Supply and Demand and Other Essential Variables That Affect Rebuilding Costs

This post is part of a series sponsored by CoreLogic.

Most people understand that the goal of a homeowner’s policy is to restore a home and possessions to the way they were should a catastrophic (CAT) event, such as a hurricane, wreak havoc. If the building and labor cost database is not property monitored, and initial coverage and claims estimate is too low, the homeowner may not be able to fully cover the losses incurred—and that’s not a message anyone experiencing loss should hear.

Although protecting homeowners is the primary reason structure replacement costs should be as accurate as possible, there are other potential impacts of getting it wrong:

• Undervaluing properties for many years creates problems beyond the one-time hit on individual claims. This issue is especially exposed during CAT events when even partial losses quickly exhaust coverage limits.
• And speaking of CAT events, if building and labor costs are not continually monitored, claims estimates may be inaccurate due to supply and demand fluctuations.
• Inadequate insurance valuation keeps coverage limits artificially low and if a CAT event occurs, Insurance companies risk losing loyal customers. They also risk incurring online wrath from dissatisfied policyholders via social media and consumer review sites, which can drive away future business.

Today’s best practice for reconstruction cost estimating uses information specific to each home and its location along with detailed and extensive construction knowledge to create an estimate—a method comparable to those used by builders. Current localized costs of labor and building materials are applied to create a cost estimate that is unique to the specific home at the time of the estimate; especially important after a catastrophic event such as Hurricanes Florence and Michael in 2018, as well as Hurricane Irma in 2017, which affected building and labor costs in North and South Carolina, Florida, and Georgia. This produces objective estimates without the inaccuracies that are introduced by subjective quality judgments or unsophisticated estimating tools.

Accurately estimating reconstruction costs requires an estimation tool that was designed upon a thorough understanding of construction techniques and the interplay of building characteristics as well as up-to-date, localized material and labor costs. Finally, it requires a solution that understands catastrophic risk from every angle and how getting it wrong is well…just wrong.

Click here to learn more about how CoreLogic monitors reconstruction costs..

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