What Does a Statement of Values (SOV) Mean in Insurance?

A Statement of Values (SOV) is a document used in insurance, especially for commercial property and business interruption coverage. It declares the worth of assets the insured wants covered. Insurers use the SOV to assess risk, determine policy terms, and calculate coverage limits and premiums.

Understanding Statement of Values (SOV)

A Statement of Values (SOV) is a report provided by an insured to their insurance carrier, itemizing assets and their individual values. Its purpose is to give insurers a clear picture of the total insurable value of a property or collection of properties. This information allows underwriters to assess the potential risk associated with insuring these assets. Insurers use the SOV to establish coverage limits and calculate premiums. It serves as a formal declaration of the financial exposure an insurer undertakes, helping to align expectations between insured and insurer regarding the scope and value of the coverage.

Information Included in an SOV

A Statement of Values includes detailed information about the insured property. For real property, this involves specifics like physical address, city, state, zip code, GPS coordinates, square footage, number of stories, and construction year. It also covers construction type, often categorized by ISO Construction Classifications (e.g., Frame, Joisted Masonry, Non-Combustible, Fire-Resistive), which helps insurers understand combustibility and structural integrity.

The SOV details the value of personal property, including contents, machinery, equipment, and inventory, specifying the method used for valuation (e.g., Actual Cash Value or Replacement Cost). Businesses also include business interruption values, which account for lost income and additional expenses if operations are disrupted. Details like fire suppression systems, fire alarms, and security systems are also included, as these impact risk assessment and premium adjustments.

The Importance of an Accurate SOV

Providing accurate information in a Statement of Values is important for securing insurance coverage. An accurate SOV ensures coverage limits align with the true value of the assets, preventing financial exposure during a loss. Underestimating asset values can lead to underinsurance, where a claim payout may not be sufficient to replace or rebuild damaged property, leaving the insured to cover the difference out-of-pocket. This can result in a coinsurance penalty if the property is not insured to a specified percentage of its value.

Overstating asset values can lead to higher premium payments. While paying more might seem to offer greater protection, insurers typically will not pay out more than the actual loss, meaning excess premiums could be wasted. An accurate SOV helps in fair premium calculation, risk assessment by underwriters, and streamlines claims, leading to quicker and more efficient settlements.

Submitting and Using Your SOV

The Statement of Values is submitted to an insurer as part of the initial application process for a new policy, during policy renewals, or upon specific request. Insurers use the SOV for internal processes, including underwriting, to evaluate the risk profile of the insured property and determine coverage terms and pricing. The data helps in issuing policies that reflect the exposure.

Regularly updating the SOV is important, especially for businesses with fluctuating inventory, new acquisitions, or changes in property values due to market conditions or improvements. Industry practice recommends reviewing and updating the SOV annually to ensure it reflects current asset values and organizational changes. Insurers may also request updates periodically to maintain accurate records and adjust policies as needed, ensuring continuous coverage.