The
recent wildfires in Maui, Hawaii – a profitable market for insurers and long
considered low-risk – have been an eye-opener for insurers as the damages are
assessed and rebuild anticipated. With damages estimated between $4-$6 billion, a
number of factors, including Hawaii’s stringent regulations and longer
construction permitting timelines, are predicted to contribute to the elevated
reconstruction costs. According to estimates from Verisk, a
global insurance data analytics provider, construction costs in Hawaii are
approximately 44% higher than those on the mainland with building material
requirements such as pretreating all imported lumber for termites, contributing
to increased costs. One can only hope insurance coverage accurately reflects the
replacement value of the homes and commercial properties in Maui, which is not
always the case.
With the
rising cost of catastrophic events, accurate property replacement valuation has
become paramount to the protection of policyholders and adequate pricing of
policies. While policyholders may be shocked by increasing premiums associated
with revaluations, current valuation of replacement costs is critical to keep
pace with localized inflation, labor markets, and building codes. According to
a recent CoreLogic report,
reconstruction costs over a period of 5 years (Q1 2018 to Q2 2023) have
increased by 33.5% in California alone. The 2022 Marshall fires in Colorado,
underscore the impact of underinsurance, with 83% of damaged homes found to be
underinsured – ranging from $99,000 to $240,000 per risk.
Faced
with inflationary replacement costs, it is crucial for insurers to implement
accurate underwriting tools and practices to generate reliable estimates that
reflect the cost to rebuild or replace property improvements (personal
/commercial) in the event of a loss, such as a fire or natural catastrophe.
In an
illuminating conversation, Skip Coan, Senior Vice President of e2Value, sat
down with Cogitate to discuss the evolving landscape of homeowners and
commercial property insurance, and risks associated with undervaluation of
replacement costs. Skip shed light on e2Value’s efforts to educate the industry
and rectify this longstanding problem, “Test your book all the time, as often
as you can, as effectively as you can. Run your book and run your renewals.
Look for outliers and make adjustments. Everyone is afraid they’ll lose
business if they raise rates. We’re just advising that you understand your gaps
in value and begin to make adjustments before the losses impact your
policyholders and your ratios.”
Cogitate’s
pre-integration with data partners including e2Value, Confianza, Verisk, and
HazardHub through the DigitalEdge Platform, ushers
in a new era of underwriting efficiency by equipping underwriters with
real-time, accurate property data. Sourcing and effectively utilizing property
data independently is no small feat, even for large corporations. e2Value’s
platform successfully converts non-uniform large datasets from public record
data into meaningful insights in less than two seconds, with an accuracy rate
of 90%. For insurers, the critical need to access an ecosystem of data
providers from a unified platform is evident, as underwriters cannot afford to
toggle between multiple systems for intelligence gathering.
The insights shared
by Skip Coan highlight the urgency of addressing property undervaluation and
the power of accurate property intelligence. As insurers harness the potential
of digital technologies, they not only enhance their processes but also ensure
that policyholders receive the protection they truly deserve. Click here to
read more about the insightful interview and how Cogitate and our growing
partner ecosystem are
revolutionizing underwriting with data, automation, and advanced analytics. For
more information on intelligent underwriting, read our new whitepaper, 3+ Keys to Proactive Underwriting.
