It can be easy, tempting, and economical—in the short term—to put a portfolio of homeowners policies in set-it-and-forget-it mode: Applying an inflation-based index to reconstruction cost estimates (RCEs), then pivoting to the growth of new business.
But houses are subject to weather events, wear, and tear over time, as well as the maintenance, upkeep, and renovation choices their owners make. Those changes can throw insurance to value (ITV) off track, lead to premium leakage, and bring unwelcome surprises at point of claim or renewal.
These pitfalls and potential solutions were the subject of “Refocus on Renewals: How Robust Data Can Help Navigate a Crossroads in the Policy Life Cycle,” a session at Verisk’s Velocity conference. Here are some reasons to pay closer attention to the renewal book and commit to the regular recalculation of RCEs, while also staying current on the homeowners themselves:
- Properties change. A home undergoes significant renovation every 2.8 years on average, and homeowners have spent $160 billion on maintenance and remodeling activity from January 2017 through July 2020, according to data from BuildFax, a Verisk business. After a sharp drop at the onset of the pandemic, this pace has since accelerated, including improvements such as pools that can impact liability risk, as homeowners seek to optimize spaces where they’re spending more time than ever.
- Higher-end homes can confound index-based valuation tools. A Verisk study found RCEs for about three-quarters of premium and custom homes calculate higher using an ITV tool such as 360Value® than with an index. The average estimate using 360Value was 5 percent higher for premium homes and 4 percent higher for custom homes.
- Specific features can cause RCEs to deviate widely from indexes, including wood shake roof coverings, concrete block construction, plaster walls, metal roofs, and 100 percent stucco exteriors. Maintaining ITV is essential, and regular recalculation using an RCE tool such as 360Value® can help maintain the health of renewals
- Life events can be prime times for customers to defect, especially when they move and need to shop for new coverage. Additionally, foreclosures can be a warning flag for a property that needs to be checked for deferred or inadequate maintenance. Reveal these hidden risks with actionable, homeowner event data.
Tools and data that capture key property characteristics, identify changes, and record life events can help narrow the range of properties and customers potentially needing recalculation, underwriting action, or outreach.
For more insights, view this and all Velocity sessions on demand and free of charge.