Buying items is simple. Selling things is a little more difficult, but still fairly straightforward. As long as humans have been around, we’ve been giving value to certain items, whether it be monetarily or otherwise. “How much does it cost?” isn’t that complex of a question – until it is.
So when it pricing complex? Pricing becomes a problem when claims adjusters get involved. Finding a definitive price for an item not on the market, after depreciation, and so forth is an art form. Well, more like a science. So how do claims adjusters find the true or definitive price of an item?
Enter actual cash value (ACV) and replacement cost value (RCV). Actual cash value is the cost to replace an item minus depreciation. Replacement cost value is the cost to replace the asset at the full present value.
While these concepts may seem straightforward, things can get complex quickly. Adjusters not only need to decide on the value of an item, but there are also numerous local and state laws that can impact how ACV and RCV are calculated.
Diving Into Differences
Each state tends to handle ACV and RCV a bit differently. For instance, California includes an interesting tidbit in their legislation regarding these issues. In California:
“Actual cash value is the amount it would cost the insured to repair, rebuild, or replace the item lost or injured less a fair and reasonable deduction for physical depreciation based on its condition at the time of the loss.”
While seemingly fair, this leaves pre-loss condition in a tough situation. Many adjusters have found themselves between a rock and a hard place due to this law. Often, it can be difficult to determine what an item actually is – much less its exact condition at the time of the loss.
Unique or Obsolete
Furthering confusing things, an adjuster has to work with obsolete and unique items. Not even item loss will be easily purchased on Amazon.com. No, there will be a variety of items that hold a unique value for the owner. Many of these items will be tough to find pricing for.
As an adjuster, understanding that one man’s trash could equate to another’s treasure is paramount when dealing with these unique cases. When dealing with these cases, communication is key. The adjuster must work to understand the insured and what he or she places value on. You need to understand the insured and the item before placing a value on it.
When dealing with these items, begin by understanding what exactly the item is, how it was used, and if the insured still values it. Many times, an adjuster will need to dig deep and do some research before giving value to a unique or obsolete item.
If an adjuster is struggling to price an item properly, try:
- Consulting experts in the field. Look for a certified consultant who can help you give value to a unique, obsolete, or high-priced item. Always verify these individuals’ credentials.
- Use the Internet. While Internet pricing isn’t the most accurate, you’ll often be able to gather a working knowledge of the item and its value by going online.
Overall, the best way to determine value for an obsolete or unique item is to find a similar item already on the market. Finding a similar kind and like item can ensure fair pricing and valuation for both parties.
Antique items open a whole other bag of worms for adjusters. Not every item that is older is considered a valuable antique. Most items are required to be a certain age and origin to qualify. A minimum of 100 years old is required for an item to be “antique” from an insurance perspective. Adjusters should handle antique items in a similar manner to obsolete and unique items.
Actual Cash Value Vs. Replacement Cost Value
Overall, understanding the actual cash value versus the replacement cost value isn’t that complex. Most homeowners will benefit from RCV more than ACV when an adjuster is looking into their claim. How a state handles these cases and individual policies will go a long way in determining how the claim is calculated.
For more information about Actual Cash Value (ACV) vs. Replacement Cast Value (RCV) contact Skyline Risk Management, Inc. at (718) 267-6600