Insure to Value Argument

[insurance1822]

Can somebody on here w/ underwriting experience give me a clear explanation on why carriers are so anal about this? Let's use the example that our estimate is 300k dwelling & after inspection they're coming in at 350k. Of course we all know carriers come in WAY high all the time anyway. Spare the total loss & making sure the person is insured correctly as I've been through totals before. This is strictly hypothetical.

1.) If it's insured to 300k, what do they care if it would (in their opinion..) take 350k to rebuild? They're only on the hook for the dwelling coverage listed?

2.) The risk of fire or wind doesn't change based off the dwelling limit

3.) Shouldn't the carrier want to be on the hook for less then the full rebuild? That saves them money in the event of a loss.

4.) They say they need the correct premium for the risk, but they aren't required to pay more then what's on the dec page so who cares? I could understand if there was some law that says they MUST rebuild the home regardless of what's shown on the dec page.

 

[hesse]

Its all numbers. The rates they figure are based on %100 RC You start insuring at 80% replacement cost and everything to the actuaries changes.


essentially if you want to insure

100% equals say $100

for 80% an insurer will charge $90

When underinsuring your getting the benefits of a better rate.

Works the same way in the commercial world

 

[myfakename]

Do you want to insure the front half or the back half of a building?

granted your numbers used are "close" but partial loss is where coins matters. not totals.

 

[GXR2]

1) Not in all cases. Dwelling extension does not account for proper premium if valuation is off

2) not the probability of it occurring but the severity of loss it can.

3) No. Their goal is to properly indemnify. Lawsuits or bad press are more costly.

4) See #3. In some cases they still may have to pay. Its about profit and loss.

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One other thing to mention. If inspectors are coming back saying your evaluation is off you're either not asking the client enough questions about the property and/or you're rushing through or not doing a complete RCE.

 

[InsCommentary]

The proper and correct limit is the one closest to the actual replacement cost. Presumably the carrier believes their number is the better one. While there are arguably instances of overinsurance, the reality is that the data shows that it is far more likely that a property is UNDERinsured than overinsured. That's particularly true when there is a catastrophe and demand causes prices to rise. When you have underinsurance, you often have E&O lawsuits. $50,000 on a $300,000 - 350,000 property seems well within any margin of error.

 

[cola2001]

It's ridiculous PL carriers make homeowners do this. They are basically calling the insured an ***.

They could write the policy as agreed value and be done with it. They collect higher rates per $100 of coverage, and the insured gets lower premium and he's insured for the amount he wants and is happy. Everybody wins.

 

[FL P&C Broker]

The problem with agreed vale is the litigation costs after somebody's home can't be rebuilt and the home owner decides to sue everybody.

 

[ADHD]

For an eye-opening perspective, go to YOUTUBE and search "Under-Insured With Allstate". You want the video from CBS, about the California forest fires, published 7 years ago.

Also, if a carrier pads their profitability by requiring homeowners to insure to a higher figure, they can then lower their price per $1,000 of coverage, creating a win/win/win (cough -see Safeco). In short, they all have their own proprietary pricing recipes.

Ultimately, I think this issue is similar to when someone gets a "feel good appraisal" on their jewelry. They might seem "inflated" at first, but as time goes by they get more and more accurate.

 

[HKeller]

The problem with under-insuring is that, when the contract says 80% co-insurance it means on a $100,000 home, I'ts actually on the hook for $120,000 because the of the 80% clause. So for that reason the company wants & needs the dwelling insured for the proper value because it "needs" the correct premium for the correct value because of the policy language. You want to boast about RC coverage, then it has to be paid for. If your insured wants to get by for as little premium as possible, sell him a ACV policy. Buy I wouldn't brag too much about it. (;o)

 

[cola2001]

The problem with agreed vale is the litigation costs after somebody's home can't be rebuilt and the home owner decides to sue everybody.

That's the benefit of agreed value. The insured is not intending to rebuild their home like it was, otherwise they would get replacement cost. The insured gets to agree on a value up front how they will be indemnified in the event of a total loss.