Insurance Industry’s Property Undervaluation Issue Continues to Improve: MSB

Marshall & Swift/Boeckh (MSB), a provider of building cost information, reports its Insurance to Value (ITV) Index that analyzes insurable value adequacy for residential construction insurers in the U.S. continues to improve. The 2013 report now shows 60 percent of homes in the U.S. are undervalued by an average of 17 percent. These figures represent an improvement from last year’s numbers of 61 percent of homes being undervalued by 18 percent.

“A critical mass of carriers are moving to more sophisticated by-peril pricing models,” said Steven Brewer, senior vice president, Underwriting Solutions for MSB. “This is motivating homeowners carriers to validate and archive detailed property characteristic profiles on their legacy books of business. These updated profiles not only fuel better pricing segmentation, but also allow carriers to identify and update undervalued homes. This enables them to generate risk-adequate premium on each property in the book, while properly protecting the policyholder,” said Brewer.

The ITV Index has improved dramatically since the 1990s, when nearly 73 percent of homes were undervalued by 35 percent. Insurance companies that have not instituted new underwriting procedures to carefully value coverage limits at the time policies are first written and at the time policies renew still see 73/35 as their statistical norm.

Since the movement to by-peril rating sophistication has gained broad acceptance, home insurance writers have begun a more diligent review of their legacy books of business, netting the current 60 percent/17 percent statistic. Along the way, the industry improved coverage and premium adequacy, with nearly $9B in lost premiums recovered annually from recalculating the base with more adequate protection for policyholders.

Increased use of modern “component-based” estimating solutions has also improved coverage adequacy, since true replacement cost values are now calculated on a risk-specific basis.

The current ITV Index update represents the national average trend for homeowners insurance written in the U.S.

Source: Marshall & Swift/Boeckh