Marshall & Swift/Boeckh (MSB), a provider of building-cost information, reports that its index analyzing insurable value adequacy for residential construction insured in the U.S. improved over last year. The 2011 report now shows 64% of homes in the U.S. are undervalued by an average of 18% – a significant improvement over last year's results.
In light of the housing downturn, writers of homeowners insurance are paying closer attention to their books of property business, according to Steven Brewer, senior vice president of underwriting for MSB.
‘This increased focus translates into better underwriting and more accurate coverage limits, which benefit the industry and consumers collectively," Brewer says. "At the same time, insuring each home to its replacement value provides risk-adequate premium on each property in the book and increases a carrier's competitive position by eliminating premium subsidization."
The Insurance to Value (ITV) index has improved dramatically since the 1990s, when nearly 73% of homes were undervalued by 35%, MSB says. The insurance companies that have not instituted new underwriting procedures to carefully value coverage limits at the time policies are first written and at the time policies renew, still see a statistical norm of 73% of homes undervalued by an average of 35% .
However, home insurance writers have begun a more diligent review of coverage adequacy since Hurricane Katrina in 2005, MSB adds. Along the way, the industry improved coverage and premium adequacy, with nearly $8 billion in lost premiums recovered annually from recalculating the base with more adequate protection for policyholders.