What are the risks of Underinsurance?

In case of damage the insured sum of your company is verified. If it is too low, the insurer only makes a proportionate compensation according to the percentage of the underinsurance. For example, your sum insured is EUR 10 million, but your institution has a new value of EUR 12.5 million. The underinsurance is therefore 20%. If there is now a loss of EUR 1 million, the insurer will reimburse only 80% of the damage – i.e. EUR 800,000. The difference of 200,000 EUR must be raised by your company.

We recommend that our clients review their value changes every 5 years due to continuously changing conditions.

Elements of uncertainty regarding the evaluation process of the investments are among others:

  • favorable purchase conditions, e.g. trade fair purchases or auction purchases that can not be redone in the event of a claim,
  • Purchase of used machinery, since the effective replacement value is decisive for the sum insured,
  • Acquisition of machines from leasing contracts,
  • Installation costs, which are gladly “put off” during repairs and not activated,
  • current price developments, e.g. Steel prices in tank construction.

What effect, on the other hand, does overinsurance have?

Over-insurances can for instance arise, if the original acquisition value is removed from the sum insured on the dismantling of a machine – instead of the current replacement value of a similar machine or the extrapolated value. If this happens more often, the sum insured will gradually increase.

However, since your premiums are based on the sum insured, you systematically pay too high insurance premiums in this case.

In the event of damage, however, the insurance company will only replace the maximum amount of damage discovered, regardless of your high insurance premiums.

We hope that it never comes to an emergency in your company. We have made it our business, however, to prepare you as best as possible, so that your company can handle the damage in confidence.

Definition Replacement value

A Replacement value is the replacement price for the item (in new condition) including all ancillary costs for procurement and assembly up to operational readiness. In cases where the fair value of an item is less than 40% of its original value, only the lower value (fair value) applies.

The Replacement value is needed in particular for determining the correct sum insured.

Definition of time value

Time value is the condition of the asset for its intended use, assuming that the business continues in the same manner. The depreciation value existing between the present value and the present value is not determined by a depreciation rate; it is estimated according to the particular condition determined by age and wear.

The Time value of the technical and commercial operating facilities is mainly used as the opening balance. The Time value is therefore for

  • Start-ups,
  • Spin-off of subsidiaries or
  • Transformations of company forms needed.

Our surveys are recognized by the tax authorities as a basis for valuation.

Definition of market value

The Market value is defined in the valuation (as so-called common value according to § 9 BewG). This is determined by the price that would be obtainable in the ordinary course of business and depending on the nature of the asset in a sale. All price-influencing circumstances have to be considered – but not unusual or personal circumstances. The Market value assumes the continuation of the business – in contrast to the liquidation value.

The correct determination of the Market value requires comprehensive market knowledge and experience and is based on the observation of a sufficient number of current transactions in the market.

The Market value is usually required for purchases and sales or for financing purposes.