Author: Nancy Germond
It's all over the internet, whether an insurance carrier or a service servicer provider article – many of today's home in the U.S. are underinsured. Underinsurance can occur when the coverage limits chosen by your insured are too low, after your insured upgrades, as did many during the pandemic, or when your insured fails to factor in additional costs of today's construction rates. It's equally important that you remind insureds each year about their coverage limits. Here are a few areas where claims costs are outrunning rebuilding values. Let's review each subject to determine how you can help your insured update home valuations when needed.
Coverage limits too low
Some agents use a replacement cost calculator to help an insured choose the right limits, then rely on inflation guard endorsements to help keep insurance values updated. Inflation guard endorsements provide an automatic update to coverage limits as outlined in the endorsement. Some insurers build inflation guards into some homeowners policy forms. However, in times of high inflation, these annual adjustments may be inadequate. This approach is problematic in times of unusually high inflation
Additionally, many insureds initially underestimate the cost to rebuild their homes. If this is the case, even given inflation guard protections, insureds may find they are underinsured at the time of loss.
It's important that agents provide alternative valuations to insureds or potential clients when providing homeowners' quotes. This article by Chris Boggs explains the importance of replacement cost estimators. Recommending one value over another when presenting these alternatives to your client can generate an errors & omissions (E&O) claim. It's important that you provide options to your insureds, then let them make the choice of coverage amounts.
Remodeling upgrades
Many homeowners remodeled their homes during the pandemic. Upgraded kitchens and baths, adding home-office square footage, or other improvement can greatly affect property value. And with supply chain issues causing disruption in delivery and higher costs, a remodel can drastically change the value of your insureds' homes.
It's a great time to reach out to your insureds either via your newsletter, on social media, or with an email campaign, reminding them to contact you regarding any changes they've made in their homes. We've included some suggested email campaign wording as well as social media posts to help protect you. The more you reach out to inform your clients about possible coverage limitations, the greater your protection if an E&O allegation arises post loss.
Construction costs
Wages and construction material costs increased greatly in 2021. This year, 2022, show little slowing in costs. According to the National Association of Homebuilders, building material costs rose by 19.2% since the pandemic's start. Building services such as trades and transportation climbed 45.6% since the pandemic.
Clearly, many homes in the U.S. may be greatly underinsured, and many insurers cite this fact. One Nationwide article stated two-thirds of American homes are underinsured by as much as 60%. Any issue with underinsurance after a loss can generate an expensive and hard-to-defend E&O claim.
How can agents protect their clients and themselves?
Frequent and clear communication is the best way to protect your clients against the risks of underinsurance. If you can develop a case study about a home that suffered damage and was inadequately insured, case studies can help paint a clear picture of the problems caused by underinsurance.
Set time aside each day to contact your insureds, whether by phone or through social media, to educate them on the inflationary impact of construction costs and trade labor on their homeowners insurance coverage.
Here are some potential social media updates you can use to educate your clients about home valuation
“Is your home adequately insured? With construction materials and labor costs up almost 20% since the start of the pandemic, rebuilding your home after a loss can cost much more than you predicted. Call us for more information on your homeowners coverage options."
“An annual review with your insurance agent can help prevent your home's underinsurance. Contact your agent today for more information on this complimentary coverage review."
“Did you upgrade your home during the pandemic? Adding new fixtures or appliances, countertops, or a kitchen or bathroom remodel can greatly increase your home's value. If you made upgrades that may make your homeowners insurance coverage inadequate considering recent construction inflation, call us for more details."
“Has your home's value increased? Even a small loss can be a problem with the high cost to repair or rebuild. Additionally, construction delays can leave you out of your home much longer than anticipated. Let us review your homeowners coverage with you to help you choose policy limits and coverage enhancements that can better protect you after a loss."
First published: July 29, 2022