Castle Inspections / High value inspections in general

[yoyowordup]

Is anyone else having problems with home inspections showing a much higher replacement cost than what was originally applied for on a homeowners policy?

On some fairly nice homes, 1mil to 2mil value, we have had a major issue with the inspections coming back really high. Anywhere from $250 to $385 per square foot. These are some nice homes, but the detailed inspections have unbelievable amounts for individual things like HVAC, Plumbing, Floor finishes etc.

I have had two clients become extremely upset with the company standpoint of live with it or leave. Both clients plan on leaving at renewal. I have talked to other carriers, but they all use castle inspections. Hartford, Auto-Owners, Cincinnati, Encompass all the same thing. Seems to be fairly monopolistic.

When I talk to the clients (not just these two), they all say that the inspector seems to be very young and inexperienced and doesn't really know about construction costs. I don't know how much this matters since they are just plugging the info into a software program, but it doesn't make us or the carrier look very good. I googled Castle Inspections and there is a plethora of job openings for Castle all over the country which leads me to believe they have quite a bit of turnover.

Has anyone else had these types of issues with Castle or any other high value inspection service?

[nixonjf]

Have you checked the ITV estimates yourself using either MSB's RCT High-Value tool or e2Value?

I suggest you ask to see the detailed reports from the inspections and go over them carefully with your client.
If the input details are incorrect (sq ft, finishes, etc.), then your issue is with Castle.
If the inputs are correct, but the estimated replacement costs seem out-of-line, that's an issue on the software vendor side.

Reconstruction cost estimates should not be confused with market values or new construction cost estimates.
If the value on the application came off the loan documents (replacement cost estimate generated using the "cost approach" by a real estate appraiser), then the application value is wrong, and a material increase using appropriate methods would be expected.

If the home is historic or unique/exceptional, you might try and get a local adjuster to run a detailed claim estimate as if the property were destroyed, or ask them for the name of a reputable local reconstruction contractor (not a new home builder) to catalog the property and generate an estimate. Such a report (stored safely off-site) would serve the purpose of setting a good base-line for reconstruction costs (to be trended for a few years thereafter) and would aid in loss recovery efforts.

Regards,

John Nixon

[d's insurance store]

The inspectors aren't paid very much and are basically given guidelines to work with. Home replacement value is one of those things that's very important when price is the issue at the point of sale, and even more important when the insured is looking at a pile of smoking rubble and ash and then gets really pissed of when the extended limit replacement value still isn't enough and then it's YOUR fault, because of course they would have paid a little more for the proper coverage if only you'd suggested it...blah, blah, blah.

That per square foot figure is very dependent on local buiding costs and local is the operative word.

Castle is one of the major vendors and has been doing this for years, so it's not like they get more money for increased premium. In a depressed real estate market, in high value homes, you're going to have instances where the insured feels the dwelling is overinsured. You might be able to roll back some of the increase by getting ahold of the appraisal, which generally has a section where the appraiser has estimated the rebuilding/replacement cost of the dwelling. You might also ask for some written indication about local building costs from a contractor familiar with the local area.

But in a time of tight pursestrings, if the client finds a company that will insure for a lot less, from a professional E&O standpoint, you're better off letting it go, becuase having witnessed the visciousness of underinsureds here in California after any of the number of cats, you'll find yourself in a losing proposition in a courtroom when the teary eyed insured says 'you're the expert and they relied on your expertise' when evaluating just how much insurance to buy, while you recall the sales resistance and cheapness that client displayed while you tried to make the sale.

[nixonjf]

Relying on the "replacement cost" figure found is a real estate appraisal for insurance purposes would be a big mistake.

1. It's a an estimate of "new construction" costs, not "reconstruction", so you're getting a low starting point.

2. Often real estate appraisers assume exclusions and make deductions for items which are commonly covered (ex: foundations).

3. How old is the appraisal, and how old is the cost data they were using?

4. The appraiser will have likely included a disclaimer which states basically "don't use this number for insurance purposes". If you ignore the disclaimer, I suspect you and your E&O carrier will be at a disadvantage in any litigation.

Avoid relying on basic $/SqFt estimates obtained from local contractors. They tend to think in terms of new construction projects and only about the parts of the job they're involve in.

Good Luck.

[inscopywriter]

Just so we're all on the same page here, builders who work on fixing properties instead of building new construction for home builders will charge more to people they know are rich. If you own a $1-2MM house, you'll pay more for the exact same work than someone with a less expensive house.

So, replacement/reconstruction costs will seem really high compared to new construction costs or replacement costs for people the builders know have less money. The reason is that builders know rich people can afford it, whereas people with less money or companies out to make a profit can't or won't pay that much. Why would they charge the same people less just because their insurance company won't pay as much as the owners would have to for the same service if it were out-of-pocket? Nope, they'll just go to someone else who can pay their going rates.

[mica.cooper]

I hear about this happening a lot lately. The issue is replacement cost and with the economy, value of the dollar (imported building materials), scarcity of certain materials, etc, replacement cost is going up up up. The Greenburg F5 replacement costs were typically 20% higher than estimated replacement cost. This is pretty typical of what is happening now.

As a result, we are seeing higher replacement cost estimates AND some companies doing away with replacement cost. I know of one company dropping it completely and selling only Dwelling Fire.

For a long time, it was cheaper to buy a new house than a used house. That is an upside down market that cannot continue. We are currently seeing a correction in the market and this is the result and is probably appropriate.

[FurriePrincess]

Also, look carefully at the Castle reports. They've usually included code requirements in their calculations. Most standard HO policies only allow 10% of the dwelling limit for this. You may find that if you break it out, increasing the code upgrade coverage to 25% or 50% or more makes it all very appropriate to the total reconstruction cost . In my part of CA, $225 to $385 per square foot, including code requirements, would be a true reconstruction cost. If the dwelling is vintage or has a lot of custom work, it might even be higher.

[CSP]

We use 4 companies that use MSB for homevalues. I can input the same numbers in each company MSB software and get different valuations. Sometimes there will be a difference of 25% to 30% in valuation. Double check to input on the inspector form to assure accuracy.

On high value homes the interior features can increase the reconstruction values by as much as 100%. Most of these interior features or materials can not are not readily available to the wood butcher on the corner. I have seen one high value home where the materials alone, being so rare, ran the replacement cost up 150%, over normally available materials.

Unfortunately, the only thing that will make a person a believer is 50% loss that results in a substantial penalty for not being insured to value.

In my area a valuation of $250 to $350/ sq ft is not out of line on a "high value" house.

[mccluney]

None of the post's have mentioned specifically demolition costs. You need to make sure that the client knows that fact. When the house is rebuilt, he has a custom house in terms of material and labor costs for replacing one house. I keep seeing articles that 70% of the homes throughout the country are underinsured at the time of loss. A simple "tract stlye" house in CA 250 per sq ft for replacement is not unreasonable. As an agent, I make sure that the client is responsible for the insurance value on the house, and that all of the other value estimates are minimum estimates.

[d's insurance store]

None of the post's have mentioned specifically demolition costs. You need to make sure that the client knows that fact. As an agent, I make sure that the client is responsible for the insurance value on the house, and that all of the other value estimates are minimum estimates.

Demo costs are generally defined in policy terms and are a fixed percentage of the dwelling value. In my 25+ year career of personal lines selling and maybe 3 total losses...that figure has never been a problem

Now, your statement about making the insured responsible for proper insurance value on the home...just excactly how do you do that? Do you ask for a signed disclaimer statement? Is it just a verbal understanding at the point of sale? Do you highlight any responsibility language in the renewal letters from the carrier? I don't disagree that the bulk of the value responsibility should rest with the insured, but then where do your advisory contributions come in? Do you rely on the various cost estimators offered by each carrier? Do you just take a figure that should be correct and rely on the extended limit clause to make up the difference?

The replacement valuation of any home is more art than science. Ask four different builders about rebuilding value and you'll get six different answers. I can easily memorize the names of clients over the years who've said to me at the point of sale "let's make sure we're adequately insured...premium cost is secondary". The overwhelming majority of my clients look first at the premium cost and then at the replacement value. I compete in a marketplace where direct writers and some independents hungry for business will use faulty replacement data in order to win a sale. And, I've never heard of an insured experiencing a total loss who takes responsibility for being under insured...it's always 'I relied on my expert agent to give proper advice and counsel...and I would have GLADLY paid a bit more for proper coverage IF ONLY THE AGENT had suggested that option'. Yet, you remember a very differenct point of sale conversation centering on price.

In those circumstances, the 'real' insurance carrier is my E&O company.

[mccluney]

D's response highlights the complexity that we agent's face in advising our client's about proper insurance values. When I provide values using a cost estimator. I point out that this is the suggested minimun values and may not represent the correct values at the time of the loss. I also include one of the articles about homes been underinsured. My written communication with the client indicates that the values are estimates and the client is responsible for detertiming proper insurance values. To inform the client otherwise is to put the agency at risk for errors and omissions claims. For myself, I don't wish to assume the E&O exposure.