This blog comprises a number of typical customer complaints that we deal with on a regular basis. Along with these complaints, we include our responses for easy reference and insight into common insurance valuation matters.
"How can you value my house at over R3 million when I can't get R2 million in the market?"
This was the reaction from a trustee in a sectional title complex where we recently conducted a replacement cost valuation in preparation for the body corporate's upcoming policy renewal.
Mirfin’s response to this query was as follows:
"The purpose of the valuation is not to determine market price but to assess the cost to replace your and other units in the event that (the complex) should be struck by disaster. Our recommended sum insured includes expenses for demolition and rubble removal, architects, engineers, land surveyors, municipal fees, electrical installations, VAT and - not least of all - your unit's share in the common property."
"My friend - who is a building contractor - says that it should cost no more than R7,500 per m2 to construct my house; yet, your replacement cost valuation arrives at more than R10,000 per m2. How is this justifiable?"
Mirfin: "Did your friend consider the cost of the specialised foundations required in the particular location of your property? Does his estimate include the costs for demolition works, rubble removal, professional fees and other costs which may apply, depending on the degree of damage to your house in the event of a claim? Did your friend offer you a written quotation to which he can be committed in the event of total destruction of your building? Will he stand accountable if his estimate has caused you to be underinsured?"
"The purpose of requesting the valuation was to reduce our insurance cost; yet, your assessment increases the replacement value to the sole benefit of the insurers."
Mirfin: "The objective of a professional replacement cost valuation is not to reduce the insurance premium but to determine the correct sum insured, thereby safeguarding your life investment."
"An estate agent informed me that I can sell my house for more than your valuation indicates."
Mirfin: "The estate agent seems not to understand the difference between market value and replacement cost: Market Value is defined as the price at which a property should exchange hands between a willing seller and a willing buyer in an arm's length transaction after proper marketing; Replacement Cost is the actual cost to replace a structure to its pre-loss condition including the cost of demolition, rubble removal and associated professional services. Apart from that, it should be considered that the estate agent may have an ulterior motive in offering free (and unqualified) valuation advice."
"I am in the construction business and I can re-build my house for a lot less than what you have quoted. Please reduce your valuation, else my insurance premium will go through the roof."
Mirfin: "It is advisable to insure one's property to a market-related replacement cost. Would your wife and kids be able to re-build the house if something were to happen to you?"
The reality is that the majority of property owners and bodies corporate are underinsured - by up to 50% - and most insurance brokers will agree that educating clients is the key to having happy clients.
Read our previous blog: How to budget for a valuation and compared quotes