Insurer Retools Home Value Insurance Coverage

Home Value Insurance Co. has re-entered the insurance market with a product that promises to protect homeowners from falling home values.

Home Value Insurance initially launched the product in 2009. The company has retooled it to make it an insurance coverage rather than just a ‘swap’ or financial guarantee product and says it has received approval in its home state of Ohio. The coverage has also been filed in other states and the company hopes to eventually offer it nationwide.

Richard L. McCathron, executive vice president of distribution for Home Value Insurance Co. in Austin, Texas, said the company spent the last two years making sure the product would meets the needs of homeowners.

‘We had the decision to make as an organization if we wanted it to be an easy, unregulated product or a longer term regulated insurance product,’ said McCathron. ‘Ultimately we felt consumers would want the financial protection and guarantee of us selling it as an insurance product.’

The product works by covering a loss of owner-occupied primary residences if the homeowner sells for less than home’s value when it was insured. Homeowners who acquire a policy are locked in at the present homes value for 10 years, ensuring that they are protected and compensated in case of a market decline of up to 25 percent. If home values appreciate during the policy term, insureds can cancel their current policy at no cost and purchase a new one with a higher insured value.

‘At the end of the day no one knows if they are buying their house at the top or bottom of the market and no one really knows when they will have to sell their house,’ said McCathron. ‘It may be in a down market and it may be in a market less than what they purchased. This product puts consumers back in control of their future.’

The average cost of the policy for a homeowner in Ohio is about $40 a month or $480 a year. The deductible is 10 percent of the protected home value in the first year, five percent in the second year, and zero for the third year and the rest of the policy term.

The coverage doesn’t apply on foreclosures or short sales, but McCathron said it could actually eliminate these from happening. ‘If you have a home value protection policy and prices decline, you would sell the house at what you have to because you have an insurance policy that covers the difference,’ he said.

Home Value Insurance Co. only covers homes valued at $500,000 or less, but homes valued over that can be submitted for approval. The policy applies to both existing and new homebuyers.

The appraisal process of the home is done completely electronically through an automatic evaluation module which pulls a real time appraisal of the property. The carrier then presents a range of prices to the insured and the agreed upon price is the basis of the home value for the policy. If the insured has just purchased the home in the last 12 months, then the policy value is the purchase price of the home.

The company said it ran various case studies and scenarios with insurance agents and consumers to discuss the evaluation module and to show it is in synch with actual market prices.

There are similar products available, such as one called Home Equity Guard, but McCathron said what sets his firm’s offering apart from other products is that it is an insurance coverage, not a warranty. ‘On the surface they look similar, but we are an admitted domiciled insurance company, not a financial guarantor or swap or derivative product,’ he says. ‘We are the only insurance product that offers home value protection.’

The carrier will offer the Home Value Protection product exclusively through appointed independent agents.

‘We do not believe in making this product available to all agents; just professional agents who work as insurance advisors to their clients and know their clients, know the risk and know how to protect them,’ he said.

McCathron said the challenge with this product is educating consumers and agents about it.

‘They really need to understand it; this is not hazard insurance, it is insuring housing market prices,’ he said. ‘They need to understand how it works, how you secure a quote, bind a policy, what are any exclusions in the policy, deductibles, and really understand the mechanics of it.’

McCathron said his company has already contracted with 55 agencies in Ohio. He encourages agents in other states to contact the company if they are interested in becoming appointed once Home Value Insurance Co. receives approval from their state. He expects the product will be approved in at least 20 states by next year.

Home Value Insurance Co.’s only product is Home Value Insurance and it has no plans to offer any other insurance coverages.

‘[Home Value Insurance Co.] was specially formed to offer this product,’ said McCathron. ‘We are a monoline carrier focusing on what we know and our primary and only focus is this insurance product. Insurance companies should focus on what they know and what they do well and this is what we know and want to take it to a national audience.’

The company has two other offices in addition to the one Austin. The main office is in Columbus, Ohio and the other is in San Francisco.