CoreLogic Releases 2019 Insurance Coverage Adequacy Report, in Response to Increased Natural Hazards in U.S.

The U.S. has seen an increase in the number of natural disasters between the years 2016 and 2018. The resulting “underinsurance issues” have kept analytics and data-enabled solutions providers very busy with analyzing the new wave of areas that would be better served by increased natural hazard coverage.

CoreLogic^®, a leading global property information, analytics and data-enabled solutions provider, 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. According to 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.

Tom Larsen, content strategy principal for Insurance and Spatial Solutions, and Guy Kopperud, industry solutions principal for Insurance and Spatial Solutions, contributed to the following interview with GISCafe Voice.

1. When you speak of “underinsurance,” are these homes/properties you’re talking about ones who do not carry adequate insurance or simply did not insure for catastrophic loss of this kind?

Most catastrophic losses are covered under a standard homeowners policy. Some hazards, such as earthquakes and flooding, require separate coverage. The “Underinsurance” referenced in the 2019 Coverage Adequacy Report, refers to those policyholders that have a homeowners policy, but may be underinsured because reconstruction costs (building and labor) has risen and therefore, the Reconstruction Cost Value (or Coverage A) within their policy may not be enough to rebuild if coverage hasn’t been updated in the past two years. See chart of California reconstruction costs below.

-Guy Kopperud

1. Obviously people who live in places like Houston recognize the risk of flooding in their area. But how are people in other areas to know that they are going to experience such loss? 

Top carriers leverage our world-class natural hazards solutions to identify the likelihood of a property being affected by a natural hazard. In the case of flooding, the U.S. has a mandatory flood insurance requirement for homeowners inside FEMA-designated Special Flood Hazard Areas (SFHA) which identify high-frequency flood risk zones. Outside of the SFHA, the purchase of flood insurance is optional and rare. For example, CoreLogic analytics following Hurricane Harvey showed that more than 70% of the flood damage occurred to homes outside of the SFHA – highlighting that the choice to insure for flood is rare even in Houston. CoreLogic is supporting the Federal Emergency Management Agency (FEMA), the National Flood Insurance Program (NFIP), the Write-Your-Own (WYO) insurers and their clients with risk data and analytics to support a larger flood insurance market.

-Tom Larsen

1. What level of increase in insurance would homeowners in each region need to have to ensure their losses were covered in the event of a natural disaster? 

Well first, make sure your Coverage A is current and accurate. Then, check with your agent and/or carrier about any hazard risks that the property may be at risk for that are not covered under a standard policy.

-Guy Kopperud

1. We now have a large segment of homeowners who were underinsured for these events, who can’t pay their mortgage and can’t make necessary improvements on their properties. How do you suggest they go forward as they probably can’t afford additional insurance right now?

Our mission at CoreLogic Insurance Solutions is to help the insurance industry ensure that property owners can protect and restore their property in the event of loss. The reason we published this report is to bring the issue of underinsurance forefront so that property owners ARE protected and CAN rebuild after loss.

-Guy Kopperud

1. Is FEMA able to provide any assistance?  

Yes, FEMA does provide a certain level of disaster relief, but usually not nearly enough to rebuild if the property owner does not have flood insurance.  For more information on specific events, we direct consumers to the FEMA website.

-Tom Larsen

1. It looks as though Puerto Rico is the hardest hit. The resources in Puerto Rico are so slim, how do you foresee insurers getting to help these homeowners recoup?  

CoreLogic provides the data and analytical foundation for governments and insurers to promote resilience in all communities.

-Tom Larsen 

1. Is the report addressing those to whom the disaster didn’t affect, but who need to carry additional insurance in the event of such an event? 

The objective in publishing the report is to help consumers and the real estate industry be sensitive to the effects of underinsurance. Losing a home is a devasting consequence of natural disasters which is why the ability to restore and/or rebuild a home is so important; and for most, the only way to do that is to ensure coverage is adequate and current.

-Guy Kopperud

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From company materials:

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 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:

• 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.

Florida:

• 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:

• 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 would equate to $49 million if coverage isn’t current.

Oklahoma:

• 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.

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