Once the claim representative has verified coverage and identified the valuation method specified in the policy, the valuation process began. He must use some guidelines to determine both replacement cost and actual cash value. Personal property and real property present different valuation problems.
Personal Property
In case of replacement cost method the claim representative will buy the exact style and brand of the damaged property if the property is not obsolete. If the party no longer available, he identifies the closes substitute in style and quality and uses that substitute’s value as replacement cost. For actual cash value however depreciation must be estimated.
Real Property
The replacement of the real property can be usually determined by using three factors: -
· Square footage of the property
· Quality of construction
· Construction cost per square foot
In case of partially damaged property, the claim representative usually prepares a repair estimate or obtains repair estimates from one or more contractors. Replacing the property when a partial loss had occurred involves restoring the property to its previous state as closely as possible.
For policies specifying Actual Cash Value method, claim representative estimates depreciation of real property using methods similar to those used for estimating depreciation of personal property. In some claims, payment of ACV takes place immediately, and payment of remaining amount takes place once the actual repair or replacement is completed.
CHAPTER: 6 CLAIMS
