How many agents have suggested that the coverage be higher on Homeowners Insurance policies, only to be told by the insured that he does not want to pay more premium or have his mortgage payment to go up. It happens quite often. Yet if they have a loss, they want to blame it on someone other than themself.
Why does it always seem to happen when there is a large natural catastrophe that those who lose their most prized investment complain about being short changed by their insurance company and agent. Aren’t these the same people who usually buy on price ie: you get what you pay for
Maybe its time to seek professional insurance placement advise
I recently had an Insured inquire about their Homeowner limits. I used the Marshall Swift QQ and found the calculation to be about 40% higher than their current limits (and the carrier inspected home and calculated the policy limits). When I advised the Insured they need to go higher, they asked if they can split the difference.
Yes, clients want LOWEST premium, not BEST (or correct) coverage. At least until a claim, then of course they want the best COVERAGE. So how can we resolve this issue of what to do?
One answer to HELP would be a STANDARD that ALL Companies, Agents & Brokers use.
How do we do this without more GOVERNMENT rules and regulations (which I “DO NOT” favor)?
How about the insurance companies seriously looking at providing us the answer with ONE system that we all use! “Oh, am I wishing?”
Without a solution the Government WILL MAKE new RULES and REGULATIONS and then we (Companies, Brokers & Agents) will complain. (“This is not my wish; just FACT!”)
Yes, this is an endless circle. So, in the end the question is WHO (Government or Companies) will take the next step?
What are your bets? The answer is coming. The Question is from WHOM?
Marshall & Swift came out with a report in Dec. 2003 stating that 2/3rd’s of residential policy holders are underinsured by 1/3rd. This was their research and cited as a cause that the cost to rebuild should be used, not cost to repair noting that insurers who did so had less of a difference between policy & claim.
JD Powers on the day before the CA Cedar Fire issued its report that almost 24% of residential policyholders do not know what type of policy they have (guaranteed, extended replacement, replacement, or ACV). There is reliance on what the insurance company says is adequate.
The point is that insureds can make an informed decision whether to be underinsured or not. CA Assemblyman Juan Vargas (Chair of State Assembly Insurance Committee agress).
Why is it the agents responsibility to determine the value of a home? We use a tool to “estimate” the value of a home. We use a reconstruction cost factor, which increases the construction cost. We add a 125% buffer in case we don’t keep up with inflation. Yet with all of this, it becomes the agents responsibility instead of the insureds to be sure the home is adequately insured.
Can it be that the insurance company has access and capabilities to not only sell insurance but know how much it cost to replace homes as insurers are handling claims on a daily basis.
There is a disconnect between selling a policy and handling a claim. An insurer as its business understands risks, can analyze risk, and has tremendous history of handling claims.
Insurance should not be the value of the home, but the cost of replacing that home.
A 2,000 square foot home in Coronado, CA selling for $1.05 million should be based on replacement cost of that home. The cost per square foot may be higher but the total number of square footage is low.
Conversely, a 3,700 square foot home in Scripps Ranch before the fire was selling for approximately $800,000. The cost to replace per square foot may be lower but the total number of square footage is higher.
Amazing the different answers you hear. I have been selling homeowner’s insurance in California for 14 years and have been amazed at how the price for rebuilding has gone up dramatically. But every 3-5 years, I try and run a new ITV for my insureds and send them a letter advising they are underinsured and explain the consequences. 80% of the clients ignore the letter, 10% agree to the increase and thank me profusely and the other 10% tell me they pay too much in premium already and don’t want the coverage raised. The MS/B replacement cost guide is just a guideline and in my opinion, does not keep up with California costs. I routinely have to increase the ITV on new homeowner’s policy above what they say based on my experience and charts for estimated rebuilding in counties in CA. It is amazing how many policies I DO NOT sell because the competition will lowball their ITV estimate and I will not budge on what I know is a lowball amount of coverage. I explain to the potential client that if they want a policy to cover them completely, I will be more than happy to sell it to them, but if all they want is a policy that is cheap, then go to the other agent that is willing to sell you inferior coverage. They may not like me for my position, but at least I sleep better at night. I believe the agents and companies need to be more up to date with their values and the insureds need to take more responsibilities in making sure they have adequate coverage amounts.
Just look at the last paragraph of the article. The statement made by Paul Rubicani puts the stiutation more in perspective. If yours is the only home in the your neighborhod which is a total loss, you can get any number of contractors who will give you a very competitive bid on the reconstruction of your home. On the other hand, just be another home among thousands who need to have their homes reconstructed and you will be lucky to get a contractor to speak to you, let alone give you a competitive bid.
When this great pool of insurance company money become available the old greed factor sets in to the equation of reconstructive home costs. I hope when our commissioner looks into this situation he give great weight to this greed situation. Instead of placing the blane solely on the insurance industry.
Competition among builders and construction managers continues to be healthy.
Took an inventory last weekend in Scripps Ranch, CA. There is a large builder doing 81 homes doing work next to single custom builders. There are mid size builders doing 4-20 homes each (4 builders doing more than 11 each). One builder is losing homeowners because he wanted a certain volume to honor a price per foot. There has not been a reported shortage of willing and able builders.
Homeowners are reaching into their own pockets to pay for larger homes and upgrades which are not part of replacement costs.
The CA Insurance Commissioner’s Office and the Contractors State License Board have done successful unlicensed contractors sweeps. Recently, 100% compliance.
I have been selling homeowner insurance for 18 years and I do feel the insured is partially (only partially) responsible to make sure they have adequate limits. This is everyone’s biggest investment, but most have the idea it won’t happen to me. With all the fire’s and earthquakes, it amazes me that each time, the common thread is the client is underinsured.
I believe that the insurance agent and company however have a bigger responsibility in the replacement cost value. We are the professionals selling the product stating we will put the client whole. We have seen these claims and what has happened to insureds trying to replace their homes.
An example I just finished working on was a client who called me because she didn’t like her agent. She has a 3800 sq ft home currently insured with State Farm for $468,800 in Santa Barbara. My first comment before going further was that her home was drastically underinsured. She listened and agreed. After having an appraiser go to her home and talking with a local contractor, her home should be more than doubled. After advising her 3 times, that the limit was low and the cost would increase, she has decided to stay with the current agent she doesn’t like due to the lower insurance cost.
Who is at fault? The insured and definitely the agent who is insuring the home for $123 sq ft.
I obtained insurance from one of the largest companies in 1991 by going to their agent and answering the questions posed to me. The insurer selected the coverage amount and assured me that I am covered. There were inflation adjustments each year but should I have suffered a loss in the October 2003 Wildfire, I was insured at $105/ft with 20% extended.
Claims are seeing scopes from the insurer over $170/ft for similar homes as mine.
I switched companies and was given $126/ft with assurances that I am covered. I insisted on $175/ft with 50% extended as that is what it is costing to rebuild what I have.
Good for you Bob!. Maybe if we had more clients actually worried about replacing their homes instead of just getting the cheapest coverage, we would not have as many problems with ITV. It is still hard to believe that any agent or company for that matter in California could actually think you can rebuild ANYWHERE in CA for $126 sq ft. With lumber prices up 50% or more, I would think $175 per sq ft is a pretty good average.
The ITV is always too high in Texas, I’ve had customer’s houses burn down who were insured for the ITV amount and it was $20,000 overinsured after building upgrades.
I work for an insurance company where we are trained to “educate” our clients in what exactly it is that they are paying for. we make it our job to enforce replacement cost versus market value and try to tell them that it typicaly costs more to rebuild a home than to sell it in its current condition.
We also will not budge on the ITV as we do not want our clients to suffer total losses and be underinsured. Although I think that M&SB is a great tool i do think there are flaws. We also write polcies in Texas and there are drastic differences in ITV on new homes where it seems to overinflate replacement cost.
I honestly don’t think that there will ever be a universal tool that every insurance company will be required to use since ITV typically doesn’t have to be enforced. We just need to Educate, educate, and educate so that the clients are aware of what they are paying for and if they still want to insure the way that they want to it is their choice but at lease they know what the policy covers.
I also join in saying good for Bob. What the public doesn’t realize that if everyone followed the examaple of Bob the pricing would actually be lowered. The companies would have so many premium dollars their loss ratios would be so good, that if they did not lower the prices the DOI would lower the prices.
Boy Joann, you hit the nail right on the head!. I also believe it is the agents and companies who should steer the client to a correct replacement cost, but in the end, it is the client who must make the decision. I can’t remember how many times I have gone up against a State Farm or Farmers policy where the insured is woefully underinsured and I will work up new quotes based on a more accurate replacement cost, (usually 100% more than they have now), and then have the client say they are staying with what they have since it is cheaper. To rely on the “extended replacement cost” endorsement that so many agents tout as the cure all is just doing more harm than good for the clients. I am currently once again going thru my entire homeowner’s book and recalculating the ITV and making the insured sign a waiver if they do not agree to the increase. This way, at least I have done my job of at least trying to make sure my clients are covered properly.
As personal lines agents for 9 different companies we come across this problem each day. It’s not the just the agent, it’s the consumer. Most people wil get numerous quotes. The one agent who lowballs the replacement cost can and will quote a lower policy rate. The consumer closes his or her eyes to the fundimental question of why the vast difference. We sell to those who ask, or at leat request an explination. We use large all inclusive programs to rate home values for building. We don’t argue with the prospect we walk away if they are unreasonable. Unfortuanatly as I like to say in this business, eventually someone will tell the consumer “what they want to hear” and the consumer will buy the low value/low cost policy.
In Canada we generally sell guaranteed replacement cost homeowners policies. The replacement cost is pre-agreed to by Insured and Insurer. No valuation issues at time of loss. Policy pays what ever it costs to rebuild. Is this format not available in the US of A?
Folks, we are living in an “***-backwards” world. No one wants to accept responsibility for their own actions be it the homeowner, agent or insurance company. That is why the most vulnerable gets the blame, namely the agent.
In my area I have trouble with company enforced over insurance rather than underinsurance. What think ye about that?
That is known as a “dream” endorsement here in “Kaleefornia”. The few carriers that issued them stopped after a few payouts. The most one could ask for is a high percentage “extended replacement cost with code” built-in now days.
The homeowner knows what his house is worth at the time he buys or obtains a mortgage.
I suspect the homeowner was intersted in keeping his premium payment to a minimum and knew at the time of policy placement what value was being used.
Homeowners need to review their policy annually and update the values. But we don’t do it.!!!
Unfortunately, sales price has no relationship to actual rebuilding costs. Since most likely, there is land involved, which will still be there in the event of a fire. One of the items that seems to almost always be left off the replacement cost estimate is foundation work. Almost all of the homes is So Cal are needing some additional foundation work if not complete work redone. Also with lumber prices up 50% in the past year, no wonder it seems impossible to keep up.
I can use myself, an agent for 15 years as an example. Last year in Sept, I purchased a 2400 sq ft home in Suisun City for what I felt was a very good value. I insured it for $288,000 at the time based on Marshall/Swift and also giving it a little cushion knowing that I did not want to be underinsured. As I am running new costimators for all of my insureds, starting with July renewals, I pulled mine out and redid it and now, 10 months later, the replacement cost estimator is now $390,000! Which, might still be too low. Sure, my premium is going up $200 a year, but I will pay because I don’t want to pay later. If we could only convince our clients of this.
Most homeowners in our zipcode don’t want to pay the premium to insure their home to value. They are perfectly happy with something closer to “market value” until a loss occurs. Then we read stories such as this one.
What is the answer when they go right down the street to our competitor and get the value THEY desire?
Have your potential customer read about the underinsurance problem based on what they want to do and ask, “Are you well enough informed to take that risk?”
Losing your home completely changes your life. 320 neighbors of mine are going through it now. You need to continue living your life with work, kids, and friends but at the same time spend untolled hours recovering from the physical and emotional loss while figuring out how to rebuild.
Do you want to go through a claims process that appears arbitrary and subjective based upon ability to negotiate?
Do you want to go through the turmoil of seeing your children effected unnecessarily (not knowing when or how the rebuild process is going to work, upheaval in daily lives where there is no longer the comfort of familiar surroundings and certainty).
Having the correct amount and type of insurance is a key element of recouping and moving ahead. Consumers vastly for the most part detrimentally rely on the amount of coverage that insurers are quoting. Being well enough informed of what you are purchasing is vital.
Asnwering a few quick questions posed by the insurer does little to adequately inform the consumer that the coverage will replace the dwelling and personally property. Not knowing what other types of coverages does nothing to educate consumers.
Using terms like “value” means one thing to the consumer (market value, purchase price, loan amount?) and another to the insurer (new construction costs for mass produced home v custom home?, inclusive of general conditions and profit/overhead?).
Consumers do not rebuild homes on a daily basis and do not have access to wealth of information available to insurers. This is evident as some contributors below have said they upon learning of underinsurance issues, they can go back and let their customers know if coverages are adequate. Agents are rightfully proud of being professionals and to that end serve their customers better when agents continue educating themselves. Agents are no different then other professionals such as attorneys, doctors, builders when it comes to getting new clients in the door. The price needs to be competitive and you need to make the sale while providing services that clients will not regret.
I recognize the difference between selling a policy and handling a claim, but things are a whole lot better without having to deal with whether there is enough coverage.
You sound like an attorney and not a very smart one. The first thing you should have done was to fire your State Farm agent years ago for his lack of professional conduct, the comment ” your fine where you are ” is a pathetic response.
Why don’t you use an Independent Agent who knows how the reconstruction valuation software the industry uses work and will counsel you on your options, along with providing multiple company coverage options.
You are to blame because you accepted a lame excuse from someone you are helping to support through your commission payment for services not rendered.
I’m not in the business, but I am a State Farm insured whose residence is almost certainly underinsured. Question for the pros: What should I ask my State Farm agent to do (what method of calculation, etc.) that gets the rebuild valuation to the right number, in light of all known variables? What about Code upgrades on the rebuild? What about an automatic annual reevaluation so I don’t have 4 years go by before I think to do my agent’s job for him (again)?
I’ve asked him before, but have received a complicated answer, the bottom line of which is, I’m fine where I am. I’m an insurance coverage lawyer by trade, and he’s obfuscating, not enlightening. I will pay the increased premium for the increased peace of mind. Others may not, but that doesn’t excuse “my” agent from properly looking after my insurance picture in exchange for his part of my premium dollar. The reason it (underinsuring) shouldn’t fall on the homeowner (absent waiver) is that, as observed below, most people are completely unschooled in insurance and construction, and they are also in denial as to the probability it will happen to them. Couple that with some insurers’ representations re: “replacement” coverage and they’ll take the cheapest. The insurers are in the best position to provide the purchaser with the information and coverage that best meets their individual needs. The best (though not bulletproof) protection for the agent is to have the insured sign an acknowledgment that, based on home specs and area construction costs, in combination w/inflation, etc., you’ve recommended they insure for X$/sq.ft replacement cost, and they are currently insured for Y$/sq.ft replacement cost. At the bottom, add “I understand that my home is currently underinsured and that it may not be able to be rebuilt in the event it is destroyed.” That should get their attention. And explain what the other carriers are doing by lowballing the premium to get the commission, while leaving the homeowner on the curb. That would get my attention.
I’d appreciate any response to my question, above. Thanks.
Sounds like Tom’s working through some things. I’m still open to responses to my question: What exactly do I ask my agent to do in order to arrive at an accurate, annually updated, cost calcuation on my residence? Anybody?
In your opening sentence, you are acknowledging you are underinsured. This does let on that part of the responsibility is in your hands. Insurance agents are not contractors. We do however see the rising cost of construction and the problems that arise from being underinsured. In my previous response to this article I stated I felt insurance agents have a big part in this and should at least advise the client they are underinsured. With that said, I suggest the following in your situation.
1. Get another agent. You are to blame for staying with someone you know is not doing a good job on your behalf.
2. Talk with a contractor on the estimated replacement cost. Contractors will only give an approximate as even they cannot guarantee what the home will cost if it burns down in 3 months. You cannot expect agents to know if the contractors cannot guarantee the amounts. One report showed lumber costs increased 50% over the last 12 months. Could anyone expect that type of increase?
3. Have the agent show you the replacement cost valuation they used. If Marshall and Swift they should have done the complete estimate and not the quick version.
4. Get various quotes from other insurance agents. See what the extended replacement cost (ERC) limit and building ordinance cost (BOC) limit includes. Policy coverages range from different carriers. One carrier may provide 125% ERC and another 200%. BOC can have a 10% limit or be included for the full replacement cost value.
I do not think any agent would be able to give you an estimate for replacement since many factors go into each home. Location, a Santa Barbara vs. Bakersfield home would have different contracting costs. What does your home include? Italian tile, industrial appliances, central air/heat, what type of carpet, frame construction etc.
I feel it is both parties (agent and insured) to make sure the home is insured to value. If an agent advises the homeowner they feel they are underinsured and the homeowner does not increase coverage the blame should solely be on the insured.
Those are useful suggestions. I recognize I am underinsured and am taking affirmative steps (including posting my request for information here) to correct the problem. I will search for a different agent, but at this time want to stay with State Farm, provided I can get the correct level of coverage, as they have all of our HO, umbrella, cars/motorcycles, etc. tied together for a decent premium. Plus, they’re huge so I know they’ll be around. A lot insurers won’t take my bikes, or my pit bull, or my German Shephered, etc., either, so that’s a factor. My current agent was the closest SF agent to my house when I purchased the coverage beginning in ’96. I’ll check to see if a closer one now exists. Incidentally, the same SF agent also checked the boxes “declining” the sewer/leakage coverage, and my UIM coverage (both were desired), and I only caught it when he had to come back to the house for an additional signature (he hadn’t asked me whether I wanted those coverages, or presented me with those portions of the application, when we met the first time). That “mistake” could have cost me dearly. He’s bad, but as a coverage lawyer who does a lot of “bad faith” work, I can keep him in the box – sometimes it’s better to keep the bad guy you know, rather than start over.
I’m afraid we will continue to disagree, however, as to the duties/responsibilities of agent and insured. Most people have no idea they are underinsured for a rebuild, while those in the industry know the hows, whys, etc. The agents are in the best position to provide the information. They are licensed professionals who are charged with more than simply presenting policies for purchase. That is why they have to carry E & O coverage. I agree with you that, once I suspect I’m underinsured, the burden is on me to get more information and fix the problem, but that doesn’t change my original argument that the initial burden of getting me properly insured belongs to my agent. Where I do agree with you is where the insured, having been informed by his agent he is underinsured, declines to correct the condition. That insured should lose, and likely will.
How many agents have suggested that the coverage be higher on Homeowners Insurance policies, only to be told by the insured that he does not want to pay more premium or have his mortgage payment to go up. It happens quite often. Yet if they have a loss, they want to blame it on someone other than themself.
Why does it always seem to happen when there is a large natural catastrophe that those who lose their most prized investment complain about being short changed by their insurance company and agent. Aren’t these the same people who usually buy on price ie: you get what you pay for
Maybe its time to seek professional insurance placement advise
I recently had an Insured inquire about their Homeowner limits. I used the Marshall Swift QQ and found the calculation to be about 40% higher than their current limits (and the carrier inspected home and calculated the policy limits). When I advised the Insured they need to go higher, they asked if they can split the difference.
Yes, clients want LOWEST premium, not BEST (or correct) coverage. At least until a claim, then of course they want the best COVERAGE. So how can we resolve this issue of what to do?
One answer to HELP would be a STANDARD that ALL Companies, Agents & Brokers use.
How do we do this without more GOVERNMENT rules and regulations (which I “DO NOT” favor)?
How about the insurance companies seriously looking at providing us the answer with ONE system that we all use! “Oh, am I wishing?”
Without a solution the Government WILL MAKE new RULES and REGULATIONS and then we (Companies, Brokers & Agents) will complain. (“This is not my wish; just FACT!”)
Yes, this is an endless circle. So, in the end the question is WHO (Government or Companies) will take the next step?
What are your bets? The answer is coming. The Question is from WHOM?
If an insured refuses a higher limit suggested by the agent, get it in writing with an insured’s signature.
Marshall & Swift came out with a report in Dec. 2003 stating that 2/3rd’s of residential policy holders are underinsured by 1/3rd. This was their research and cited as a cause that the cost to rebuild should be used, not cost to repair noting that insurers who did so had less of a difference between policy & claim.
JD Powers on the day before the CA Cedar Fire issued its report that almost 24% of residential policyholders do not know what type of policy they have (guaranteed, extended replacement, replacement, or ACV). There is reliance on what the insurance company says is adequate.
The point is that insureds can make an informed decision whether to be underinsured or not. CA Assemblyman Juan Vargas (Chair of State Assembly Insurance Committee agress).
Why is it the agents responsibility to determine the value of a home? We use a tool to “estimate” the value of a home. We use a reconstruction cost factor, which increases the construction cost. We add a 125% buffer in case we don’t keep up with inflation. Yet with all of this, it becomes the agents responsibility instead of the insureds to be sure the home is adequately insured.
Can it be that the insurance company has access and capabilities to not only sell insurance but know how much it cost to replace homes as insurers are handling claims on a daily basis.
There is a disconnect between selling a policy and handling a claim. An insurer as its business understands risks, can analyze risk, and has tremendous history of handling claims.
Insurance should not be the value of the home, but the cost of replacing that home.
A 2,000 square foot home in Coronado, CA selling for $1.05 million should be based on replacement cost of that home. The cost per square foot may be higher but the total number of square footage is low.
Conversely, a 3,700 square foot home in Scripps Ranch before the fire was selling for approximately $800,000. The cost to replace per square foot may be lower but the total number of square footage is higher.
Amazing the different answers you hear. I have been selling homeowner’s insurance in California for 14 years and have been amazed at how the price for rebuilding has gone up dramatically. But every 3-5 years, I try and run a new ITV for my insureds and send them a letter advising they are underinsured and explain the consequences. 80% of the clients ignore the letter, 10% agree to the increase and thank me profusely and the other 10% tell me they pay too much in premium already and don’t want the coverage raised. The MS/B replacement cost guide is just a guideline and in my opinion, does not keep up with California costs. I routinely have to increase the ITV on new homeowner’s policy above what they say based on my experience and charts for estimated rebuilding in counties in CA. It is amazing how many policies I DO NOT sell because the competition will lowball their ITV estimate and I will not budge on what I know is a lowball amount of coverage. I explain to the potential client that if they want a policy to cover them completely, I will be more than happy to sell it to them, but if all they want is a policy that is cheap, then go to the other agent that is willing to sell you inferior coverage. They may not like me for my position, but at least I sleep better at night. I believe the agents and companies need to be more up to date with their values and the insureds need to take more responsibilities in making sure they have adequate coverage amounts.
Just look at the last paragraph of the article. The statement made by Paul Rubicani puts the stiutation more in perspective. If yours is the only home in the your neighborhod which is a total loss, you can get any number of contractors who will give you a very competitive bid on the reconstruction of your home. On the other hand, just be another home among thousands who need to have their homes reconstructed and you will be lucky to get a contractor to speak to you, let alone give you a competitive bid.
When this great pool of insurance company money become available the old greed factor sets in to the equation of reconstructive home costs. I hope when our commissioner looks into this situation he give great weight to this greed situation. Instead of placing the blane solely on the insurance industry.
Competition among builders and construction managers continues to be healthy.
Took an inventory last weekend in Scripps Ranch, CA. There is a large builder doing 81 homes doing work next to single custom builders. There are mid size builders doing 4-20 homes each (4 builders doing more than 11 each). One builder is losing homeowners because he wanted a certain volume to honor a price per foot. There has not been a reported shortage of willing and able builders.
Homeowners are reaching into their own pockets to pay for larger homes and upgrades which are not part of replacement costs.
The CA Insurance Commissioner’s Office and the Contractors State License Board have done successful unlicensed contractors sweeps. Recently, 100% compliance.
Bob, you are a dream client.
I have been selling homeowner insurance for 18 years and I do feel the insured is partially (only partially) responsible to make sure they have adequate limits. This is everyone’s biggest investment, but most have the idea it won’t happen to me. With all the fire’s and earthquakes, it amazes me that each time, the common thread is the client is underinsured.
I believe that the insurance agent and company however have a bigger responsibility in the replacement cost value. We are the professionals selling the product stating we will put the client whole. We have seen these claims and what has happened to insureds trying to replace their homes.
An example I just finished working on was a client who called me because she didn’t like her agent. She has a 3800 sq ft home currently insured with State Farm for $468,800 in Santa Barbara. My first comment before going further was that her home was drastically underinsured. She listened and agreed. After having an appraiser go to her home and talking with a local contractor, her home should be more than doubled. After advising her 3 times, that the limit was low and the cost would increase, she has decided to stay with the current agent she doesn’t like due to the lower insurance cost.
Who is at fault? The insured and definitely the agent who is insuring the home for $123 sq ft.
A personal story:
I obtained insurance from one of the largest companies in 1991 by going to their agent and answering the questions posed to me. The insurer selected the coverage amount and assured me that I am covered. There were inflation adjustments each year but should I have suffered a loss in the October 2003 Wildfire, I was insured at $105/ft with 20% extended.
Claims are seeing scopes from the insurer over $170/ft for similar homes as mine.
I switched companies and was given $126/ft with assurances that I am covered. I insisted on $175/ft with 50% extended as that is what it is costing to rebuild what I have.
Good for you Bob!. Maybe if we had more clients actually worried about replacing their homes instead of just getting the cheapest coverage, we would not have as many problems with ITV. It is still hard to believe that any agent or company for that matter in California could actually think you can rebuild ANYWHERE in CA for $126 sq ft. With lumber prices up 50% or more, I would think $175 per sq ft is a pretty good average.
The ITV is always too high in Texas, I’ve had customer’s houses burn down who were insured for the ITV amount and it was $20,000 overinsured after building upgrades.
I work for an insurance company where we are trained to “educate” our clients in what exactly it is that they are paying for. we make it our job to enforce replacement cost versus market value and try to tell them that it typicaly costs more to rebuild a home than to sell it in its current condition.
We also will not budge on the ITV as we do not want our clients to suffer total losses and be underinsured. Although I think that M&SB is a great tool i do think there are flaws. We also write polcies in Texas and there are drastic differences in ITV on new homes where it seems to overinflate replacement cost.
I honestly don’t think that there will ever be a universal tool that every insurance company will be required to use since ITV typically doesn’t have to be enforced. We just need to Educate, educate, and educate so that the clients are aware of what they are paying for and if they still want to insure the way that they want to it is their choice but at lease they know what the policy covers.
I also join in saying good for Bob. What the public doesn’t realize that if everyone followed the examaple of Bob the pricing would actually be lowered. The companies would have so many premium dollars their loss ratios would be so good, that if they did not lower the prices the DOI would lower the prices.
Boy Joann, you hit the nail right on the head!. I also believe it is the agents and companies who should steer the client to a correct replacement cost, but in the end, it is the client who must make the decision. I can’t remember how many times I have gone up against a State Farm or Farmers policy where the insured is woefully underinsured and I will work up new quotes based on a more accurate replacement cost, (usually 100% more than they have now), and then have the client say they are staying with what they have since it is cheaper. To rely on the “extended replacement cost” endorsement that so many agents tout as the cure all is just doing more harm than good for the clients. I am currently once again going thru my entire homeowner’s book and recalculating the ITV and making the insured sign a waiver if they do not agree to the increase. This way, at least I have done my job of at least trying to make sure my clients are covered properly.
As personal lines agents for 9 different companies we come across this problem each day. It’s not the just the agent, it’s the consumer. Most people wil get numerous quotes. The one agent who lowballs the replacement cost can and will quote a lower policy rate. The consumer closes his or her eyes to the fundimental question of why the vast difference. We sell to those who ask, or at leat request an explination. We use large all inclusive programs to rate home values for building. We don’t argue with the prospect we walk away if they are unreasonable. Unfortuanatly as I like to say in this business, eventually someone will tell the consumer “what they want to hear” and the consumer will buy the low value/low cost policy.
In Canada we generally sell guaranteed replacement cost homeowners policies. The replacement cost is pre-agreed to by Insured and Insurer. No valuation issues at time of loss. Policy pays what ever it costs to rebuild. Is this format not available in the US of A?
Folks, we are living in an “***-backwards” world. No one wants to accept responsibility for their own actions be it the homeowner, agent or insurance company. That is why the most vulnerable gets the blame, namely the agent.
In my area I have trouble with company enforced over insurance rather than underinsurance. What think ye about that?
Peter.
That is known as a “dream” endorsement here in “Kaleefornia”. The few carriers that issued them stopped after a few payouts. The most one could ask for is a high percentage “extended replacement cost with code” built-in now days.
The homeowner knows what his house is worth at the time he buys or obtains a mortgage.
I suspect the homeowner was intersted in keeping his premium payment to a minimum and knew at the time of policy placement what value was being used.
Homeowners need to review their policy annually and update the values. But we don’t do it.!!!
Unfortunately, sales price has no relationship to actual rebuilding costs. Since most likely, there is land involved, which will still be there in the event of a fire. One of the items that seems to almost always be left off the replacement cost estimate is foundation work. Almost all of the homes is So Cal are needing some additional foundation work if not complete work redone. Also with lumber prices up 50% in the past year, no wonder it seems impossible to keep up.
I can use myself, an agent for 15 years as an example. Last year in Sept, I purchased a 2400 sq ft home in Suisun City for what I felt was a very good value. I insured it for $288,000 at the time based on Marshall/Swift and also giving it a little cushion knowing that I did not want to be underinsured. As I am running new costimators for all of my insureds, starting with July renewals, I pulled mine out and redid it and now, 10 months later, the replacement cost estimator is now $390,000! Which, might still be too low. Sure, my premium is going up $200 a year, but I will pay because I don’t want to pay later. If we could only convince our clients of this.
Most homeowners in our zipcode don’t want to pay the premium to insure their home to value. They are perfectly happy with something closer to “market value” until a loss occurs. Then we read stories such as this one.
What is the answer when they go right down the street to our competitor and get the value THEY desire?
Good question.
Have your potential customer read about the underinsurance problem based on what they want to do and ask, “Are you well enough informed to take that risk?”
Losing your home completely changes your life. 320 neighbors of mine are going through it now. You need to continue living your life with work, kids, and friends but at the same time spend untolled hours recovering from the physical and emotional loss while figuring out how to rebuild.
Do you want to go through a claims process that appears arbitrary and subjective based upon ability to negotiate?
Do you want to go through the turmoil of seeing your children effected unnecessarily (not knowing when or how the rebuild process is going to work, upheaval in daily lives where there is no longer the comfort of familiar surroundings and certainty).
Having the correct amount and type of insurance is a key element of recouping and moving ahead. Consumers vastly for the most part detrimentally rely on the amount of coverage that insurers are quoting. Being well enough informed of what you are purchasing is vital.
Asnwering a few quick questions posed by the insurer does little to adequately inform the consumer that the coverage will replace the dwelling and personally property. Not knowing what other types of coverages does nothing to educate consumers.
Using terms like “value” means one thing to the consumer (market value, purchase price, loan amount?) and another to the insurer (new construction costs for mass produced home v custom home?, inclusive of general conditions and profit/overhead?).
Consumers do not rebuild homes on a daily basis and do not have access to wealth of information available to insurers. This is evident as some contributors below have said they upon learning of underinsurance issues, they can go back and let their customers know if coverages are adequate. Agents are rightfully proud of being professionals and to that end serve their customers better when agents continue educating themselves. Agents are no different then other professionals such as attorneys, doctors, builders when it comes to getting new clients in the door. The price needs to be competitive and you need to make the sale while providing services that clients will not regret.
I recognize the difference between selling a policy and handling a claim, but things are a whole lot better without having to deal with whether there is enough coverage.
You sound like an attorney and not a very smart one. The first thing you should have done was to fire your State Farm agent years ago for his lack of professional conduct, the comment ” your fine where you are ” is a pathetic response.
Why don’t you use an Independent Agent who knows how the reconstruction valuation software the industry uses work and will counsel you on your options, along with providing multiple company coverage options.
You are to blame because you accepted a lame excuse from someone you are helping to support through your commission payment for services not rendered.
I’m not in the business, but I am a State Farm insured whose residence is almost certainly underinsured. Question for the pros: What should I ask my State Farm agent to do (what method of calculation, etc.) that gets the rebuild valuation to the right number, in light of all known variables? What about Code upgrades on the rebuild? What about an automatic annual reevaluation so I don’t have 4 years go by before I think to do my agent’s job for him (again)?
I’ve asked him before, but have received a complicated answer, the bottom line of which is, I’m fine where I am. I’m an insurance coverage lawyer by trade, and he’s obfuscating, not enlightening. I will pay the increased premium for the increased peace of mind. Others may not, but that doesn’t excuse “my” agent from properly looking after my insurance picture in exchange for his part of my premium dollar. The reason it (underinsuring) shouldn’t fall on the homeowner (absent waiver) is that, as observed below, most people are completely unschooled in insurance and construction, and they are also in denial as to the probability it will happen to them. Couple that with some insurers’ representations re: “replacement” coverage and they’ll take the cheapest. The insurers are in the best position to provide the purchaser with the information and coverage that best meets their individual needs. The best (though not bulletproof) protection for the agent is to have the insured sign an acknowledgment that, based on home specs and area construction costs, in combination w/inflation, etc., you’ve recommended they insure for X$/sq.ft replacement cost, and they are currently insured for Y$/sq.ft replacement cost. At the bottom, add “I understand that my home is currently underinsured and that it may not be able to be rebuilt in the event it is destroyed.” That should get their attention. And explain what the other carriers are doing by lowballing the premium to get the commission, while leaving the homeowner on the curb. That would get my attention.
I’d appreciate any response to my question, above. Thanks.
Sounds like Tom’s working through some things. I’m still open to responses to my question: What exactly do I ask my agent to do in order to arrive at an accurate, annually updated, cost calcuation on my residence? Anybody?
Hello Rick,
In your opening sentence, you are acknowledging you are underinsured. This does let on that part of the responsibility is in your hands. Insurance agents are not contractors. We do however see the rising cost of construction and the problems that arise from being underinsured. In my previous response to this article I stated I felt insurance agents have a big part in this and should at least advise the client they are underinsured. With that said, I suggest the following in your situation.
1. Get another agent. You are to blame for staying with someone you know is not doing a good job on your behalf.
2. Talk with a contractor on the estimated replacement cost. Contractors will only give an approximate as even they cannot guarantee what the home will cost if it burns down in 3 months. You cannot expect agents to know if the contractors cannot guarantee the amounts. One report showed lumber costs increased 50% over the last 12 months. Could anyone expect that type of increase?
3. Have the agent show you the replacement cost valuation they used. If Marshall and Swift they should have done the complete estimate and not the quick version.
4. Get various quotes from other insurance agents. See what the extended replacement cost (ERC) limit and building ordinance cost (BOC) limit includes. Policy coverages range from different carriers. One carrier may provide 125% ERC and another 200%. BOC can have a 10% limit or be included for the full replacement cost value.
I do not think any agent would be able to give you an estimate for replacement since many factors go into each home. Location, a Santa Barbara vs. Bakersfield home would have different contracting costs. What does your home include? Italian tile, industrial appliances, central air/heat, what type of carpet, frame construction etc.
I feel it is both parties (agent and insured) to make sure the home is insured to value. If an agent advises the homeowner they feel they are underinsured and the homeowner does not increase coverage the blame should solely be on the insured.
Those are useful suggestions. I recognize I am underinsured and am taking affirmative steps (including posting my request for information here) to correct the problem. I will search for a different agent, but at this time want to stay with State Farm, provided I can get the correct level of coverage, as they have all of our HO, umbrella, cars/motorcycles, etc. tied together for a decent premium. Plus, they’re huge so I know they’ll be around. A lot insurers won’t take my bikes, or my pit bull, or my German Shephered, etc., either, so that’s a factor. My current agent was the closest SF agent to my house when I purchased the coverage beginning in ’96. I’ll check to see if a closer one now exists. Incidentally, the same SF agent also checked the boxes “declining” the sewer/leakage coverage, and my UIM coverage (both were desired), and I only caught it when he had to come back to the house for an additional signature (he hadn’t asked me whether I wanted those coverages, or presented me with those portions of the application, when we met the first time). That “mistake” could have cost me dearly. He’s bad, but as a coverage lawyer who does a lot of “bad faith” work, I can keep him in the box – sometimes it’s better to keep the bad guy you know, rather than start over.
I’m afraid we will continue to disagree, however, as to the duties/responsibilities of agent and insured. Most people have no idea they are underinsured for a rebuild, while those in the industry know the hows, whys, etc. The agents are in the best position to provide the information. They are licensed professionals who are charged with more than simply presenting policies for purchase. That is why they have to carry E & O coverage. I agree with you that, once I suspect I’m underinsured, the burden is on me to get more information and fix the problem, but that doesn’t change my original argument that the initial burden of getting me properly insured belongs to my agent. Where I do agree with you is where the insured, having been informed by his agent he is underinsured, declines to correct the condition. That insured should lose, and likely will.
Thanks again for your response.
Marshall and swift no longer has the monopoly, Bluebook international is better, cheaper and more accutate…