Insure To Value

Over the years we’ve talked to thousands of people who have lost their homes to natural disasters. We have found that over 90% of the people we talk to are grossly underinsured.

Industry recognition of underinsuranceInsurance companies are able to determine exact dwelling coverage amounts with sophisticated computer programs that they pay a lot of money for. One company called Marshall & Swift, who makes such software, claims “...more than 70 years of experience [with] over 100,000 individual users, including underwriters, claims adjusters, inspectors, and agents.”

Within days, if not hours, following a wildfire, adjusters, agents and insurance contractors inform dazed fire victims, “You are underinsured!” Usually, this is the first time the homeowner has even considered that they might be underinsured.

Through interviews, we’ve found that only 8% of the people we’ve talked to who lost their houses in the 2007 wildfires were insured to at least 80% of their loss. Only 2% were insured to 90% of their loss. On average, their dwellings were only covered for 55% of their replacement value.

Also, even though insurance companies new that reconstruction costs exceeded $200/SF after the 2003 wildfires, 85% of the people interviewed were insured at less than $200/SF.

 

[You can download our handout HERE]

It’s hard to imagine why insurance companies would give up additional premiums by underinsuring customers, but we find they do it every day. Why?

  • To compete in the marketplace.
    Everyone else does it and no one wants to be the first to charge more.
  • To keep their good neighborly hands on your annual premium payment.
    If they raise your premium, you’re likely to shop elsewhere without researching the reason for the increase.
  • To limit their overall exposure and risk.
    The second “half” of the coverage doesn’t garner as much premium (or commission) as the first. Selling this coverage to everyone would increase their exposure to premium ratio.
  • To shift the risk to the homeowner.
    If they don’t sell that additional coverage, they don’t have to pay you after a loss.
  • To reduce their re-insurance expenses.
    If they sell you more coverage, they have to buy more re-insurance coverage.

[You can download our handout HERE]

By now you’re wondering, “What can I do to protect myself?” Here are a few tips to get you on your way to being fully insured. 

  • Look for a company who offers Guaranteed Replacement.
    These companies are far and few between and are very picky about who they cover, but they do exist.
  • Go to a competitor for a FULL quote.
    See what other companies are offering. Tell them you want to be fully covered in case of a total loss.
  • Have your insurance agent help you calculate the costs of rebuilding your home.
    They are the experts and deal with this every day. Rely on their expertise.
  • Insist on TOTAL home replacement.
    Voice your concerns and wishes. Do not let it go unsaid.
  • Insist on INFLATION GUARD.
    This will annually increase the amount of coverage you have by an inflationary calculation.
  • Insist on PERSONAL PROPERTY floaters.
    If you have specialty items or an extra-ordinary amount of personal property, make sure they are covered.
  • Insist on being told ALL products available.
    Ask if they have any additional products they could sell you as add-on’s to your homeowner’s policy. For example, some companies offer higher percentages for extended replacement, code upgrade, personal property and/or appurtenant structure coverage.
  • Be aware of coverage for appurtenant or “other structures”.
    If you have a detached garage, guest house, large retaining walls, long walkways, large sheds etc, you might be in need of additional coverage for these structures.
  • Increase the deductible to reduce the premium.
    If increasing your coverage is tightening your budget, get a discount by increasing your deductible. If you have a high deductible they know you won’t be turning to them for small “nuisance” claims.
  • After reviewing your coverage, write a letter of thanks.
    Nothing is more frustrating than knowing you asked for more coverage and not being able to prove it later. Write a letter of thanks to your agent for reviewing your coverage to make sure you are fully covered.
    CC the home office.

[You can download our handout HERE]

Companies typically use software like Marshall & Swift’s “Residential Component Technology” which is a construction cost and dwelling evaluation computer program.

The computer programs are sophisticated and have been “perfected” over many years. The computer programs can be modified to limit the coverage of your dwelling.
 

 “With more than 70 years of experience, MS/B counts over 100,000 individual users, including underwriters, claims adjusters, inspectors, and agents.”

-June ‘03 MS/B
Press Release

If ALL parameters are inputted, an accurate replacement cost (Coverage A limit) for your dwelling can easily be determined. This process usually takes about 15 minutes, but unfortunately the software isn’t always used to it’s full potential.

What are the minimum required field in the software to determine a coverage amount?

  • Zip Code
  • Building Type 
    (Related to occupancy)
  • Stories
  • Square Footage
  • Construction Type 

Do these questions sound familiar? When you've called an insurance agency or company to get a quote, are these are the questions they’ve asked?

 

[You can download our handout HERE]

A combination of Insurance company tactics and underinsurance add up to big profits for insurance companies.

Allstate's McKinsey tactics are catching on and when you combine that with underinsurance, lowballing and other common tactics, it adds up to big profits for insurance companies.

Insurance Payments DecreaseYear Payouts* Net income
2000 81.4%    $20.5 billion
2001 88.4%     -$6.7 billion
2002 81.6%      $9.1 billion
2003 75.1%    $31.2 billion
2004 73.1%    $40.5 billion
2005 74.8%    $48.8 billion
2006 68.3%    $59.9 billion

The percentage of payouts to claims by insurance companies has steadily decreased. The bottom line result is that when you need it most, you might not be as “covered” as they lead you to believe.

Do something today to make sure you’re covered tomorrow.

 

 

 

 

 

 

 

 

[You can download our handout HERE]

Inspirational Quotes

Farrel: "The house being gone is just about like having, you know, someone you love, a relative, that was just there all the time, but they've died." Allison: "It's kind of like a death in the family. It's gone and you can't get it back."

Farrel and Debbie Allison, Greenburg KS Resident, Episode 3; Greensburg

Testimonials

Thank you for all your help. We have settled and are moving ahead with our lives. You were a tremendous help.

Tea Fire Survivor, 2008