Determining Depreciation–Are Policyholders Getting Ripped Off?

Many property insurance company adjusters are required by their companies to determine the amount of depreciation to be taken when arriving at amounts of actual cash value. Many are told to determine this amount by determining the replacement cost and then subtracting depreciation. The question is: How are property insurance adjusters trained to determine depreciation so the insurance customer is not “ripped off” by taking too much depreciation?

I was thinking about this issue while reading an article on PropertyCasualty 360°, “A look at Replacement Cost Value vs. Actual Cash Value,” written by Enservio’s Scott Lacourse. My overriding thought was that this is an important topic about depreciation because so many insurance companies require taking depreciation in virtually every property insurance loss. Yet, the rules often cited of how a person accurately determines the depreciation to be taken seems unusually vague or simply wrong.

The topic is also very much on the mind of insurance companies, as I noted in Do Not Gamble on Being Ignorant About Depreciation of Labor–The MERLIN Las Vegas Public Adjuster Conference Will Make You a Winner! where I stated:

Some insurance companies seem to be in a race to the bottom by searching and questioning every possible way to pay their customers less following a loss. Taking depreciation on labor charges is a fairly new method for these companies.

As a result, there has been more litigation on the topic. Examples are noted in Depreciation of Property to Determine Actual Cash Value is Different in California and Age as a Factor in Determining Depreciation Used to Calculate Actual Cash Value.

I will write more about the Lacourse article this week. He is to be congratulated for writing about this very important topic, but I suggest that determining actual cash value and depreciation is not as simple as he indicates.

All property loss adjusters should ask themselves whether they may be making mistakes when determining actual cash value when depreciation is an element of the equation.

Positive Thought For The Day

Excellence is the unlimited ability to improve the quality of what you have to offer. 
           —Rick Pitino