1. The CFO's trap: three values for one asset
A building recorded in a company's assets carries several values at once, and confusing them is the number-one source of poorly indemnified losses:
- The net book value — the acquisition cost (or revaluation) less depreciation. It is a fiscal and accounting magnitude, disconnected from the real cost of reinstatement.
- The market value — what the asset would sell for on the market, land included. For the detail of the bases of value, see our note on the RICS Red Book bases of value.
- The reinstatement (as-new) value — the cost of rebuilding the building identically, excluding land, increased by ancillary costs. It is this one, and only this one, that must serve as the basis for the sums insured.
The principle is the same as for an individual — we detailed it in home insurance: reinstatement value, not market value — but the stakes change scale when it covers a portfolio of several assets, sometimes acquired at very different dates and costs.
2. The insurance basis: reinstatement (as-new) value, excluding land
The reinstatement (as-new) value (insurable value) is figured by the cost approach: how much would have to be spent, at current conditions, to rebuild the damaged building identically? It is made up of:
- The as-new construction cost of the building, a function of surfaces, construction method and level of finishes.
- The ancillary costs — demolition, clearance, design fees, and depending on the policy, compliance-upgrade costs or related losses.
- Land excluded: the land survives the loss, it never enters the sums insured.
This value is technically foreign to the market value and the book value. A warehouse in an industrial zone may cost more to rebuild than it would resell for; conversely, an office building on prized land will be worth more at sale than it costs to rebuild. The same cost-approach logic governs the valuation of an industrial asset.
3. Depreciation: as-new value or market value in the event of a loss
Depreciation is the wear of the building over time. Its treatment, in property-damage insurance, depends entirely on the policy clauses:
- « As-new value » cover: the insurer aims to rebuild identically without deducting depreciation (often within a certain limit and subject to actual reconstruction). It is the most protective cover — and the most expensive.
- Indemnity at market value: the indemnity is paid with depreciation deducted, i.e. reduced by the observed wear. The policyholder then bears the differential between as-new and depreciated.
Key point: there is no standard depreciation rate.The share of depreciation adopted, the caps, the conditions — everything is in the policy. No universal scale applies; it is the reading of the policy, and if need be an adversarial expertise of the building's condition, that settles it. For a CFO, it is the central trade-off between the premium cost and the retained cost in the event of a loss.
The proportional rule of sums insured: the trap that only reveals itself at the loss
The Moroccan insurance code (law 17-99) enshrines the proportional rule of sums insured: if, on the day of the loss, the declared capital in the policy turns out to be lower than the real value of the insured thing, the insurer may reduce the indemnity in the ratio of the declared value to the real value — including for a partial loss. Illustrative example: a building declared for half its real reinstatement cost suffers damage; the indemnity may be halved, even though the damage is partial. Underinsurance costs nothing… until the day it costs a lot. The exact terms (tolerance thresholds, derogating clauses) fall under your policy: confirm them with your insurer or broker.
4. Underinsurance and overinsurance of a portfolio: the two drifts
Across a portfolio of assets, the two errors often coexist in the same master policy, asset by asset:
- Underinsurance — sums frozen at old acquisition cost, works and extensions not reflected, ancillary costs forgotten, drift in construction costs not tracked. Penalty: the proportional rule cuts the indemnity.
- Overinsurance — sums aligned on a market value inflated by the land, or on a revalued book value unrelated to the reinstatement cost. Consequence: a premium paid on a base that will never be indemnified — the « land » share of the sums gives rise to no indemnity.
The right reflex for a CFO is not a global amount but a per-asset value mapping: for each building, the documented reinstatement (as-new) cost, distinct from its market value and its book value. It is this granular work that a real estate asset management approach extends.
5. Indexation: a capital that is fair today drifts tomorrow
Even correctly calibrated at inception, a sum insured ages. Construction costs evolve, and a frozen amount mechanically slides towards underinsurance. Many policies provide an indexation clause that automatically adjusts the sums (and the premium) according to a reference index. For a portfolio, two precautions:
- Check that indexation exists and follows a relevant construction-cost index — the absence of indexation is a silent cause of gradual underinsurance.
- Periodically revise the values after each significant operation (extension, major renovation, acquisition of a new asset) rather than relying on indexation alone, which does not capture changes in the building's substance.
6. The link with the balance sheet: do not confuse the bases
The temptation is strong, for a CFO, to reuse a value already produced — the net book value, or the fair value if the company applies the revaluation option. It is a false economy:
- Net book value: depreciated acquisition cost. It can be far below the reinstatement cost (an old, heavily depreciated building) — hence underinsuring if used as the capital.
- Fair value (IAS 40 / IFRS 13 option): a market value, hence a market value including land — overinsurance if reused as is. On this basis, see our file IFRS 13: fair value of real estate in Morocco.
- Sums insured: reinstatement (as-new) cost, excluding land. A third magnitude, to be figured for itself.
Good practice consists in producing, for each asset, these values side by side in a single mapping — book value for the balance sheet, market value for disposal or financing decisions, as-new for insurance. A single appraisal assignment can serve several of these uses, provided the basis of value is made explicit from the terms of engagement, in line with RICS standards.
7. Policyholder's expert, insurer's expert, third-party expertise
In the event of a loss, the insurer appoints their own expert to assess the damage and the value. The policyholder is not helpless: they can appoint a policyholder's expert to defend their figure, backed by the building's condition and the reinstatement cost. In case of persistent disagreement, many policies provide for a third-party expertise — a third expert splits the difference. It is a field of documented amicable negotiation, not litigation.
One point must remain clear: this expertise is used to support your position with third parties, not as something binding on a court in itself. It serves the discussion between the parties and the insurer; if a dispute is brought before the judge, it is the latter who appoints the judicial expert. The value of a policyholder's expertise lies in its technical quality and the strength of its documentation, not in any automatic evidential force. The same reflex — documenting upstream rather than reacting afterwards — applies to insuring the common parts of a condominium.
8. FAQ
On what value should a company insure its real estate portfolio?
On the reinstatement (as-new) value of the buildings — the sums insured —, excluding the land value, increased by ancillary costs (demolition, clearance, design fees). It is neither the market value (land and market included), nor the net book value on the balance sheet (depreciated acquisition cost). Confusing these bases is the leading cause of portfolio underinsurance.
What is the proportional rule of sums insured?
A mechanism provided by the Moroccan insurance code (law 17-99): if the capital declared in the policy is lower than the real value of the insured thing at the date of the loss, the insurer may reduce the indemnity pro rata of the declared value to the real value, even for a partial loss. The exact terms are set out in the policy — confirm them with your insurer or broker.
What is the place of depreciation in insuring an asset?
Depreciation is the wear of the building over time. An as-new cover aims to rebuild identically without deducting depreciation; failing that, the indemnity is paid at market value, with depreciation deducted. The share of depreciation adopted depends on the policy clauses: no standard rate exists, you must read the policy. It is the central trade-off between premium and retained cost in the event of a loss.
Is the insurance value the same as the balance-sheet value?
No. The net book value is the acquisition cost less depreciation; any fair value (IAS 40 / IFRS 13 option) is a market value. The sums insured, for their part, measure a reinstatement (as-new) cost excluding land. The three bases coexist and cannot be derived from one another — hence the value of a per-asset value mapping.
What to do in case of disagreement with the insurer's expert?
The policyholder can appoint their own expert (policyholder's expert) to defend their figure against the company's expert. In case of persistent disagreement, many policies provide for a third-party expertise. The expertise remains documented amicable negotiation: it is used to support your position with third parties, not as something binding on a court in itself — in litigation, it is the judge who appoints the expert. A report compliant with RICS standards, from 3,500 MAD excl. tax, within 5 to 8 days (48-72 h express), firm quote within 24 h.
Fair sums insured, asset by asset.
RICS-certified experts — estimation of the reinstatement (as-new) value of your portfolio (excluding land), to calibrate your sums insured, neutralise the proportional rule and avoid overinsurance. Per-asset value mapping, reports compliant with the Red Book within 5 to 8 days (48-72 h express), anywhere in Morocco.
Note: The proportional rule of sums insured and the indemnity rules of property-damage insurance fall under the Moroccan insurance code (law 17-99) and the clauses specific to each policy. The covers, caps, deductibles, depreciation rates and indexation clauses depend on your contract: confirm your situation with your insurer or broker. The quantified examples in this article are purely illustrative. To establish the reinstatement (as-new) value of your assets, see our real estate appraisal page or the real estate blog.