In this episode of PRIMA Podcasts, Nigel Wilson discusses some of the challenges faced by public sector risk managers in valuing and maintaining their infrastructure. Nigel shares useful strategies to develop and maintain a property profile that accurately reflects the entity's risk profile, as well as how to break down the complex process of reviewing property portfolio data into manageable pieces.
The Importance of Tracking Changes
Nigel stresses the importance of tracking the actual changes in the property profile, including additions, missing/ghost assets when pieces of the property are retired, and changes in property costs each year. He explains that a property portfolio can be very dynamic -- especially in major cities or large regions, where managers may be tracking thousands of buildings. This is why it is important that risk managers continuously fine-tune portfolios and develop a consistent methodology.
Nigel recommends that risk managers periodically step back and take a fresh look at the statement of insurable values by using this simple exercise:
1. Run a couple of new columns on your spreadsheet to determine the cost per square foot for buildings and all of their content, and then calculate current insurable value divided by square footage.
2. Ensure that the square footage is accurate, and then compare the results to other similar properties to see if a property is high or low compared to its peers. Keep in mind that buildings will vary depending on quality of construction and when they were built, but look for the outliers.
3. Have someone who brings a fresh perspective when it comes to the statement of values review the results.
Additional Best Practices for Risk Managers
Additional advice for risk managers looking to maintain an accurate and up-to-date property portfolio:
-Track cost changes by sourcing the cost index for the closest major city or region.
-Use a cost trend for no longer than 7 or 8 years.
-Find an appropriate trend based on occupancy, e.g. schools, hospitals, utilities, etc.
- Be aware that trends are just an average.
How To Deal With Complex Properties
The most challenging categories of properties for which to keep up-to-date values are: 1) historic properties, which often are ornate and use older construction materials; 2) complex properties, such as museums and landmark properties; and 3) process plants, such as those that deal with wastewater treatment and power generation.
Nigel recommends that risk managers break down the process of reviewing complex property portfolio data into manageable pieces by doing the following:
-Rely on your valuation consultant’s expertise.
-Target high priority sites together with your consultant.
-Once you’ve determined a plan of action, figure out which data you need to collect (you can get direction from underwriters or a broker).
-Perform on-site inspection of properties.
There are many benefits of a well documented property portfolio. It makes it much easier to market your portfolio to underwriters and get the best possible rates.
If you’re managing a large number of properties, it is critical to equitably allocate premium dollars within those properties. And finally, if you are unfortunate enough to have a loss, it makes a great start for preparation of a proof of loss statement and reduces the risk of unwelcome surprises.