An insurance appraisal fulfills only three needs: these are independence, placement value data, and proof of loss preparedness. Differing levels and types of insurance appraisals fulfill each of these needs to differing degrees. Addressing each need in turn below: Independence: the insurance company would like to see an appraisal from an outside firm. This is somewhat obvious so that there is not fraud perpetrated by the assured. Some insurance companies have their own appraisers but unpleasant loss settlement situations may still occur. Placement: an independent valuation will inform the assured about the amount of insurance to carry. Such an analysis may be completed in great detail with say a +/-10% possible variance or in an overview manner with a +/-20% or greater variance. Be wary, just because the insurance carrier does an insurance placement value analysis, as stated before an unpleasant loss situation may occur, with the insurance company denying that the proper amount of insurance was carried. Proof of Loss: along with having the appropriate amount of insurance, this is the most important element of an insurance appraisal. Directly stated, if one is not prepared to prove one’s loss instantly 10% of a fair settlement is gone. If not well prepared this loss settlment amount may be 25% or even more. The strategy is to get a balanced fair and equitable settlement in a timely manner. These thoughts are directly linked. One can get a fair settlement say 5 years hence, but it is not timely. Or one can get a timely less fair settlement if one accepts 75 cents on the dollar. Again, not good. One wants the fair settlement at full value in say 6-12 months or whatever time is appropriate for the loss situation, balancing the wishes of “fair” and “timely”. What is adequate Proof of Loss? The fixed asset accounting record most often is greatly inadequate for a loss situation. Without going into a long explanation, many fixed asset accounting systems contain data that includes intangibles in the values, non-value entries, allocated values from acquisitions, “ghost” assets, and on and on. The appropriate proof of loss document may be an independently developed appraisal and listing of the assets, with this document being annually updated by facility staff or outside consultants. Flow diagrams help. Photographs and movies of specific assets and systems help. Files that have original purchase costs and descriptive detail are wonderful (but rarely are available). Engineering records may help. However, for most facilities / operations the assured is not prepared. Oversight in this regard is strongly suggested. Why, because ultimately it is the assured’s responsibility to reasonably prove one’s loss.  For those facilities where a detailed valuation for Fair Value accounting is prepared the information may be very good, at that instant. Yet the information must be kept up to date. It must be kept up to date either within the fixed asset accounting system or as a separate aside record. Critical property and casualty insurance thoughts: • One may rather deal with the IRS than fight an insurance battle. • Understand the insurance policy (contract) coinsurance clause wherein the assured shares in the settlement to the extent of the insurance that should have been carried, say 80%. • The fixed asset accounting record is not adequate proof of loss. • Understand the difference between a Replacement Price policy and an Actual Cash Value policy. • Replacement Price policies are “repair or replace” often up to Actual Cash Value (a litigious issue considering the issues of Market Value, depreciation, or betterment). Usually the insurance policy states that Acutal Cash Value will be paid until or if the covered assets are replaced (the language varies per differing insurance contract forms). If under a Replacement Price policy the carrier depreciated labor, the carrier could be acting in “bad faith”. • Actual Cash Value policies generally consider the current cost new for the same functional utility of the covered assets less physical depreciation / deterioration. However, in some instances, Actual Cash Value is considered to mean the cost of replacing the asset at Fair Market Value - Removed, or Used Market (another litigious issue). • Being unprepared to prove one’s loss may be extremely costly. • The insurance company will not pay for betterments, meaning if you have an old Model A asset and now a Model B is only available you will not receive the settlement for a Model B loss. Check insurance contracts in this regard concerning betterments. • The insurance company may well not pay for engineering or intangible assets relating to specific tangible assets. Check the policy and/or discuss this matter with the broker. • Understand what the insurance policy says. One can underinsure as well as over insure. A personal note. Are you prepared for a loss at your home? Do you have the proof of value and listing of the assets, or at least photos or a movie of the residence and the contents? Is this information somewhere else other than in your residence? All are encouraged to get prepared for an unfortunate insured event. But imagine in a loss situation how much less of a fair settlement you would receive if such data is not available. Then project this thought into your business situation.