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Risk Management




Bryan K. Heckle

Richard Bolyard
Loss Control and Claims Specialist

State Property Fire Insurance Fund - Reporting Property Values

Guidelines for Reporting Property Values

By statute, the State Property Fire Insurance Fund (the Fund) pays for losses to State property on a replacement cost basis. This means that the Fund will pay the actual cost at the time of loss to replace damaged property with new property of like kind and quality and used for the same purpose, without adjustment for depreciation.

In order for an agency of state government to fully recover its loss on a replacement cost basis, it is necessary that the property be insured for its full replacement value. Accuracy in reporting values is important since the Fund cannot pay more than the amount reported. Also, should an agency report values greater than the replacement value, it may pay needless insurance premiums or cause the Fund to pay unnecessary premiums for reinsurance.

Since the methods of arriving at the appropriate replacement values for buildings and the contents of buildings differ, these guidelines will treat these types of property separately.

Building Guidelines

For new buildings, the cost of construction is typically the replacement value for the building at that point in time. When reporting the values for insurance purposes, please do not include any costs associated with the purchase of land. Also, do not include any "movable equipment" costs in the building value since these costs are usually part of the contents. For older buildings that are purchased or otherwise acquired, an appraisal may be necessary to arrive at the insurance replacement cost. Keep in mind that the replacement value for buildings is not the same as the market value. Market value is used to determine the sales value of property at a point in time. This is what a willing buyer will pay a willing seller. The replacement value for insurance purposes is the cost to rebuild the structure at the time of loss with one of like kind and quality.

When buildings are renovated, the Fund will need to be notified if the renovations increase the building's replacement value. It is important to note that not all renovation costs increase a building's replacement value. For instance, if the building's existing roof is replaced with a new one, or existing office partitions are replaced with new ones, there may not be any additional value added to the building. On the other hand, an addition that increases the building's size, or the installation of a sprinkler system or alarm system, would increase the replacement value of the building.

Once the agency has established the appropriate replacement value, the Fund will annually adjust the values of buildings and structures in its database for inflation. This is normally done in February of each year. Agencies are encouraged to review the building values annually when the Fund sends out the prebilling information to assure that the values are correct.

Contents Guidelines

For Business Personal Property (or Contents), the "acquisition cost" (or purchase price) and "replacement cost" are usually the same at the time of purchase for new property. However, in subsequent years the two costs will be different. Consequently, inflationary adjustments need to be made to the values of assets in years following the year of purchase to reflect the replacement cost accurately. For used or older property, the acquisition cost may not indicate the property's replacement cost. Therefore, the property may need to be appraised or compared with the cost to purchase property of like kind and quality in the marketplace. The replacement value of some types of Business Personal Property may actually decrease over time. This is typically the case with equipment where the technology is changing rapidly such as computers and related equipment. For items of this type, it may be more appropriate to use the current market value for comparable equipment. The Fund does not make inflationary adjustments for contents values. This is left to the discretion of the State agency or university.

For economic efficiency, agencies and universities may not maintain records in the statewide fixed asset system for property values less than some established amount, such as $500 or $5,000. However, if only those property values that are recorded in the statewide fixed asset database are reported for insurance purposes, the agency or university may be substantially underinsured in the event of loss. It is recommended that an appropriate amount also be included in the insurance replacement values to account for those values less than the threshold amount. The Fund will reimburse the agency or university for no more than the values reported for insurance purposes.

Newly Acquired or Constructed Property

Property that has been accepted for ownership by the State should immediately be reported to the State Property Fire Insurance Fund for coverage. Failure to report this property may result in a lack of insurance coverage should a loss occur prior to reporting the property to the Fund. There are two major concerns that justify prompt reporting of newly acquired or constructed property to the Fund. First, unless your agency insures all of its property for the same coverage, the Fund does not know which coverage you intend to place on the new property. Also, the coverage under the Fund's reinsurance is limited for newly acquired or constructed property.