CA-Guaranteed Replacement Cost

[asiebum]

What carriers offer Guaranteed Replacement Cost Coverage for HO3/HO5 policies?

[LadyBroker]

I am a wholesaler, so not completely in tune with the Homeowner's marketplace, but don't believe anyone does Guaranteed Replacement cost anymore...

[jtownagent]

Chubb, Chartis, Firemans Fund, Andover Companies..but I am on the east coast.

[yoyowordup]

Cincinnati, but they don't write in California.

By Guaranteed Replacement Cost do you mean unlimited coverage A? Most carriers offer 25-50% cap on increased coverage A. Why would you need more than 50% if you are properly insuring the risk.

[SFOInsuranceLady]

I hear that Century National writes Guaranteed Repalcement cost, however, the house must be 20 years old or newer.
but I'm with "yoyo".....why would you need more than 50% if you are properly insuring the risk? Or is it that you may just want to start writing guaranteed R/C because of the new DOI requirements with respects to the calculation of replacement costs in California? If you have an older home, I'm not sure if any carrier will write guaranteed repalcement cost.

[asiebum]

I have had several requests from consumers for Guaranteed Replacement Cost. I really don't want to offer the coverage, but felt I should do my part to make sure that I was advising my clients correctly as I had also assumed that GRC is no longer offered in CA. I have heard that AAA will offer GRC but I have not had confirmation of that. Yes I do agree that if you are properly calculating the replacement value of a home you should not need GRC.

[sankykid]

There is at least one scenario where GRC could be helpful:

If there was a major event that caused damage to a very large number of homes at the same time (e.g. a massive fire), the price of construction materials and labor could rise dramatically. If the price of concrete, wood, labor etc. doubled, a properly insured home with 150% extended replacement cost may not have enough coverage.

The chance of something like this happening may be rare, but for clients that have enough money and want coverage for worst case scenarios, GRC can make sense.

[jtownagent]

sankykid is right on. If available why would you not offer guarenteed replacement cost with no cap. To my knowledge there are still some damaged homes from Katrina that are still waiting to be re built.

[inshru2]

First American Specialty Insurance Company offers the coverage on newer homes less than 25 years and requires an interior inspection if purchasing the coverage. There is an additional premium charged for the coverage as well.

[RKunz2]

What carriers offer Guaranteed Replacement Cost Coverage for HO3/HO5 policies?

HO-411 Guaranteed Replacement Cost, affects Coverage A, B, C, and D limits. It's not exactly "unlimited" as the endorsement or some people might think. I used to have this endorsement on a California home written through Encompass. Cov. A was $600,000 (+/-) and the GRC was $1.2 million. If for some reason, the rebuild cost was $1.5 million, it's not my understanding that the carrier would have paid it. It's GRC up to the Coverage A limit.

As for the industry, most carriers are moving away from the HO 411. It does have legitimate uses under specific circumstances, but there was a lot of abuse of this endorsement too. It allows for gaming of the Coverage A limit without the danger of underinsurance, making it difficult for the carrier to rate and collect the right premium for the risk they're insuring.

As for who still offers it; the list given is probably pretty accurate. It's going to be a short list.

[itzawlgud]

GRC was the policy language used when I started my career in 1989 but was phased out soon thereafter and the language restricting the GRC to a percentage above insured value typically at 20-25% was inserted.
From my perspective and experience it made no sense not to have some type of cap above insured value. Real loss scenarios included insuring an 1800 sq. ft. home for $XXX,XXX. The insured adds a 500 sq. ft. addition but does not adjust the insured value.
With the older policy language the company would get stuck covering the addition in the event of a total loss. With a 20-25% cap that lessened the exposure to the carrier for these type scenarios but still give the client the protection they needed in the event of rebuild costs exceed coverage A limits due to legitimate market fluctuations.

I would review the language very carefully on any policy that offers GRC for a total loss without a cap. It makes no sense IMO.

[LadyBroker]

There is a post above talking about loss during a Catastrophic fire event....we have wildfires in California on an almost annual basis, and they are never large enough to affect the supply & demand to the point where costs increase. Now, in the event of a true catastrophe, like an Earthquake or a Flood, yes, that certainly affects the pricing of goods, because the catastrophic event affects every aspect of the area involved. For example, an earthquake may damage or destroy freeway and roads...now you can't transport your goods. Utility lines will be damaged, rendering homes uninhabitable, and office structures unbearable..you can't work in a high rise with no elevators, electricity or plumbing, right? But a fire is unlikely to cause such widespread damage to the infrastructure of a community.

The real deal with GRC, though, is that insureds would resist any change to the values on their home, and as such, after the Oakland fires in 1991, the industry realized they were vastly underinsured. GRC is pretty much a thing of the past here in CA, it could still be in use in other areas, but if you are in a state that still allows it, be careful and prudent with your underwriting.

[d's insurance store]

Guaranteed Replacement Cost was gamed and abused by companies, agents and insureds all through the low loss period of the late 70's and through the 80's as a sales acquisition tool. Underwriting departments allowed the use of faulty cost estimators (I remember using one from the Slanted A company that merely counted rooms) probably under pressure from the marketing departments to increase sales, in cahoots with agents who needed to manipulate the final premium number to win the sale to the customer who probably knew deep down their dwelling couldn't be rebuilt for $35/foot, but wanted the cheapest price available.

It really wasn't until the Oakland fire in California where the curtain was pulled back, revealing a system that would gag and choke an actuary. Companies reacted in horror, insureds with losses demanded full rebuilding from a policy that often didn't even meet the 80% threshhold and agents played dumb.

As an agency owner, I still see gross underinsurance dwelling values from most of the direct writers in competitive quote situations, and without hesitation, state a willingness to pass on the quote derby, knowing that hell hath no fury like an insured with a total loss who at the point of sale wanted the cheapest policy and at the point of loss expects the most expansive of coverage, pointing the innocent finger at the agent, who 'if they'd only told me to buy more coverage, I would have' profess ignorance of the system.

[wariline]

Just want to point out that for ERC to apply, many carrier stipulate the insured must notify the carrier if the replacment cost or SQFT of the dwelling increases exceeding certain %.

GRC was the policy language used when I started my career in 1989 but was phased out soon thereafter and the language restricting the GRC to a percentage above insured value typically at 20-25% was inserted.
From my perspective and experience it made no sense not to have some type of cap above insured value. Real loss scenarios included insuring an 1800 sq. ft. home for $XXX,XXX. The insured adds a 500 sq. ft. addition but does not adjust the insured value.
With the older policy language the company would get stuck covering the addition in the event of a total loss. With a 20-25% cap that lessened the exposure to the carrier for these type scenarios but still give the client the protection they needed in the event of rebuild costs exceed coverage A limits due to legitimate market fluctuations.

I would review the language very carefully on any policy that offers GRC for a total loss without a cap. It makes no sense IMO.

[RKunz2]

As an agency owner, I still see gross underinsurance dwelling values from most of the direct writers in competitive quote situations, and without hesitation, state a willingness to pass on the quote derby, knowing that hell hath no fury like an insured with a total loss who at the point of sale wanted the cheapest policy and at the point of loss expects the most expansive of coverage, pointing the innocent finger at the agent, who 'if they'd only told me to buy more coverage, I would have' profess ignorance of the system.

I could NOT AGREE more with your statement!!! d's, you hit the nail on the head. Even today after all we've learned about appropriate rebuild costs, I still see stuff quoted below $100/sq. ft. on a rebuild. Really? Unfortunately like you pointed out, the insured is in a lot of cases the unwitting accomplice because they want the price. I've said this before and I'll say it again, I'd rather pass then have my E&O policy sit there and act as someone else's excess because they would not accept the recommendation of a professional.