Building ’em like they used to: Insurance to value on older homes

April 13, 2021 / 3 min read

Traveling west to east across the United States can be a trip back in time when it comes to the housing stock. Especially in the Northeast, and even more so in parts of New England, older neighborhoods may abound in homes displaying historical building materials and techniques. To name just a few:

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Stick-built roofs and exterior framing sheathed in 1x8 boards, rather than the now-standard manufactured truss roofs and plywood or wafer board sheathing
Hardwood floors as a feature of ordinary homes—not the upgrade they often represent in today’s new construction
Lath-and-plaster walls instead of modern drywall

Actual or functional?

For homeowners insurers seeking accurate reconstruction cost estimates—a critical factor in maintaining insurance to value (ITV)—older homes can present challenges and choices. It’s important to understand where older homes deviate from the mass-produced features of newer construction and what it costs to replicate craftsmanship that may date back a century or more. There may also be significant decisions: To assume that reconstruction will be as faithful to history as possible, or to expect a modern equivalent that may be more economical and efficient.

The first option, insuring to provide for a faithful re-creation, entails calculating actual replacement cost based on the closest possible approximation of the original materials and techniques. The latter, giving way to modern construction practices, points to a functional replacement cost estimate.

Testing the tools

Insurers need to approach these decisions with the right tools, regardless of how they write the coverage. Verisk data demonstrates the real-world performance of 360Value®, the reconstruction cost estimating solution based on highly localized materials and labor cost data and actual claims estimates from Xactimate®, Verisk’s advanced claims-adjusting software.

Nationally, for homes built no later than 1940 that experienced total losses, Xactimate claims estimates averaged $216,272.75, while 360Value reconstruction estimates averaged $216,712.55. That’s a difference of 0.81 percent, compared with a gap of 0.23 percent for homes of all ages based on Xactimate versus 360Value figures.

Across six New England states—Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont—the challenge posed by estimating the replacement cost of older homes is more acute. In these states, total-loss claims averaged $284,736.86 according to Xactimate, compared with an average 360Value estimate of $281,838.07, a difference of 0.61 percent. These figures include homes of all ages but in a housing stock that skews significantly older than the rest of the country.

Regardless of a structure’s age, 360Value reconstruction cost estimates, on average, land within a percentage point of actual claims experience. At a time when material costs, especially lumber, have been surging, it may be more important than ever to have an ITV solution that’s able to keep up. And older homes may amplify the need, demanding more of the materials that have been soaring in price. 360Value component and labor costs are continually updated to reflect local market conditions throughout the United States and Canada.

Learn more about the accuracy of 360Value when you read our total loss claim study, From Guesswork to Reality: Aligning Replacement Cost Estimates and Claims.