When purchasing or renewing commercial property insurance, it’s vital for businesses to ensure insurance-to-value (ITV) is calculated correctly. Doing so can make all the difference in providing sufficient protection and preventing coinsurance penalties amid covered property losses. Generally speaking, insurance-to-value refers to an approximation of the full cost to replace or restore insured property. Put simply, if you’ve ever asked yourself "what does ITV stand for in insurance," just know that it’s a measurement of whether your coverage matches the true cost of rebuilding your property.
Businesses may end up with inaccurate ITV calculations for a wide range of reasons – whether it stems from leveraging ineffective property valuation methods, intentionally underestimating costs in efforts to secure reduced premiums or being impacted by factors outside of their control (e.g., inflation).
Regardless, such inaccuracies are all too common. In fact, an estimated 75% of commercial properties are underinsured by 40% or more, according to industry data. These numbers highlight why understanding the ITV insurance term isn’t just industry jargon – it’s essential for avoiding costly gaps in coverage.
With these findings in mind, it’s evident that businesses need to take commercial property valuations seriously. This article offers more details on ITV, outlines factors to consider when determining a property’s value, explains the pitfalls of property undervaluation and provides best practices for improving property valuation measures.
We hear it all the time from business owners, "What is ITV in insurance what does it represent?"
An accurate insurance-to-value (ITV) calculation represents as close to an equal ratio as possible between the amount of insurance a business obtains and the estimated value of its commercial property – thus ensuring adequate protection following property losses.
However, it’s important to keep in mind that a property may be assigned several different values, including:
Generally, insurance experts recommend using the replacement value of a property to conduct correct ITV insurance calculations. Common approaches to accurately estimating this value include getting a property appraisal from a third-party firm, leveraging fixed-asset records that have been adjusted for inflation or relying on a basic benchmarking tool (e.g., dollars per square foot).
While appraisals often require more time and resources than other property valuation methods, they are largely deemed the most thorough and accurate.
Apart from utilizing replacement value estimates within insurance-to-value (ITV) calculations, businesses should consider the following factors when determining property valuations:
People often ask, “What is ITV in insurance?” But what’s even more important – and less frequently asked– is what happens if you don’t understand it.
Businesses could face a number of ramifications if they conduct inaccurate insurance-to-value calculations and undervalue their properties.
Namely, businesses may lack sufficient coverage following property losses, forcing them to pay out-of-pocket expenses in order to fully rebuild. Depending on the severity of property losses and associated rebuilding operations, paying these costs out of pocket could lead to major financial setbacks and – in certain scenarios – bankruptcy.
Additionally, property undervaluation can sometimes result in coinsurance penalties. Most commercial property insurance policies include coinsurance clauses, which encourage policyholders to carry reasonable and accurate amounts of coverage. Under a coinsurance clause, a policyholder is subject to a penalty – generally, a reduced payout – if their coverage limit is not at least equal to a predetermined percentage (e.g., 80%) of the value of their property. This highlights just how crucial it is to truly understand ITV insurance.
A coinsurance penalty limits the amount recoverable following a loss. To calculate the amount recoverable for a policyholder who doesn’t meet their coinsurance clause requirements, the amount of insurance carried should be divided by the amount of insurance required, then multiplied by the loss cost. For example, if an insured’s property is valued at $1 million, but their coverage limit is $700,000 and their policy includes an 80% coinsurance clause, they would likely only receive a $43,750 payout after incurring $50,000 in property damage from a covered event, depending on when their deductible is applied ((700,000/800,000) x 50,000 = 43,750).
Here are some best practices to help businesses strengthen their insurance-to-value (ITV) process:
Third-party appraisals are considered the gold standard in property valuations by insurers, as they offer reassurance that calculations were conducted by experienced and objective professionals. As such, it’s vital to secure a trusted and reputable appraiser. Be sure to find a firm that follows the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice from the Appraisal Institute.
In addition to getting an appraisal, there are additional industry resources, reference guides and validated tools available to help ensure accurate property valuations. Specifically, the Marshall & Swift Valuation Service Cost Manual is a tool that is widely accepted by insurers. This resource features more than 30,000 component costs across 300 building occupancies that can be referenced when conducting valuations.
Determining the value of a property should be a team effort. Make sure to compile a variety of property data from multiple qualified parties (e.g., accountants, contractors, real estate experts, risk managers, insurance professionals and chief financial officers) when making valuation decisions.
The value of a property is always changing. This means it’s imperative to update property valuations on a regular basis. For instance, appraisals should be conducted at least every three to five years. Take note that property valuations may need to occur even more often for itv insurance. The frequency will depend on factors such as changing property exposures, altered operations, building upgrades or modifications, the implementation of new technology or equipment on-site, shifting market conditions and property construction trends (e.g., inflated labor and material costs). It’s best to work closely with trusted insurance professionals when updating property valuations to maintain ample coverage and prevent coinsurance penalties.
At the end of the day, insurance-to-value is about more than just checking a box on your commercial property policy – it’s about protecting the bigger picture of your business. When properties are undervalued, coverage gaps open the door to financial setbacks, coinsurance penalties, or even the possibility of not recovering after a major loss.
That’s where a holistic approach to risk management comes in. Looking at your business through a wide-angle lens means you’re not just focused on one insurance figure—you’re aligning your property valuations with broader strategies around safety, compliance, continuity, and long-term growth. ITV is one piece of that puzzle, ensuring that if disaster strikes, your coverage reflects today’s real costs and supports a smooth recovery.
By making ITV part of your larger risk management strategy, you’re not just insuring buildings—you’re safeguarding your employees, your operations, and your purpose. In other words, accurate property valuations aren’t just a technical requirement; they’re a cornerstone of building a business that’s resilient, valuable, and built to last.
Contact us today for additional insurance guidance and solutions.