Phoenix, Ariz.–Fewer policyholders are underinsuring their homes than 10 years ago, but the industry still needs to do more to plug the gap, especially in the face of recent catastrophic events, a panel of industry experts said.
In 1994, 73 percent of all homes were underinsured by an average of 35 percent, according to Robert Dowdell, chairman of Marshall & Swift/Boeckh, a building cost information service based in Lawrenceville, N.J. The figure has improved to 59 percent of all homes underinsured by an average of 22 percent, he said. The change represented insurance in the amount of $8 billion, he added.
His comments came yesterday during a panel discussion on insurance and property value evaluations at the National Association of Mutual Insurance Companies annual convention here.
George Davis, an actuary with Boston-based AIR Worldwide's property valuation unit, said property with underpriced insurance represented "premium leakage." Mr. Dowdell said this situation was most common with policies that were in force five years, those that provided guaranteed replacement cost, those based on vaguely worded brochure language, homes built into hillsides, and those that were in hot real estate markets.
Mr. Davis said a company that tackles the underinsurance problem winds up with a win-win situation because agents are empowered to address the issue and policyholders, when informed, are appreciative and "react positively to a dialogue about their property being of higher value."
Thomas Dials, president of Armed Forces Insurance in Leavenworth, Kan., noted that with a mutual company there was an obligation to educate the policyholders concerning proper insurance.
Mr. Dials, in response to a question from moderator William E. Bailey, special counsel for the Insurance Information Institute, concerning technology's role in helping insurers avoid undervalued properties, said it was very helpful to have the ability to archive images of properties that were taken during field inspections.
The panel noted that underwriting could be thrown off in the case of catastrophes by the increased prices caused by a demand surge for construction materials. Mr. Davis said this year, with Hurricanes Katrina and Rita, insurers are looking at an "extreme example of demand surge and the most sustained impact," which will likely be much more prolonged than previous catastrophic events.
With an insurance-to-value campaign, he said it was also important to have proactive agents who are willing to approach policyholders at the midterm point in their coverage.
Mr. Dowden counseled that insurers' evaluations of their policyholders' insurance levels need to occur every one-to-three years once the carrier has stabilized its book of business' insurance levels.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.