1) The price of homes in the brush are higher than average.
2) Contents coverage is typically an additional 50%. Additional Living Expenses even more. And, carriers have been giving away extended replacement cost coverage.
3) Traditional companies have still been writing business relatively close to the brush.
Little Frog:
Get educated about property insurance. The subject $500,000 homeowners policy basically, covers the dwelling, NOT the land. All other property coverages included in the homeowners policy are normally insured, additionally, on a pre-determined percentage of the dwelling coverage.
I too think Cholnoky is way off base. If the average coverage on the dwelling is actually around $500k, then the average total loss will be closer to $1 mil each rather than that $500k. And I bet that State Farm, Farmers, Allstate bear the brunt of the claims, too.
Sorry but his math needs some work. Unless those folks are buying dwelling only coverage, it will be closer to 1 mill per house after you add contents, additional living, and not to mention vehicles. Plus then we have the balance of business (profit and non profit) losses to add to the company ledger.
I know real estate is very expensive out there; but how much of that price is the dirt? Notwithstanding contents; shouldn’t a $400,000 lot with a $100,000 structure be valued for $100,000?
Actually there is a point in what Little Frog is saying though. There is a term thrown around by some knowledgable folks in the industry about “insuring dirt”.
As the lending bubble continued to inflate, purchases tended to have lower and lower downpayments. The banks sometimes push to have, at a minimum, the value of the loan insured so that they are sure not to be out money in the event of a serious loss.
This in itself would lead to higher average replacement costs being insured. If this were combined by having California land prices that are more inflated than replacement costs, then this would lead to higher Insurance-To-Value percentages. I do not know for a fact that California replacement costs (true costs – not estimates) have been outpaced by land price inflation, but I suspect that is the case.
Note that this would impact more recent purchases far more than older purchases.
Now having said that, I think the $500K per house is still way off for the three reasons I stated originally. And, we cannot forget demand surge in the presence of 125% and even 150% extended replacement cost (not to mention guaranteed). Hopefully, the housing slump has put a little slack in the construction market which might mitigate demand surge.
Does anybody think TRUE replacement costs per square foot have kept pace with the price of housing since say 1998? Again I guess no, but I am not in construction or claims.
First, yes, replacement cost covers only the building, not the land. So a house that would sell for $1m, is not insured for $1M.
However, maybe this will help the new home builders with the housing glut out there!
Lloyds & the E&S carriers are going to get hit harder this year. After the 2003 fires, many of the writers tightened their underwriting guidelines. They standard carriers are going to do better this time. However, the winds blew embers very far into developed areas. This will cause some unexpected losses.
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1) The price of homes in the brush are higher than average.
2) Contents coverage is typically an additional 50%. Additional Living Expenses even more. And, carriers have been giving away extended replacement cost coverage.
3) Traditional companies have still been writing business relatively close to the brush.
Little Frog:
Get educated about property insurance. The subject $500,000 homeowners policy basically, covers the dwelling, NOT the land. All other property coverages included in the homeowners policy are normally insured, additionally, on a pre-determined percentage of the dwelling coverage.
Sorry about the repeated posts. Something to do with a “slow” internet connection and an effort to reply quickly.
I too think Cholnoky is way off base. If the average coverage on the dwelling is actually around $500k, then the average total loss will be closer to $1 mil each rather than that $500k. And I bet that State Farm, Farmers, Allstate bear the brunt of the claims, too.
Sorry but his math needs some work. Unless those folks are buying dwelling only coverage, it will be closer to 1 mill per house after you add contents, additional living, and not to mention vehicles. Plus then we have the balance of business (profit and non profit) losses to add to the company ledger.
I know real estate is very expensive out there; but how much of that price is the dirt? Notwithstanding contents; shouldn’t a $400,000 lot with a $100,000 structure be valued for $100,000?
Actually there is a point in what Little Frog is saying though. There is a term thrown around by some knowledgable folks in the industry about “insuring dirt”.
As the lending bubble continued to inflate, purchases tended to have lower and lower downpayments. The banks sometimes push to have, at a minimum, the value of the loan insured so that they are sure not to be out money in the event of a serious loss.
This in itself would lead to higher average replacement costs being insured. If this were combined by having California land prices that are more inflated than replacement costs, then this would lead to higher Insurance-To-Value percentages. I do not know for a fact that California replacement costs (true costs – not estimates) have been outpaced by land price inflation, but I suspect that is the case.
Note that this would impact more recent purchases far more than older purchases.
Now having said that, I think the $500K per house is still way off for the three reasons I stated originally. And, we cannot forget demand surge in the presence of 125% and even 150% extended replacement cost (not to mention guaranteed). Hopefully, the housing slump has put a little slack in the construction market which might mitigate demand surge.
Does anybody think TRUE replacement costs per square foot have kept pace with the price of housing since say 1998? Again I guess no, but I am not in construction or claims.
First, yes, replacement cost covers only the building, not the land. So a house that would sell for $1m, is not insured for $1M.
However, maybe this will help the new home builders with the housing glut out there!
Lloyds & the E&S carriers are going to get hit harder this year. After the 2003 fires, many of the writers tightened their underwriting guidelines. They standard carriers are going to do better this time. However, the winds blew embers very far into developed areas. This will cause some unexpected losses.