AIR Service Assesses Insurers’ Residential Replacement Values

October 15, 2007

AIR Worldwide Corp. (AIR) is offering a new service to assess insurance-to-value (ITV) of U.S. residential property portfolios for reinsurance contract renewals.

Available for insurers, reinsurers and brokers, the service estimates the replacement value of properties within a portfolio, which AIR says will enable insurers and reinsurers to make better reinsurance decisions and improve their overall catastrophe risk management.

Insurers take different approaches to estimating insurance-to-value, but often use valuation tools only for underwriting new business. Significant increases in rebuild costs over time and improvements to individual properties that are not reported may negatively impact the overall ITV of the insurer’s portfolio. AIR’s ITV analyses are designed to help an insurer assess the level of underinsurance in its portfolio and to provide evidence of an adequately valued portfolio to a reinsurer.

“In the aftermath of the 2004 and 2005 hurricane seasons the industry recognized the importance of exposure data quality,” said Uday Virkud, senior vice president at AIR Worldwide. “Of the many risk parameters that impact catastrophe loss estimates, replacement cost is one of the most significant as it can directly impact the modeled loss estimates. AIR’s ITV service will provide critical information to insurers and reinsurers alike that will result in more certainty for reinsurance decisions.”

A property’s replacement value is the full cost to replace the building in the event of a total loss. Since catastrophe models estimate loss by applying vulnerability functions to the replacement value before applying policy terms and conditions, accurate replacement values are essential for obtaining accurate catastrophe loss estimates, according to AIR. If a property’s replacement value is understated by 25 percent, for example, the estimated ground up loss will be understated by that much.

“Most replacement cost estimators require building specific information such as total living area, year built, and other property specific building information to reliably estimate replacement costs,” continued Virkud. “But such details are seldom available for reinsurance submissions, which typically only include street addresses for each risk. AIR’s ITV service with its unique ISO PushPin database is specifically designed to provide realistic replacement cost estimates with just address information.”

AIR’s ITV analyses are conducted using ISO HomeValue and the ISO PushPin database. The only data required are street addresses of individual properties. ISO PushPin adds specific property information for individual properties. ISO PushPin is a database of detailed residential property data on more than 70 million properties in the United States that can return as many as 17 property features for individual addresses. These property features include total living area, year built, and building type, among others. This data is fed into ISO HomeValue to estimate replacement costs. ISO HomeValue is AIR’s residential replacement cost estimator and is used in underwriting by more than 40 U.S. insurers.

Source: About AIR Worldwide Corp.

Topics USA Carriers Property Reinsurance

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