verbal and lost from the u/w's memory or their lack of documenting the conversation into the "guts" of the file.
The risk inspection business - a shadow of its' former stature back when underwriting results were the key and not ROI - gains renewed prominence maybe once a year with a number of carriers when a loss destroys a dwelling and its contents. Then the inspection report - whether basic or detailed if higher value - presents itself as a very useful tool for all manner of reasons in the adjustment process. |
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"ACV Problem" in Insurance Policies"
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