What does "fair market value" refer to in surplus lines insurance?

"Fair market value" in surplus lines insurance refers to the price an asset would likely sell for in a competitive marketplace. This definition is critical in various aspects of insurance valuation. It reflects what a willing buyer would pay to a willing seller under normal circumstances, without any pressure on either party to act.

In the context of surplus lines, understanding fair market value is essential because it helps in determining the appropriate coverage and the right premium. Insurance policies need to be based on realistic values that represent what the asset is worth in the open market, ensuring that clients are neither underinsured nor overpaying for coverage.

This concept stands in contrast to other definitions that may reflect different monetary metrics or valuation methods, such as tax assessments or minimum values set by insurance companies. Fair market value allows for a more accurate and equitable representation of risk and value in the insurance underwriting process.