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Higher reconstruction costs suggest increased underinsurance: CoreLogic

9th April 2019 - Author: Luke Gallin

CoreLogic’s 2019 Insurance Coverage Adequacy Report highlights elevated reconstruction costs in a number of disaster-prone regions between 2016 and 2018.

Tornado damageThe report examines potential underinsurance issues in certain parts of the U.S. that are susceptible to natural catastrophe events.

According to CoreLogic, its findings further highlight the need for insurers to make sure policyholders have the correct amount of coverage, based on updated reconstruction cost values, which also includes the variation of labor by market.

The report finds that California is estimated to have a 5.6% reconstruction cost increase from 2016 to 2018. Furthermore, if 1% of homes at very-high-to-extreme risk of wildfire are destroyed, CoreLogic states that the undervaluation would amount to approximately $25 million if the coverage isn’t current.

Florida also has a 5.6% reconstruction value cost increases over the same two-year period. And, if 5% of homes with very-high-to-extreme risk of storm surge risk were destroyed, the undervaluation would amount to approximately $205 million if the coverage isn’t current.

When looking at Houston, the reconstruction value cost increase stands at 7.6% from 2016 to 2018. At the same time, were flooding to cause 5.4% damage to homes in very-high-to-extreme risk flood areas, a 7.6% undervaluation would amount to approximately $49 million if the coverage isn’t current.

And for Oklahoma, which is very susceptible to tornado risks, the reconstruction value cost increase stands at 6.6% over the period. CoreLogic states that if a severe convective storm caused 20% damage to just 1% of homes that are deemed to be at high risk of tornado winds, the undervaluation is approximately $34 million if the coverage isn’t current.

Amy Gromowski, senior leader analytics at CoreLogic, commented: “Underinsurance issues can cause financial devastation for property owners, artificially low coverage limits for insurance carriers, and increased loan delinquencies.

“Homeowners who experience natural hazard events, such as the California wildfires, are often struck by personal and financial devastation and many aren’t able to rebuild their homes, which prolongs the region’s recovery and often causes homeowners to default on their mortgages.”

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