Home Insurance - Replacement vs. Fair Market?

[GBA Insurance]

...about the quality of the replacement, you should really only be looking at 3 companies: Chubb, Fireman’s Fund, or AIG (cross your fingers after the policy is issued though, their appraisals are completely unpredictable). The main advantage (among many) with these carriers, is that they offer non-cap replacement, meaning that if they agree to insure your home for $1 million and you have a total loss and you’re later told that it will cost $5 million to rebuild, they’ll pay it! And fast! We have a bunch of clients with Chubb out in CA, so I know for sure that they write out there, along with Travelers and Encompass. The other things that you have to take into account is that each company has their own way of calculating the replacement costs, so where one company may come in at $1 million (using modern day materials), another company may come in at $800,000 (using modern day materials), so it does pay a bit to shop around. Also included in the replacement cost are such things as: the cost of the debris removal (after a loss), economies of scale, the cost to hire a contractor quickly (which is usually surcharged) - understanding that you'll want your house rebuilt ASAP. So there is a lot that goes into it. You can also try writing a letter directly to the company indicating your disagreement with the appraisal, sometimes they will work with you – and letters are defintetly more effective than trying to have your agent get the value down, as companies really try to keep their customers happy. I just had a client who reduced his appraisal by $470,000 by simply writing a letter. Lastly, in order to avoid any headaches, should you choose to change carriers, either issue the policy a month or so in advance (which will give the company sufficient time to complete the appraisal) or order a pre-appraisal before issuing so that you’re not shocked with a totally different replacement value than originally quoted – I can’t tell you how many times it happens (almost always with the older homes).

In any case, if you have any more questions or need any advice shoot away, I’ll check up on the thread. And make sure you review the appraisal, many times there will be errors overlooked within their calculations (such as modern day additions that were calculated as part of the original home).

FYI: I don't know anything about your house/location, so I really can't say whether or not the replacement seems too high, but I can tell you that with the premier companies such as Chubb (who will ONLY replace with the same materials), homes in our area are almost at $500 per sq. ft. now.

 

[darthmaul]

Thanks, djs and GBA, for your replies - very informative!

We are awaiting a quote from Allstate. It turns out that they can insure our home. While it is in an historic district, the house itself is not specifically listed on the historic register. So, they can provide us a quote.

Allstate has pre-appraised the replacement cost at about $950k, very different from our current insurer. Not exactly sure why. It could be that they would use new materials rather than the exact same (i.e., plaster replaced with plaster). I'll need to ask about this.

Regardless though, I think this level of coverage would be fine with us. While we like the historic character of our home, we would prefer not to pay the extra premium for full, authentic, replacement. Instead, we would like enough insurance to allow us to purchase something similar.

I'll let you know where we net out.

Thanks!

 

[GBA Insurance]

Just a few tips: make sure your policy has: "All risk" on the contents (which would be an HO-5 as opposed to HO-3), off premesis theft, replacement cost on the contents, and water backup (if you have a drainage pipe in your basement). Also make sure that you increase the "replacement cap" on your home to as high as you can (preferably up to 50%) and make sure that the policy doesn't have any hurricane deductible (as Allstate is notorious for that). Also be sure to schedule any valuable aritcles that you may have (such as jewelry, fine arts, wine collection, etc..) as your policy only covers so much while unscheduled (usually about $5,000 worth). Don't just assume that the policies are the same because all of the coverage limits match - that's just the suface.

Should you have any questions reg. any of the above coverages, feel free to post any questions or ask your broker exactly what they mean - you can never ask too many questions, agents would usually rather have you ask 100 questions and have you know your coverage than selll a policy to someone who deosn't care about what they have, at least that's just me!

I'm glad I could help - Good job with the pre-appraisal!

Here's one last tip; NEVER go below a 1000 deductible, and for a house like yours it may even pay to take a 2500 deductible depending on the savings. It also helps to make sure that you don't wind up putting in 2 or 3 small claims and then get cancelled.

- Evan

 

[djs]

Is Allstate writing homeowners policies in Kentucky? They stopped in California, but I think they are letting the agents write outside. If this is the case in Kentucky, find out who they are actually going to place it with.

Don't get me wrong, Allstate is a good company, but got hit heavy with Katrina losses, and need to restore their reserves. I would just think they would pull out of the edge case type risks (old homes) prior to stopping writing states. Of course, it could be a case of very limited exposure with this in Kentucky, vs very large exposure with lots of homes in California.

Dan

 

[GBA Insurance]

DJS

I'm in NY, and Allstate also stopped writing homes here as well. From my understanding Allstate just doesn't like the costal states. All of their policies (at least in NY) had contained a 2.5%-5% windstorm deductible "hidden" witin the policy. They were so saturated here and had gotten hit with so many windstorm type losses, that even with their 5% wind deductible, their loss ratio became huge - then they realized they had to pull out. I don't know if Katrina could have caused them that much of a problem considering that most of the losses were flood based and therefore not included within the policy coverage. I know that Katrina put a dent in the wallets of a lot of these carriers but I don't think that's why they have pulled out of the costal states.

Evan

 

[djs]

In California, it's not so much the wind, it's the forest fires. But this can be managed in other ways, such as not writing protection classes 9 & 10 (which a lot of companies don't).

Doesn't matter where you are, there are chances for catastrophic losses. You have tornadoes in Kansas, hail in Colorado, hurricanes in Florida, etc. This is why insurance companies buy insurance (i.e., re-insurance).

In New Orleans, a lot of the damage was flooding, but everywhere else, the damage was a lot of wind / storm related, which rumor has it, Allstate was heavily exposed to. The good news is, they did have sufficient reserves to pay for it.

I'm sure this, along with other losses made them reevaluate the market as a whole, leading them to stop writing in various markets. As far as I know, they haven't non-renewed any places in bulk, just won't allow any new policies. They have also had some rate increases.

Dan

 

[GBA Insurance]

I didn't even think of the forrest fires - that must kill these companies out there. Most of the time you're right, the companies don't like the PC 9 or 10's, however most of them will write in a 9 (I don't know about 10), if you have a central fire and burglar alarm.

I'm also pretty sure that, while you're correct about each area having their own natural problems such as the tornados and hurricanes, etc.. most companies do redline (in a legal way of course) and will NOT write in particular areas of a state, for example in FL - if you're east of I-95 (where you're closer to the cost and get hit harder by the hurricanes), they won't write you, west of I-95 - you're OK (bu then again you'll probably have a wind exclusion on the policy so you won't be covered anyway). They will, most of the time, add exclusions onto the policies if they know there is a particularly high risk for something that may cause big losses. Almost ALL policies have flood and earthquake excluded (even in NY where earthquakes aren't a big risk), in FL, again, wind is excluded due to the hurricanes - I'm pretty sure that in tornado valley, there's an exclusion, you see where I'm going.

At the end of the day insurance companies evaluate risk and come up with a (hopefully) successfull mathmatical equation for profit, which is NEVER a guarantee, so they try to control as many variables as they can and adjust from there, they never overlook anything!

 

[djs]

Forest fires probably aren't as bad as you think. Most are in National Forests where building isn't permitted anyway. The ones that do involve structures tend to get 30-40 homes at a time. Not good, but not overwhelming (from an insurance company perspective), since these homes are charges a premium already.

On the other hand, fire is virtually never excluded on a fire policy It's hard to get around the basic risk.

At least with earthquake and flood, there is coverage available. You have to decide if you want it though. Since the state mandated carriers provide earthquake coverage, carriers pulled out of California, the State decided to do it themselves, the carriers came back, the state sponsored earthquake insurance is pretty unaffordable.

Actually, I don't know about elsewhere, but in California, it's earth movement that is excluded. While most people think about this as earthquakes, it also includes land and mudslides, for those who decide to build on the side of hills.

Dan