CoreLogic Analysis Indicates Potential Underinsurance in Four Regional Scenarios Due to Reconstruction Cost Increases
CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled solutions provider, today released its newest analysis, the 2019 Insurance Coverage Adequacy Report, which shows increases in reconstruction costs in certain disaster-prone areas range from 5.6 percent to 7.6 percent from 2016 to 2018. In this report, CoreLogic examines potential underinsurance issues in four regional scenarios of the U.S. with exposure to natural hazards: The Northeast Atlantic and Gulf Coast regions with hurricane-related storm surge risk; California with wildfire risk; and Oklahoma with tornado risk.
Data from the 2019 Insurance Coverage Adequacy Report underscores the need for insurers to ensure homeowners carry the proper amount and type of coverage that is based on updated reconstruction cost values which also includes the variation of labor by market. The report also analyzes the impact of underinsurance on the lending industry through an increase in loan delinquencies following natural hazards.
“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 analytics at CoreLogic. “Homeowners who experience natural hazard events, such as the 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.”
Underinsurance figures are based on an analysis of increased reconstruction costs over just a two-year period for homes that are at very high-to-extreme risk of being destroyed or even partially destroyed in the event of a natural disaster. Highlights include:
- California is estimated to have a 5.6 percent reconstruction cost increase from 2016 to 2018.
- If just 1 percent of homes at very high-to-extreme risk of wildfire are destroyed, the undervaluation would equate to approximately $25 million if the coverage isn’t current.
- Reconstruction costs in Florida increased an estimated 5.6 percent from 2016 to 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 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 in very high to extreme risk flood areas, a 7.6 percent undervaluation equates to $49 million if coverage isn't current.
- Oklahoma 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 high risk of tornado winds, the reconstruction cost undervaluation is approximately $34 million if coverage isn’t current.
Delinquency rates spike following natural hazard events. Following 2017’s hurricanes Harvey, Irma and Maria, delinquency rates on home mortgages tripled in the Houston, Texas and Cape Coral, Florida metro areas and quadrupled in San Juan, Puerto Rico.
For more information, read the full 2019 Insurance Coverage Adequacy Report, which includes charts and figures.