Accurate residential property valuations are critical to insurers as well as homeowners. In the event that a property is undervalued, insurers will lose out on premium revenue. Furthermore the homeowner risks not having enough coverage in the event of a total loss.
On the other hand, if a property is over-valued, insurers risk losing worthy customers. This happens when homeowners or an independent agent shops for lower premiums. This maybe from carriers who have access to more accurate and current residential property valuations.
Trends that affect residential property valuations include:
1. More homeowners are choosing to remodel instead of move: According to a 2015 survey that included 170, 00 U. S. respondents, more homeowners are choosing to upgrade and remodel. They do this instead of purchasing another home. Of those surveyed, discretionary renovations exceed many necessary projects. For example, nearly two times the surveyed homeowners are more likely to remodel a kitchen. They may upgrade home automation systems and smart home technology rather than replace ageing elements such as roofs.
The drivers for remodelling versus buying vary according to age group and income. More than half of the survey’s respondents age 60 or over say they plan to stay in place. Baby Boomers are investing heavily in their existing homes.
2. More customers are choosing to rent instead of buy: The most recent Harvard University housing report “The State of the Nation’s Housing 2015” states that Q1 2015 homeownership rates are at just 63.7 percent – a 20 year low. Meanwhile, the 2014 rental market, according to the same report, rose to a 20 year high of 3.5 percent. This marks the 10th consecutive year of robust rental growth.
The reason for this trend is as follows:
Many Millennials have become disillusioned with ownership. Other factors such as student debt, flexibility, work/life balance and social causes like being eco-friendly have trumped the American, big-house dream and the suburban materialism of their parents’ generation.
Then there are families who lost their homes during the economic downturn. They are facing poor credit and diminished financial resources. these families prefer to rent single residential family homes or luxury apartments and condominiums.
Finally there are empty nesters who are tired of being tied to a house that is not too large for their needs and the basic maintenance and care that goes along with it. They are increasingly downsizing to achieve greater financial and personal freedom.
3. Reconstruction building and labour costs are on the rise: An improved economy, as well as the basic principles of “Supply and Demand” has resulted in reconstruction cost increases across the U. S.
According to a CoreLogic analysis of building cost data:
Across the U. S. labour rates are increasing anywhere from 1.5 to 2.0 percent. Top moving trades are carpenter, electrician, roofer and tile setter.
Largest labour increases are occurring in Wyoming, Virginia, Utah, Texas, South Carolina, New Jersey, North Dakota, Idaho, California and Arizona.
Material costs from last year increased 1.1 percent, although January saw a jump to 2.1 percent. The top material increases were drywall, lumber, paint and ready mix. Plywood showed a double digit increase for the year.
The national average for increased reconstruction costs is 1.3 percent. The there is 1.8 percent for total reconstruction costs.
Renter premiums are typically much lower than those of homeowners. The trend of renting versus buying highlights the importance of anticipating the insurance needs of renters. An example of this is with the increased complexity, income and specialized needs of today’s renter comes the potential need for increased contents coverage. By understanding the trends, demographics and rental history of renters, insurers will be better prepared to underwrite renter’s policies.
Data driven insight gives underwriters the tools needed to keep homeowners and renters happy. Risk managers have access to analytics and professionals that can help them better understand agent behaviour. Furthermore they can monitor property performance, as well as competitively compare key performance indicators.