If you are like most of us, you are finding that property valuations are going crazy—what may be valued as $1.9 million home with an ISO carrier may be valued as a $1.4 million home based on an MSO carrier’s estimator.
And, to add to that, who knows what the inspection will be returned as for replacement cost, $1.7 million or $2.2 million—it’s impossible to predict sometimes.
So, what happens? The client accepts the policy with a valuation of $1.4 million, but the inspection comes back with a $1.9 million valuation. How do we explain what could be a $800 increase in premium? It makes us look like we do not know what we are doing and that we are incompetent.
What makes it even more difficult is that it could be one part of the house that causes the issue. For example, I had a policy that had a bump-out window on the first floor. The carrier wanted to increase the square footage by 500 feet—just for this one window.
As any real-estate agent will tell you, it’s all about location, location, location, which also is causing problems with home valuation in New Jersey. A house that may be valued at $800,000 in South Jersey may be valued at $1.7 million in North Jersey. Traditionally, it has been more expensive to live in North Jersey—but that’s 100% increase.
With these huge in-force increases, the client may be put in a negative escrow situation, and he or she may be forced to add to the escrow, so the policy gets paid. A letter from the mortgage company stating the escrow is now $500 short puts an undue burden on the homeowner (or business owner).
It’s not just personal lines
Commercial valuations are way up as well, and trying to move an account to a new insurance carrier is increasingly difficult as the new carrier usually wants a higher coverage limit on the building then the building may have currently.
Keep the client informed
I am not sure there is an end in sight, or if the values will level off or come back down. But keeping the client informed, and getting ahead of the renewal increases may allow us to retain our clients and their insurance policies.
We need to explain what’s happening proactively, so that if there is a change down the line, our clients are prepared for it, and they will know how to act.
Roger C. Butler, CIC
Roger Butler, CIC, is vice president of PIA of New Jersey. He also is vice president of personal lines at The Barclay Group in Riverton, N.J. Butler is an active member of PIANJ, and he has served on its board of directors and on several committees. Currently, he serves on the PIANJ Business Issues Committee. He is a Certified Insurance Counselor, and he is a member of the National Alliance. He is a past chair of the Skylands Producer Agency Council. In addition, he is a past member of the Mercury Agents council. Active in his community, Butler is vice chair of the Cinnaminson Board of Fire Commissioners, and past secretary of First responders JIF and past fund commissioner to the Municipal Excess Liability Fund.