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Homeowners risk being underinsured amid high inflation & increased building costs: APCIA

10th May 2022 - Author: Jack Willard

A recent survey for the American Property Casualty Insurance Association (APCIA), reveals that a majority of insured homeowners have not taken important steps to ensure their insurance coverage is keeping pace with both rising inflation and increased building costs, which could potentially leave policyholders underinsured if catastrophe strikes.

The survey was conducted online by The Harris Poll, among over 1,000 US homeowners who have a homeowners insurance policy.

The survey highlighted that only 30% of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs.

Additionally, the survey also showcased that among insured homeowners who completed any renovations or remodels during the COVID-19 pandemic, only 40% of them have updated their home insurance to account for any of those changes.

“It is critical that homeowners make sure they have the right amount and right types of coverage during this period of significant inflation, but unfortunately our survey shows that many individuals may not be properly prepared,” said Karen Collins, assistant vice president of personal lines at APCIA.

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“Our survey found that about two thirds of homeowners may be without key additional coverages, such as annual inflation adjustment, extended replacement cost, and building code/ordinance coverage, that can better protect them in these challenging market conditions.

She continues: “It is important to conduct an annual review of your insurance policy with your insurer or agent to help ensure you have enough coverage to repair or rebuild your home should disaster strike, but only 30 percent of insured homeowners updated their insurance policy less than a year ago. Homeowners should be aware that rebuilding costs are increasing, and they should take steps now to update their coverage and mitigate against potential damage.”

In 2020 and 2021, US insurers paid $176 billion for natural catastrophe claims alone, the highest total for a two-year period for natural catastrophe claims.

Inflation, recent supply chain issues, and increased demand for skilled labour and construction materials following unprecedented natural disasters over the last two years, have heavily contributed to a significant increase in the costs to rebuild homes and businesses. From December 2019, through to December 2021, prices for construction materials rose by 44%.

Furthermore, other key findings from the survey showed that there is a knowledge gap over whether insurance covers the cost to rebuild, or the market value of the home. 64% of insured homeowners from the survey indicated that they were not sure, or believed that their homeowners coverage limits are based on the real estate market value of their home, rather than the rebuilding cost.

63% also stated that they have not added, or are not sure, if they have added annual inflation adjustment coverage, while 67% also said that they have not added, or are not sure if they have added extended replacement cost coverage to their policy, which increases the coverage available to rebuild your home if labour and material costs were to skyrocket after a disaster.

In addition, only 20% of insured homeowners from the survey said that they created or updated a home inventory in the event of a loss less than a year ago, while 25% even said that they have never even completed a home inventory.

Collins, added: “As climate change is causing more severe and frequent natural catastrophes, this should be a wake-up call to homeowners to pick up the phone and call their insurer or agent to discuss their insurance policy and make sure they have the coverages they need. Too often people overestimate their preparedness for natural disasters and other emergencies, and this can lead to gaps in preparedness and insurance coverage.”

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