The above photo of lumber visually depicts the significant increased price of basic construction material costs that is driving many property insurance claim disputes as policyholders with various losses from wildfires, hurricanes, and frozen pipes try to get their claims settled. The insurance industry is relying upon quickly outdated and erroneous Xactimate pricing.
In a recent Fox News article, Homebuyers Canceling Contracts as Costs Soar, it was noted:
Lumber costs have surged more than 170% over the past year, adding around $24,000 to the cost of a new home. Concrete, metal products, appliances, and other expenses are also increasing due to supply chain disruptions caused by COVID-19 shutdowns.
While the disputes between policyholders and insurance adjusters trying to rely on the wrong Xactimate pricing is a major problem, the issue is inherently not just one with claims, but also with underwriting. I wonder how many insurance agents are sending out notices to their clients that the rise in construction prices may leave them with a coinsurance or undervaluation problem in the event of a loss? Very few is my bet.
Policyholders not faced with a claim are rarely keeping track of increasing construction prices. Owners of built properties generally are not tasked with making certain that they are properly insured to value until the time of renewal. But if they have a loss, you can bet that some zealous claims handler may run a valuation of replacement cost to policy limits to see if a coinsurance penalty applies. This fluctuation of construction pricing is just one reason why “agreed value” or coinsurance exempt policies are so superior to those with a coinsurance penalty. Policyholders generally have no clue about what it costs to rebuild their property. They are not trained how to do it. They invariably lack the knowledge and technical skillset to do this correctly.
Come join me at 2 pm this afternoon while we explore this topic of increased construction pricing and the impact it can have on adjustment and underwriting. Here is the link.