The most overlooked part of your P&C insurance portfolio

Do you know the most commonly overlooked part of one's insurance portfolio? Typically it's your homeowners policy! Specifically, the dwelling replacement value. Remember, market value is not replacement value.

Watch the full video to learn more.

This video is part of an interview between Nathan Donohue and Sophie Riley. Look for our five short releases highlighting each section.

Transcript:

What have you observed is the most often overlooked part of a really solid and comprehensive PNC insurance portfolio?

That's a good question. I would say the homeowner’s policy and in regards to that, I would say it's that dwelling replacement value. So many times, as a brokerage firm, we have access to many carriers, and I work as the advocate of the client. I work with all of the premier carriers in the marketplace, which are known for broader contract language, fewer exclusions, higher limits of excess liability, and so on, and so oftentimes what I'll do is I'll do a holistic review for a client and I'll look at their current policies, whether it's common to see State Farm or Allstate, they have a large portion of the market.

When I'm looking at those policies and I'm quoting them with the premier carriers that we represent and creating this nice cost coverage analysis that we do, I oftentimes will be surprised at what the dwelling replacement value is listed.

Okay. So, what does that mean?

Yeah.

So, on a homeowner's policy, there are going to be several different areas of coverage, and then it's going to tell you what that limits and so the number one is the dwelling replacement value and then you'll see things like other structures personal property loss of use there's some standard limits that are on all policies and the dwelling replacement value what that is it accounts for what it would cost to rebuild your home the like kind and quality in the event of a total loss.

Okay, got it. So, my house burns down to the foundation, what does it cost to reframe, rebuild it into roughly the same quality and equivalent specs?

Exactly, and a lot of times people will think that it's the same thing as market value.

Right.

I always like to remind folks that market value has many more factors than the insurance dwelling and they're just different factors. So, for example, if you have a view of the water, that's going to impact your market. If you have a very large lot size, that's going to impact your market value. Dwelling replacement value, the big things to look at are going to be square footage of your home, cost of building materials, contractor fees in your area. Those are some of the kinds of the primary factors, right? And so, each policy, we take a customized approach. We look at the property. We have some systems that we put the information in and populate around what that dwelling replacement value should be and so that's the one I see the most often is underinsured, especially in California. I'll see a policy in a home is insured with a dwelling replacement value of like 1 million but in reality, to rebuild that home in today's market to like kind of quality would be like 2 million.

Interesting. Yeah, that makes total sense, especially with how much inflation we've observed with construction and people doing renovations. I mean, just costs have gone up dramatically and so I could totally see how the underlying insurance wasn't keeping pace at that same rate.

Exactly, and then one benefit of the premier carriers that we represent so, some of the common ones you may have heard of would be like chub insurance, Pure, AIG, Cincinnati Insurance Risk, Nationwide Private Client, and so on.

One of the big differentiators with those companies is that they are going to offer a broader homeowners contract and the main highlights that I think are important to point out are going to be one guaranteed replacement value on your home.

So, let's say somebody has a home that's, you know, a $2 million to rebuild in today's market, we do a customized review and appraiser goes out, verifies that value. Oftentimes we'll do a customized home appraisal for the insurance company. They'll come out and take photos and verify, you know, that it's after and materials used, right? So, I can't come out after the fact and say, my entire house was built out of Italian marble.

Like, let's actually document it.

Exactly and what's nice about those is oftentimes they find additional security, like safety features in the home, and then it adds discounts.

Fire suppression systems, things like that.

Exactly. Automatic water shutoff valves, residential sprinklers, central fire and burglar alarms, and so on.

Yep. That makes sense.

And so, let's say we have the dwelling value at 2 million. Okay. Well, a premier company is going to give you something called guaranteed replacement and what that means is exactly what it sounds like. There's no cap. They are going, they're going to guarantee they're going to rebuild that home to like kind and quality. And they stand by their word.

Interesting. So, so let's say we have the policy value says, hey, we'll replace it up to this point, but the actual market for construction costs have inflated up to this point. The insurance carrier says, even though the policy is valued here, we will meet at whatever the market replacement value is on a guaranteed basis.

And to keep it as customized as your home, so, some very high-end homes might have a lot of customized features, right?

Sure.

They might have items that have been imported from Europe. Well, Chubb is going to get those items that have been imported from Europe. They're going to try to replace those as best they can. And so, it's not so much off the shelf. It's very customized and yeah, there are different factors that can impact the replacement cost of homes. Like let's say there's a large fire in the neighborhood and many homes come down. Well, all of a sudden there could be a shortage in contractors and that can drive up the price. Right and so there could be unforeseen circumstances that end up creating a situation where it's going to cost quite a bit more to rebuild your home than it was expected and so it's guaranteed.

And then the other part of that is instead of just having a guaranteed contract, it's nice to have another option, which is called a cash settlement option. And what that means is let's take a $2 million homes burns to the ground. It's going to cost 3 million to rebuild.

Okay.

Well, maybe they want the insurance company to rebuild that home for 3 million, or maybe they say, we didn't want to live here anymore anyways, and we want to sell this land and we want to move to Hawaii. So instead of taking the rebuild costs, when you do a cash settlement, when you cash out, you can take the dwelling value that's listed on the contract as a form of payment and walk with a check, and then you can sell the land.

A cash settlement feature is really nice because it gives you the flexibility to do what you want. Do you want to rebuild the state home, or do you want to take the cash? I just think that clients really appreciate that flexibility.