Over Inflated Replacement Cost Estimates

[RickyG]

As insurance carriers across the country are having issues with staying profitable on the property side, I continually see something that I've yet to hear addressed. RCE's and even the follow up inspections coming in overly inflated.

Example, client built a home from late 2022 to mid 2023. Nice place, large custom etc. He spent under 925k. RCE comes in at 1.5ish. Inspector goes out and comes back 2.25m rebuild costs triggering non-renewal due to cost being over companies Dwelling A max.

I understand not all things are equal and you have to account for other factors plus contractors' costs which vary etc. However, 2.25m+ when the actual work had just been done less than 18 months ago with closer to 900k is quite a miss. I believe this leads to contractors and loss mitigation companies being able to fleece insurance carriers because the excessive charges appear reasonable based on these bogus inspections. I imagine inspection companies are run by contractors who's interests directly benefit from these inflated repair bills, seems like a pretty massive conflict.

I think any execs at carriers who write homeowner policies need to look into this seriously if they want to get to the root of these issues rather than cutting agent commissions, pulling out of markets etc. Maybe I am missing something major here and if so I assume someone will point it out

 

[renee15]

As insurance carriers across the country are having issues with staying profitable on the property side, I continually see something that I've yet to hear addressed. RCE's and even the follow up inspections coming in overly inflated.

Example, client built a home from late 2022 to mid 2023. Nice place, large custom etc. He spent under 925k. RCE comes in at 1.5ish. Inspector goes out and comes back 2.25m rebuild costs triggering non-renewal due to cost being over companies Dwelling A max.

I understand not all things are equal and you have to account for other factors plus contractors' costs which vary etc. However, 2.25m+ when the actual work had just been done less than 18 months ago with closer to 900k is quite a miss. I believe this leads to contractors and loss mitigation companies being able to fleece insurance carriers because the excessive charges appear reasonable based on these bogus inspections. I imagine inspection companies are run by contractors who's interests directly benefit from these inflated repair bills, seems like a pretty massive conflict.

I think any execs at carriers who write homeowner policies need to look into this seriously if they want to get to the root of these issues rather than cutting agent commissions, pulling out of markets etc. Maybe I am missing something major here and if so I assume someone will point it out

debris removal, plans and permits-also it always costs more than you think. Have you done any remodeling lately? $2600 to replace my water heater-was 1K 10 years ago.

 

[RickyG]

debris removal, plans and permits-also it always costs more than you think. Have you done any remodeling lately? $2600 to replace my water heater-was 1K 10 years ago.

I'll grant you I did not factor permits however I am familiar with constructions costs, very much so. Part of my job the last 3 years has been to build a network of trades people (plumbers, handymen roofers etc) for our agency to refer out to help stem the abusive practices of loss mitigation companies. More often than not we are able to complete these repairs for less than the deductible to avoid a claim. Many times after estimates have come in from other sources that would have been 5 figure plus claims.

I fully understand inflation and what you are saying but there is no way with permits, debris removal or anything else a home is costing 400-500 a square foot to build. That is what we are seeing on the nicer homes. Also, again the example given this home was built under 170 a foot recently and looks like it came out of a magazine its so nice.

 

[Allen Trent]

I fully understand inflation and what you are saying but there is no way with permits, debris removal or anything else a home is costing 400-500 a square foot to build

Average mid range home is $200-400 sq ft, luxury homes $500 to even $1000 sq ft

Keep in mind, the RCT values to rebuild are not coming from the carrier. They are coming from the 3rd party construction industry actual data. Every quarter, contractors across all trades are surveyed as to current costs of materials & labor.

Biggest issue, just like car repairs is that at claim time, cost to carrier tend to be much higher than cost of cash pay citizen. In home construction, a owner may get several quotes as they are paying to build. At claim time, the resident isn't as concerned with cost because insurer paying, so they want nicer & quicker......thus, the contractor can inflate the costs to make room in their schedule

 

[NY independent]

I am convinced that it's just another way to bake in further rate. Why would a carrier that is struggling with reinsurance risk thresholds want to raise them? Because the premiums increase without regulator approval. We are hovering around $525 per sq foot (per RCE software) RC here in NY for a basic, contractor grade home. Local contractors are charging around $300 here. I've shared RCE's with a number of friends that own construction companies of size, and they are amazed at how high our RCEs are. Things will get better though as this is largely unsustainable for carriers.

 

[ehall2]

I have fought this battle with insurance companies for years. The RCE's in my area are considerably higher than what a contractor charges. I have asked insurance companies, " what is the real replacement cost"? The real cost is what would a contractor charge to build. If I get a quote from several contractor the price will probably vary from $50,000 to $100,000 depending on how bad a contractor needs to build a house. Also, the RCE has a disclaimer that states this is an estimate and does not mean this is the actual cost. But insurance companies don't care and won't listen. Over insuring is just a way to get more premium with out raising rates.

 

[Allen Trent]

I have fought this battle with insurance companies for years. The RCE's in my area are considerably higher than what a contractor charges. I have asked insurance companies, " what is the real replacement cost"? The real cost is what would a contractor charge to build. If I get a quote from several contractor the price will probably vary from $50,000 to $100,000 depending on how bad a contractor needs to build a house. Also, the RCE has a disclaimer that states this is an estimate and does not mean this is the actual cost. But insurance companies don't care and won't listen. Over insuring is just a way to get more premium with out raising rates.

I have yet to see a total house loss like a fire that didnt exceed the RCE on the house. at time of catastrophe, the builders quoting a rush job to repair or replace are charging way more than the normal cost of a fully normal process of a bids that occur over a year or 2 with a normal new contruction build.

 

[NY independent]

Which is why carriers need to control costs. They should buy building materials directly from manufacturers and have their own labor. Or,..... have a restoration network (like an HMO) and control costs that way. It's not that difficult and makes one think why they haven't thought of this before.

 

[adjusterjack]

Which is why carriers need to control costs. They should buy building materials directly from manufacturers and have their own labor. Or,..... have a restoration network (like an HMO) and control costs that way. It's not that difficult and makes one think why they haven't thought of this before.

Like the networks of preferred collision repair shops have controlled the costs of collision repairs? I don't see auto insurance rates coming down any time soon.

 

[NY independent]

Jack, I didn't use preferred collision shops as an example on purpose. They don't go nearly far enough to control costs. Let the carriers buy parts directly from Ford, Toyota, Capa, etc. That would be a nice start to lowering claim costs.