Valuation of buildings of a pharma group company for insurance Purpose

Introduction

A pharma group company had multiple companies under it which had multiple difference type of production factories such as capsules manufacturing plant, foils and pictures manufacturing plant, printing machine manufacturing plants, molds manufacturing plants etc.

Situation

• All the factories were developed long back and did not have area details with regular upgradation. 
• The company had many other buildings such as residential flats, offices, and guest houses.

Q&A

Question Arise – 

• How to arrive at the Factory Building Value for insurance purpose? 
• How to arrive at the Non – Factory Building such as residential flats, offices, guest houses Value for insurance purpose?

Answers written down –

After having several discussions with the client, observations during physical inspection and detailed analysis, we managed to conduct the exercise and provide the value that it is neither overvalued nor undervalued. We broadly worked as follows:

• We had valued the factory buildings with indexing methods as there was no area available and all the structure were regularly have upgradations. 
• We had valued the non-factory buildings with area methods as there was area available and all the structures were not having any changes.

Read More: Valuation of an under-construction commercial project by Discounted Cash Flow (DCF)

1. Why is insurance valuation of buildings important for pharma companies?

Accurate insurance valuation ensures pharma facilities are covered for replacement costs, protecting against underinsurance and claim disputes.

2. Which methods are used for valuing pharma buildings for insurance?

The most common methods include the replacement cost approach and depreciated replacement value, considering construction quality, compliance, and specialized pharma infrastructure.

3. How often should pharma companies get their buildings valued for insurance?

It is recommended to conduct valuations annually, or at least once every three years as per IRDAI and audit best practices, especially after expansions or upgrades.

4. What documents are required for insurance valuation of pharma buildings?

Essential documents include approved building plans, occupancy certificates, previous insurance policies, fixed asset registers, and recent renovation details.