Most business owners in Newfoundland and Labrador are familiar with their insurance limits and deductibles. But there’s one important detail that often only comes to light when it matters most—during a claim.
It’s called insurance-to-value (ITV).
We’re seeing a growing gap between what buildings are insured for and the cost to rebuild. Inflation, higher construction costs, and labour shortages are pushing replacement values up quickly. That means many businesses are now underinsured, often without realizing it.
If your coverage falls short, a common policy clause called co-insurance can reduce your claim payout, making it harder to recover after a loss.
For businesses in Newfoundland and Labrador, ignorance of these risks can have serious consequences. Rebuilding costs can rise rapidly due to transportation challenges, supply chain delays, and a shortage of skilled workers. Taking action now can help make sure you’re protected.
What Insurance-to-Value Really Means
Insurance to value simply compares two numbers:
- what your property is insured for
- what it would cost to rebuild today
When those numbers align, your coverage is considered accurate.
If your insurance limit is less than what it would cost to rebuild, a co-insurance penalty could leave you with a big, unexpected bill when you need help most.
Many business owners assume that if a loss is smaller than their policy limit, the claim will be fully covered.
But that’s not always how it works. Too often, business owners only find out after a claim that their insurance doesn’t cover as much as they thought. Don’t wait until it’s too late to find out.
The Co-Insurance Clause Explained
Most commercial property policies require you to insure your building to a certain percentage of its replacement value, often 80%, 90%, or even 100%.
If your coverage falls below that threshold, you effectively become a partial “co-insurer,” meaning you share a portion of the loss.
Here’s a simple example.
Imagine your building would cost $1,000,000 to rebuild, but it’s insured for $700,000.
If a storm causes $100,000 in damage and your policy requires you to insure 100% to value, your insurer will determine the payout using the ratio of your insured amount ($700,000) to the required amount ($1,000,000). In this case, the payment is $100,000 x ($700,000/$1,000,000) = $70,000, leaving you responsible for $30,000.
Even with a policy limit higher than the loss, the insurance-to-value gap can still reduce your payout.
This is one of the most common misunderstandings in commercial property insurance.
Why the Insurance-to-Value Gap Is Growing
Over the past few years, replacement costs have increased significantly across Canada.
Several factors are contributing to this trend:
- rising material costs
- construction labour shortages
- supply chain delays
- inflation in building materials and services
In Newfoundland and Labrador, rebuilding costs are often higher because materials need to be shipped in, contractors can be hard to find, and projects can take longer—especially in smaller communities.
These factors increase the true cost of rebuilding after major losses.
A property value that seemed right just a few years ago might now leave your business at risk. It’s important to review your coverage regularly to avoid costly surprises.
Why Businesses Become Underinsured
Most of the time, underinsurance isn’t on purpose.
Sometimes, businesses lower their limits to save on premiums. Other times, property values just haven’t been updated in a while.
Commercial properties can be complicated, and figuring out what it would really cost to rebuild, replace equipment, or meet new building codes isn’t simple.
That’s why we recommend checking your replacement costs or getting a professional appraisal every so often, so your policy keeps up with today’s values.
How Businesses in Newfoundland and Labrador Can Protect Themselves
Staying on top of your insurance-to-value is important. Waiting too long to review your coverage can end up costing you.
A few simple steps can help protect your business.
Review your policy every year
Things like growth, renovations, or inflation can quickly change what your property is worth.
Update coverage after renovations or expansions
If you add storage, buy new equipment, or make improvements, your replacement cost can go up fast.
Consider a professional valuation
A reconstruction cost appraisal gives you a better idea of what it would really cost to rebuild.
Work with a broker who understands your business
Commercial insurance isn’t one-size-fits-all. Good advice matters, especially with policies that have details like co-insurance.
Why Broker Advice Matters
Insurance contracts can be complicated, and most business owners don’t have time to read all the fine print.
That’s where a broker plays an important role.
A good advisor can help you understand how insurance-to-value works, review your limits, and ensure your policy matches what it would cost to rebuild today.
At Wedgwood Insurance, we regularly review commercial policies with our clients to help identify gaps before they become problems.
The worst time to find out you don’t have enough coverage is after something happens.
The Bottom Line
Insurance-to-value is a key part of your commercial property insurance. If your property isn’t insured close to what it would really cost to rebuild, a co-insurance clause could mean you get less after a loss.
With rebuilding costs on the rise, it’s important for businesses in Newfoundland and Labrador to regularly review property values and ensure coverage keeps pace.
LET'S TALK COVERAGE
Get coverage for your business, home, and car—with advice you can trust.
About Wedgwood Insurance
Wedgwood Insurance has offices in St. John’s & Corner Brook and is Newfoundland & Labrador’s largest independent insurance broker. We provide straightforward home, auto & business insurance advice.
With over 350 Google My Business reviews, experience the Wedgwood difference with expert advice from our dedicated team. We ensure that every client has the coverage that best suits their needs through upfront complimentary consultations and midterm reviews.
Contact Us
