The short answer
Buildings end up undervalued, and premium goes uncollected, mainly for two reasons: the square footage on file is too low, or a building on the property is not on the schedule at all. PropDiagram checks both from a street address in about a minute. It measures the footprint of every building on the lot from aerial imagery and numbers each one, so you can set the result against the application before you bind or renew.
- About 90%of buildings in a Kroll appraisal study were underinsured (estimate)1
- 68%of buildings valued in 2020 to 2021 were under by 25% or more1
- 80%of commercial risks Verisk reviewed had incorrect square footage2
How common is underinsurance?
Common enough to be the norm. The Insurance Information Institute, citing a study of property appraisals by Kroll, reported that an estimated 90 percent of the buildings studied were underinsured, and that 68 percent of the buildings valued from 2020 to 2021 were underinsured by 25 percent or more.1 Verisk, reviewing insurers' commercial property data, found the square footage was incorrect in 80 percent of the risks it evaluated, and estimated $4.5 billion in commercial property premium leakage over four years from misclassified construction and fire protection alone.2
What is premium leakage?
Premium leakage is premium an insurer was entitled to and never collected because the facts used to rate the policy were wrong or incomplete. On a property policy the leak is usually one of three things: understated building area, a building that was never scheduled, or a wrong construction or protection class. The first two are visible from above.
How does a building end up undervalued?
| What went wrong | How it usually happens | What the diagram shows |
|---|---|---|
| Square footage too low | Taken from memory, an old application or a rounded estimate | Measured length, width and footprint square footage |
| An addition was never added | The building grew after the policy was written | The building's outline as it appears in the aerial photo |
| A building is not on the schedule | A shop, barn, garage or pole building the insured did not think to mention | Every building on the lot, numbered |
| Two buildings counted as one | Attached or adjacent structures described as a single building | Separate outlines with separate measurements |
| Upper floors left out | Only the ground floor was counted | A Multi-Story entry that adds the 2nd floor and above to the total |
A worked example
An application lists a shop at 5,000 sq ft. The diagram measures it at 60 ft by 120 ft: 7,200 sq ft, because of an addition. Using an illustrative cost of $150 per square foot:
| On the application | As measured | |
|---|---|---|
| Building area | 5,000 sq ft | 7,200 sq ft |
| Replacement cost at $150 per sq ft | $750,000 | $1,080,000 |
| Shortfall in value, and in the premium charged on it | $330,000 (31%) |
The insurer has been collecting premium on $750,000 for a $1,080,000 building: that is the leakage. For the insured it is worse if the policy has an 80 percent coinsurance clause. The limit required is $864,000 (80 percent of $1,080,000) and the limit carried is $750,000, so a $200,000 partial loss is paid at 750,000 / 864,000 of the loss: about $173,600 before the deductible. The insured is short roughly $26,400 on a loss far below the limit, and the next call is to the agent.
The cost per square foot is for illustration only. PropDiagram does not estimate replacement cost; use your carrier's or your own valuation tool with the corrected area.
How do I check a property with PropDiagram?
- Run the address. Every building on the lot is outlined, numbered and measured.
- Count the buildings. Compare the numbered list with the schedule or statement of values. A building with no line on the schedule has no coverage and earns no premium.
- Compare the square footage. Look for buildings where the area on file is well below the measured footprint. For multi-story buildings, enter the upper floors so the totals are comparable.
- Confirm on the aerial view. Check the outline against the photo. Move a wall or add a building if the property has changed.
- Put the corrected area into your valuation tool and save the PDF with the file.
Who benefits?
- Carriers and MGAs collect the premium the exposure calls for, at new business and when re-underwriting renewals.
- Agents place adequate limits and avoid the conversation that follows a coinsurance penalty. See reducing E&O exposure.
- Insureds are paid what they expected to be paid.
Common questions
What is insurance to value?
Insurance to value (ITV) is the relationship between the amount of insurance on a building and what it would cost to rebuild it. A building insured for its full replacement cost is insured to value.
What is premium leakage?
Premium leakage is premium an insurer should have collected but did not, because the information used to rate the policy was wrong or missing: understated square footage, an unscheduled building, or a wrong construction or protection class.
How does wrong square footage cause underinsurance?
Replacement cost estimators multiply a cost per square foot by the building's area. If the area on file is 20 percent low, the estimated value and the premium are about 20 percent low.
Does PropDiagram calculate replacement cost?
No. It measures the footprint of each building and lets you record upper floors, so the square footage going into your replacement cost estimator is checked against the building itself.
How do unscheduled buildings show up?
Every building on the lot is outlined and numbered. Comparing that list with the policy schedule shows at once whether a barn, shop, garage or addition has no coverage and no premium.
What is a coinsurance penalty?
When a policy has a coinsurance clause and the limit is below the required percentage of the building's value, a partial loss is paid in proportion: the amount carried divided by the amount required, times the loss.
Sources
- Insurance Information Institute (Triple-I), Commercial Property Insurance Shows Signs of Improvement, Stable Growth, Says New Triple-I Brief, December 19, 2024, citing a study of property appraisals by Kroll.
- Verisk, $4.5 billion in commercial property premium leakage due to misclassification, June 1, 2017.
Sources checked October 2026. PropDiagram is not affiliated with or endorsed by the Insurance Information Institute, Kroll or Verisk.
A PropDiagram report is a diagram and reference record. Measurements are approximate ground-footprint estimates from aerial-imagery-derived building outlines. A report is not an appraisal, survey, replacement cost estimate or insurance valuation; verify anything a decision depends on.