Couple of things....
- Mortgage companies are more anal about this then the insurers. If a house is damaged (not a total loss) and there isn't enough money to rebuild it, then guaranteed, they will be on the hook for a loss. In the event of a total loss, they will simply take the money and run if the house isn't repaired, so no big deal there.
- Lawsuits are expensive. Yes, insureds will claim they didn't understand the risk. The agent didn't explain it correctly. Or the real one, it was insured properly at the time of issuance, my agent / carrier didn't keep me informed of price changes in rebuilding costs. Insurance carriers tend to lose these lawsuits.
- PR battles are more expensive then the lawsuit. They would rather not have the policy then have insureds complain about how they didn't insure them correctly. Agents need to be very concerned about this as well. Its your reputation.
- Policies are not priced for regular catastrophic losses. They are priced for the $20K loss that happens far more regularly. This is why pricing isn't linear with dwelling value. Bigger houses are bigger risks and everything else being equal, have a higher chance of a loss.
Yes, insurers want the premium for the risk. Whether they know it or not, your clients want to pay the premium for the risk. At $300K coverage for a $350K dwelling value, they are at risk for the 80% co-insurance clause. This applies even on the $20K loss, not just on the amount over $300K or only on larger losses. It can apply on any loss.
Some carriers will let you insure for whatever amount. Go for those if you want to underinsure.
I don't know enough about construction to argue dwelling valuations. I know contractors will tell you it costs far less to build, but they are thinking new construction. I know remodels costs more per square foot then new builds (by far). I also know rebuilding is more expensive after a big loss in the area then it is when all of the contractors are looking for work. Its hard to estimate for a future potential loss as well.
I gave up arguing dwelling valuations a long time ago. Well, unless they inspected the wrong house, which has happened way to often that it is beyond funny. Heck, it even happened on my own house, where the report was clearly my neighbors house (it was an outside drive by inspection).
Dan
- Mortgage companies are more anal about this then the insurers. If a house is damaged (not a total loss) and there isn't enough money to rebuild it, then guaranteed, they will be on the hook for a loss. In the event of a total loss, they will simply take the money and run if the house isn't repaired, so no big deal there.
- Lawsuits are expensive. Yes, insureds will claim they didn't understand the risk. The agent didn't explain it correctly. Or the real one, it was insured properly at the time of issuance, my agent / carrier didn't keep me informed of price changes in rebuilding costs. Insurance carriers tend to lose these lawsuits.
- PR battles are more expensive then the lawsuit. They would rather not have the policy then have insureds complain about how they didn't insure them correctly. Agents need to be very concerned about this as well. Its your reputation.
- Policies are not priced for regular catastrophic losses. They are priced for the $20K loss that happens far more regularly. This is why pricing isn't linear with dwelling value. Bigger houses are bigger risks and everything else being equal, have a higher chance of a loss.
Yes, insurers want the premium for the risk. Whether they know it or not, your clients want to pay the premium for the risk. At $300K coverage for a $350K dwelling value, they are at risk for the 80% co-insurance clause. This applies even on the $20K loss, not just on the amount over $300K or only on larger losses. It can apply on any loss.
Some carriers will let you insure for whatever amount. Go for those if you want to underinsure.
I don't know enough about construction to argue dwelling valuations. I know contractors will tell you it costs far less to build, but they are thinking new construction. I know remodels costs more per square foot then new builds (by far). I also know rebuilding is more expensive after a big loss in the area then it is when all of the contractors are looking for work. Its hard to estimate for a future potential loss as well.
I gave up arguing dwelling valuations a long time ago. Well, unless they inspected the wrong house, which has happened way to often that it is beyond funny. Heck, it even happened on my own house, where the report was clearly my neighbors house (it was an outside drive by inspection).
Dan
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