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'Underinsurance' threat looms in disaster-prone areas

By Mike Wheatley | April 17, 2019

An uptick in reconstruction costs in certain disaster-prone areas means many homeowners may find themselves inadequately insured for the next catastrophe.

Reconstruction costs have risen by 5.6 percent to 7.6 percent in some areas over the last year, according to CoreLogic’s 2019 Insurance Coverage Adequacy Report. CoreLogic examined potential underinsurance issues in four regional scenarios, such as storm surge risks in the Northeast Atlantic and Gulf Coast regions; wildfire risks in California; and tornado risks in Oklahoma.

Homeowners will want to make sure they are carrying the proper amount of insurance as well as the right type of coverage based on current reconstruction costs, researchers say.

“Underinsurance issues can cause financial devastation for property owners, artificially low coverage limits for insurance carriers, and increased loan delinquencies,” said Amy Gromowski, senior leader of analytics at CoreLogic. “Homeowners who experience natural hazard events, such as California wildfires, are often struck by personal and financial devastation, and many aren’t able to rebuild their homes, which prolongs the region’s recovery and often causes homeowners to default on their mortgages.”

CoreLogic researchers calculated the following underinsurance figures by analyzing reconstruction costs over a two-year timespan for homes that are at very high to extreme risk of being destroyed or damaged in a natural disaster event.

Some of the researchers’ findings for reconstruction costs include:

California: The state is estimated to have experienced a 5.6 percent increase in reconstruction costs between 2016 and 2018. If just 1 percent of homes at very high to extreme risk of wildfires are destroyed, the undervaluation would equate to approximately $25 million if the coverage isn’t current, according to the report.

Florida: Reconstruction costs in Florida increased an estimated 5.6 percent between 2016 and 2018. If 5 percent of homes with very high to extreme storm surge risk were destroyed, the reconstruction cost undervaluation would be approximately $205 million if coverage isn’t current.

Houston: The city has had a reconstruction cost increase of approximately 7.6 percent from 2016 to 2018. If flooding in Houston caused 5.4 percent damage to homes at very high to extreme risk, a 7.6 percent undervaluation equates to $49 million if coverage isn't current.

Oklahoma: The city is estimated to have a 6.6 percent reconstruction cost increase from 2016 to 2018. If a severe convective storm caused 20 percent damage to only one percent of homes that are deemed at high risk of tornado winds, the reconstruction cost undervaluation is approximately $34 million if coverage isn’t current.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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