Skip Coan, SVP of e2Value joined Cogitate to discuss the recent
economic trends impacting homeowners and commercial property
insurance. Skip addressed the undervaluation of properties due to
escalating replacement costs and how e2Value is working hard to
educate the industry on rectifying this problem.
Cogitate’s Digital Edge platform integrates with e2Value to place
current, accurate property data at the fingertips of underwriters
to easily evaluate property risks and calculate the replacement
value of improvements– solving a historic problem for the
insurance industry exacerbated by today’s inflationary conditions.
How big is the problem of undervaluation?
“Undervaluation has been a problem for decades – but now with
rapidly rising building, labor, and shipping costs, the gap is
widening dramatically, leaving an even greater risk of
underinsurance. We urge insurers to run evaluations of their
books often enough to clearly understand any gaps in coverage to
allow property owners to make educated decisions about the level
of protection they purchase.
As of April of 2023, we had run tens of millions of policy addresses
through our data sets and on average found at least 50%
underinsured based on current replacement values. In addition to
inflationary impact, additions, alterations, and improvements to
homes are unlikely to be reported to insurers. Without third-party
data sources to identify material changes, these also contribute to
underinsurance.
While the problem is industry-wide, we most often hear about this
post-disaster when a state DOI study is conducted. These studies
often reflect demand surge which can also exacerbate the
problem in the short term. A perfect example is the Marshall fires
of Colorado in 2022 where 83% of the damaged homes were
found underinsured – ranging from $99,000 to $240,000 per risk.
When a catastrophe hits, if a property is underinsured, even a
partial loss can become a total loss because the replacement cost
often hits the policy limits.”
Policyholders do not have readily available replacement cost
indicators and are most often reliant on market values (Zillow or
real estate assessments) to self-evaluate their coverage needs.
This can lead to surprise, disappointment, and financial hardship
when the policyholder becomes a claimant.
What type of data is necessary?
“Property intelligence that includes accurate, local material and
labor costs, shipping costs, and current building codes are critical
to the quoting process to properly price risks at the outset and
eliminate this potential value gap from compounding year over
year among your best, long-term customers. For commercial
properties, access to building codes is particularly important,
especially for large, older buildings. Our replacement cost for
commercial properties will always reflect a commercially viable
space based on local building code because, for example, the
code may restrict you from replacing a brick and wood structure
with anything other than steel and masonry.
Commercial property occupancy data is also critical to risk
evaluation. Nearly 50% of the occupancy information insurers
have on commercial properties is inaccurate. Depending on the
usage, the risk can increase considerably, and changes go
unnoticed unless the insights are available to identify those
changes that occur post-underwriting. Finally, geographical
details for all property types are essential to exacting distance
from natural hazards such as coastal proximity.”
How hard is it to independently source and ingest
property data?
“It’s a hard thing to do, even in very large companies. Data is not
uniform, so you have to ingest it and convert it into useful
insights. Our platform does that by converting public record data
into meaningful values 90% of the time with just an address and
we do it in less than 2 seconds. For insurers, accessing an
ecosystem of providers from a single platform is critical.
Underwriters can’t work effectively accessing multiple systems for
intelligence gathering.”
Are there other benefits to these insights?
“Our customers have shared that in the current market, the
conversations with reinsurers are difficult. When they tell the
reinsurers that they work with e2Value, test and run their books
often and monitor cost differentials, it helps those conversations
considerably. We spend a considerable time with the London
markets and they’ve expressed frustration with the US market
valuations. They want the right data, the right values, and more
importantly, they’re holding the US markets accountable for it.”
Any final advice for insurers?
“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.”
economic trends impacting homeowners and commercial property
insurance. Skip addressed the undervaluation of properties due to
escalating replacement costs and how e2Value is working hard to
educate the industry on rectifying this problem.
Cogitate’s Digital Edge platform integrates with e2Value to place
current, accurate property data at the fingertips of underwriters
to easily evaluate property risks and calculate the replacement
value of improvements– solving a historic problem for the
insurance industry exacerbated by today’s inflationary conditions.
How big is the problem of undervaluation?
“Undervaluation has been a problem for decades – but now with
rapidly rising building, labor, and shipping costs, the gap is
widening dramatically, leaving an even greater risk of
underinsurance. We urge insurers to run evaluations of their
books often enough to clearly understand any gaps in coverage to
allow property owners to make educated decisions about the level
of protection they purchase.
As of April of 2023, we had run tens of millions of policy addresses
through our data sets and on average found at least 50%
underinsured based on current replacement values. In addition to
inflationary impact, additions, alterations, and improvements to
homes are unlikely to be reported to insurers. Without third-party
data sources to identify material changes, these also contribute to
underinsurance.
While the problem is industry-wide, we most often hear about this
post-disaster when a state DOI study is conducted. These studies
often reflect demand surge which can also exacerbate the
problem in the short term. A perfect example is the Marshall fires
of Colorado in 2022 where 83% of the damaged homes were
found underinsured – ranging from $99,000 to $240,000 per risk.
When a catastrophe hits, if a property is underinsured, even a
partial loss can become a total loss because the replacement cost
often hits the policy limits.”
Policyholders do not have readily available replacement cost
indicators and are most often reliant on market values (Zillow or
real estate assessments) to self-evaluate their coverage needs.
This can lead to surprise, disappointment, and financial hardship
when the policyholder becomes a claimant.
What type of data is necessary?
“Property intelligence that includes accurate, local material and
labor costs, shipping costs, and current building codes are critical
to the quoting process to properly price risks at the outset and
eliminate this potential value gap from compounding year over
year among your best, long-term customers. For commercial
properties, access to building codes is particularly important,
especially for large, older buildings. Our replacement cost for
commercial properties will always reflect a commercially viable
space based on local building code because, for example, the
code may restrict you from replacing a brick and wood structure
with anything other than steel and masonry.
Commercial property occupancy data is also critical to risk
evaluation. Nearly 50% of the occupancy information insurers
have on commercial properties is inaccurate. Depending on the
usage, the risk can increase considerably, and changes go
unnoticed unless the insights are available to identify those
changes that occur post-underwriting. Finally, geographical
details for all property types are essential to exacting distance
from natural hazards such as coastal proximity.”
How hard is it to independently source and ingest
property data?
“It’s a hard thing to do, even in very large companies. Data is not
uniform, so you have to ingest it and convert it into useful
insights. Our platform does that by converting public record data
into meaningful values 90% of the time with just an address and
we do it in less than 2 seconds. For insurers, accessing an
ecosystem of providers from a single platform is critical.
Underwriters can’t work effectively accessing multiple systems for
intelligence gathering.”
Are there other benefits to these insights?
“Our customers have shared that in the current market, the
conversations with reinsurers are difficult. When they tell the
reinsurers that they work with e2Value, test and run their books
often and monitor cost differentials, it helps those conversations
considerably. We spend a considerable time with the London
markets and they’ve expressed frustration with the US market
valuations. They want the right data, the right values, and more
importantly, they’re holding the US markets accountable for it.”
Any final advice for insurers?
“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.”