Agreed Value
A property valuation option where insurer and insured agree on property value upfront, suspending the coinsurance penalty clause.
What It Is
Agreed Value is a commercial property valuation option where the insurer and insured agree on the value of the covered property before the policy period begins. When agreed value is in effect, the coinsurance clause is suspended—the insured will not face a coinsurance penalty even if the property's actual value at the time of loss exceeds the insured amount.
To obtain agreed value, the insured typically must submit a Statement of Values (SOV) documenting the replacement cost of all covered buildings and business personal property. The insurer reviews the SOV and, if acceptable, attaches the agreed value endorsement. The agreed value amount is usually equal to or very close to the stated replacement cost.
Agreed value must be renewed each policy period—it does not automatically continue. The insured must submit an updated SOV annually for the insurer to re-approve the agreed value. If the endorsement lapses, coinsurance reverts to the standard clause, potentially exposing the insured to penalties if values have increased since the last SOV.
Why It Matters for Brokers
Agreed value is one of the most effective ways to protect clients from coinsurance penalties, and brokers should recommend it for virtually every commercial property account where it is available. The premium impact is minimal—often zero—because the insurer gains confidence that the property is fully insured. The key broker action is ensuring the SOV is submitted annually to maintain the endorsement.
Real-World Example
A commercial building owner submits an SOV showing $3.2M in building replacement cost. The carrier accepts the SOV and attaches the agreed value endorsement at $3.2M. Construction costs rise 12% during the policy year, making the true replacement cost $3.58M. Without agreed value, the 80% coinsurance clause would require $2.86M in coverage, and the $3.2M policy would still pass. But if costs rose 25%, the insured would face a penalty. With agreed value, no penalty applies regardless of cost increases during the policy period.
Common Mistakes
- 1Forgetting to submit an updated Statement of Values at renewal, causing the agreed value endorsement to lapse and coinsurance to revert.
- 2Submitting inaccurate or outdated SOV values that do not reflect current replacement costs, which can lead to the insurer rescinding the endorsement.
- 3Assuming agreed value means the insurer will pay the agreed amount on a total loss—it only suspends coinsurance; the insured still must carry adequate limits.
How brokerageaudit.com Handles This
brokerageaudit.com's Policy Checker tracks agreed value endorsement status and sends automated reminders 90 and 60 days before renewal to submit updated SOVs. The system verifies that the SOV values are consistent with the policy limits and flags any policies where agreed value has lapsed or was not renewed, alerting brokers to potential coinsurance exposure.