The recent wildfires in Maui, Hawaii – a profitable market for insurers and long considered low-risk – have been an eye-opener for insurers as the damages are assessed and rebuild anticipated. With damages estimated between $4-$6 billion, a number of factors, including Hawaii’s stringent regulations and longer construction permitting timelines, are predicted to contribute to the elevated reconstruction costs. According to estimates from Verisk, a global insurance data analytics provider, construction costs in Hawaii are approximately 44% higher than those on the mainland with building material requirements such as pretreating all imported lumber for termites, contributing to increased costs. One can only hope insurance coverage accurately reflects the replacement value of the homes and commercial properties in Maui, which is not always the case.
With the rising cost of catastrophic events, accurate property replacement valuation has become paramount to the protection of policyholders and adequate pricing of policies. While policyholders may be shocked by increasing premiums associated with revaluations, current valuation of replacement costs is critical to keep pace with localized inflation, labor markets, and building codes. According to a recent CoreLogic report, reconstruction costs over a period of 5 years (Q1 2018 to Q2 2023) have increased by 33.5% in California alone. The 2022 Marshall fires in Colorado, underscore the impact of underinsurance, with 83% of damaged homes found to be underinsured – ranging from $99,000 to $240,000 per risk.
Faced with inflationary replacement costs, it is crucial for insurers to implement accurate underwriting tools and practices to generate reliable estimates that reflect the cost to rebuild or replace property improvements (personal /commercial) in the event of a loss, such as a fire or natural catastrophe.
In an illuminating conversation, Skip Coan, Senior Vice President of e2Value, sat down with Cogitate to discuss the evolving landscape of homeowners and commercial property insurance, and risks associated with undervaluation of replacement costs. Skip shed light on e2Value’s efforts to educate the industry and rectify this longstanding problem, “Test your book all the time, as often as you can, as effectively as you can. Run your book and run your renewals. Look for outliers and make adjustments. Everyone is afraid they’ll lose business if they raise rates. We’re just advising that you understand your gaps in value and begin to make adjustments before the losses impact your policyholders and your ratios.”
Cogitate’s pre-integration with data partners including e2Value, Confianza, Verisk, and HazardHub through the DigitalEdge Platform, ushers in a new era of underwriting efficiency by equipping underwriters with real-time, accurate property data. Sourcing and effectively utilizing property data independently is no small feat, even for large corporations. e2Value’s platform successfully converts non-uniform large datasets from public record data into meaningful insights in less than two seconds, with an accuracy rate of 90%. For insurers, the critical need to access an ecosystem of data providers from a unified platform is evident, as underwriters cannot afford to toggle between multiple systems for intelligence gathering.
The insights shared by Skip Coan highlight the urgency of addressing property undervaluation and the power of accurate property intelligence. As insurers harness the potential of digital technologies, they not only enhance their processes but also ensure that policyholders receive the protection they truly deserve. Click here to read more about the insightful interview and how Cogitate and our growing partner ecosystem are revolutionizing underwriting with data, automation, and advanced analytics. For more information on intelligent underwriting, read our new whitepaper, 3+ Keys to Proactive Underwriting.