Friday, February 10, 2012

Watch your renewals this year. New regulations have insurers, agents, and clients up in arms.

When you go to renew your homeowners and other property insurance policies this year, you could be in for a bit of a shock.

Last year California Insurance Commissioner Dave Jones enacted regulations about how insurance carriers figure replacement cost on structures. The goal of these regulations was to make sure that carriers where not issuing polices that underinsured property. Needless to say, they are being challenged in court.
OK, I know, the first thing you are going to say is "My house was insured for more than it's worth to begin with! How can I need more insurance?!". When a disaster occurs, our goal in insurance is to rebuild your home, rental, office, etc.,. Worst case the entire building is destroyed and we have to rebuild from the ground up. That means new materials, hauling off the remains of the old structure, getting permits, architectural plans, hiring workers, paying fire department fees, paying city, county and state building fees, building code upgrades, and more. Real Estate market value varies greatly from the rebuild cost of a home based on the market factors at a particular moment in time.

If there is a large scale disaster, the cost of materials and labor can skyrocket since they are in high demand and there may be a shortage. Carriers have to try to take this in to account too. As I said before, the goal is to rebuild your building hopefully with out having to go to you and say "Oh, Mr. and Mrs. Homeowner, we are 70% finished with your home, but the insurance coverage has all been spent. We need you to come up with $84,000 so we can finish the job." I hope your motel is near a good bar.

Now, back to the regulations and what they mean to you. Many carriers are interpreting these rules differently and applying their calculations and formulas accordingly. In California, it is up to the insured (you) to make sure you have enough coverage. While they are required to send a copy of their analysis to you with your renewal, you can also request one, free of charge from your carrier or agent. I recommend that you read it closely. I have run across some "assumptions" that carries have made that did not fit the property. For example, the flooring was rated as having 70% carpet, 10% vinyl, 20% tile. They do not have any vinyl in the home.  They may have rated your bathroom as custom, or have down that you have a partial wood or wood laminate floor. If these items do not apply, you should speak to your agent about how to get the analysis corrected. It can lower your rebuild cost and the amount of money you pay.

Just be sure that the amount of insurance is still enough to rebuild your property. Your underwriter will still have to review the new valuation and approve it. After all, they are writing the check. If it is not reasonably close to rebuild cost, they can (and usually will) reject it.

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