N.Y. Officials Say Broker Pocketed Insurance Premiums

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Subject: Mark H – True Replacement Costs Depreciated = ACV
Posted On: May 16, 2006, 6:22 pm CDT
Posted By: Roger Poe
Comment:
Tuesday, May 16, 2006

Mark,

You want to, carefully, consider the information at the following link, and then consider the rest of the commentary;

http://www.tdi.state.tx.us/bulletins/b-0045-8.html

1. The ACV amount should reflect primary-general contractor replacement costs…depreciated.

Why so?

Replacement costs, depreciated, will NOT have primary-general-specialty contractor business overhead and profit loss values MISSING, unless a insurer can figure out somehow (indemnification and premium value wise) to estimate the future replacement procedures and costs of a covered structure without [typical and historical] primary-general contactors’ involvement.

(It would be a neat trick if a structure could “poof” into existence).

Sooooo, whether a ACV (actual cash value policy) OR a RCV (replacement cost value) policy, the proper measure for ACV math is–[Primary-General] Contractor RCV minus Depreciation = ACV.

2. State Farm admitted the overhead and profit was part of the loss value by necessarily disclosing it in the DEPRECIATED ACV math.

However, by NOT keeping RCV / ACV values proportionally whole, and in proper order, the ACV loss value “budget” is greatly reduced (twice) on the front end.

(Once by ommitting Contractor O&P as part of Replacement Costs, and again by the ACV 10% profit line not equaling 10% of the costs above it).

Check out how much more the insured would have to work with;

$10,103.19 Sub-Total
$ 114.67 Material Tax
_________________________
$10,217.86 Sub-sub total
$ 1,021.79 10% Overhead
_________________________
$11,239.65 Total
$ 1,123.97 10% Profit
_________________________
$12,363.62 Basic Business Math Grand Total

$10,217.86 State Farm Math Grand Total

$12,363.62 Basic Business Math Grand Total
$ 2,607.44 Minus Depreciation
__________________________
$ 9,756.18 Basic Business Math ACV
$ 2,272.00 Minus Deductible
__________________________
$ 7,484.18 Net Basic Business Math ACV
$ 6,860.50 Minus State Farm Net ACV Math
__________________________
$ 623.68 ACV Dollar Difference

Depreciating the ACTUAL Contractor replacement cost loss value sum, would have favored the insured by hundreds and hundred of dollars.

Now why would that approach be fair to insureds?

To factoring a true 10% profit margin would favor the insured. (If the profit line sum does not equal 10% of the total replacement cost above it, it reaaaalllly isn’t 10% value, is it Mark)?

(A [cool] math trick IF you want ones to walk away, not notice, or attempt to work with synthetic ACV loss values, while (the insurer) keeps the balance in the bank.

Look at it this way Mark, a uninsured property has [ALL typical contractors involved] business costs built into its creation, or PLACEMENT.

In heirarchal contractor order, the primary-general contractor is first and foremost, with all other sub-contractors used by the investing contractor to PLACE a structure.

To to calculate the replacement cost of the said placed structure, an insurance agent could ask the primary-general contractor for ALL structural construction costs from A-Z. Or they could purchase and reference MS/B type construction component data to estimate the structure’s replacement costs. Or use a square foot / zip code based software program.

However they figure replacement costs of a structure, unless a structure can poof into place, there is no skirting of accounting for ALL TYPICAL / HISTORICAL CONSTRUCTION REPLACEMENT (RCV) COST values in either ACV or RCV policies.

ACV policies are usually cheaper because the actual cash value of the aged loss components will be the future payment schedule for loss values, and not replacement cost value.

Claiming, during the estimating of claims, that ALL contractors overhead and profit costs, factored by the agent, and reflected in premiums, are suddenly and mysteriously NOT part of predetermined replacement costs creates systhetic RCV / ACV loss values prepaid for, should a loss occur.

Here’s the summary Mark:

1. Insurance agent estimates replacement costs of structure that real world construction estimating requires.

2. Insurers can acknowledge those apples-for-apples indemnified replacement costs when settling claims, or not.

Pretending ALL Contractors business cost values are not part of every square inch of single or multiple trade work loss claim value smacks of an illegal financial shell game…no?

Collecting premium for which loss may never be paid is illegal windfall…no?

Knowing depreciated replacement cost (ACV) values contain ALL Contractors replacement cost value pieces, then not disclosing those values IN PROPER ORDER, when adjusters estimate loss claim values, is fiducial unfairness to insureds…no?

rogerpoegc@yahoo.com

P.S.

Although this does not really matter in true ACV loss math factoring, that should always reflect true depreciated RCV loss values, it is a replacement cost policy Mark.