Insurance-to-value

By Todd W. Rissel, e2Value

A state-of-the-art online database system of property valuation information helps the insurance, real estate and banking industry to determine the most accurate replacement cost value of residential, commercial and agricultural properties anywhere in North America.

Free lunches and Insurance-to-value? Never heard of the latter? (Ah, so you have heard of a free lunch? Are they really free? More on that later.) It is the basis for your structure insurance cost. If you own or manage personal or commercial property or a farm or ranch, what it costs to insure that structure is based, in a large part, on the structure’s value. Meaning the premium charged for the property starts with a coverage limit or what that structure will cost to rebuild. If your dream home costs $500,000 to build, typically that is a good value and your insurance transaction will start with that number. 

Insurance-to-value (ITV) is the term for how close the coverage is to what the building will actually cost to rebuild. The proper ITV number is 100 percent for most carriers, policies and consumers meaning the dream home would have a coverage limit of $500,000, 90 percent ITV is $450,000, and so on. Insurance companies and consumers lose out the further the insurance limit is from the actual cost to replace the structure. How that value is determined is a critical component and part of the transaction.

Free lunch?
It is important to the consumer and carrier that each owner pays precisely what they owe. For example, if your neighbor only pays 60 percent ITV, who gets hurt? (That is the free lunch for your neighbor) If each consumer not paying what they really owe can’t be determined, but the company not collecting what it is owed can be determined, then the premium shortfall results in higher rates applied to all consumers. (That is where the free lunch theory falls apart or, more to the point, you just paid for your neighbor’s lunch! There will be lunch but it will never be free.) After a catastrophic event like a hurricane, improper premium collection can result in whole companies being wiped out. Proper ITV applied equally by all insurers would more than likely reduce the ultimate base insurance costs consumers pay and keep more companies in business competing for consumers’ business.

Why is it possible for your neighbor to only pay 60 percent ITV? A proper ITV can be obtained with just a few characteristics only with applications using the ‘right’ characteristics and technologies that can integrate or share data with all of their other applications. The ability to update, change and mine that information is also a critical need.

Automation
Prior to the Internet and powerful centralized applications, there was no easy or accurate process and no integration or data mining. Automation has finally taken a lead position across the entire property valuation industry. With new resources available online, valuation providers can now determine the specific and true value of any property within minutes.

A web-driven, centralized process has to factor the qualities of the actual property, as well as up-to-the-minute and geographically tailored marketplace factors, including inflation, worldwide changes to the cost of materials and local industry trends for any property in any country. Such a tool allows insurance and other companies to operate on a real-time basis – achieving a ‘true’ and objective assessment of replacement value.

Any company that sells to consumers must be consumer-driven and can’t use a ‘data provider’. Ultimately consumers are a part of the process and need to understand it.

The availability of information and abundance of information (data) make the valuation experience faster and easier to explain to the end consumer why a structure costs what it costs to replace. Technology is also allowing carriers to update methodologies faster, integrate faster and, more importantly, apply the right value to each home eliminating ‘free lunches’. Is it just me or are you hungry too?

About Todd W. Rissel
Todd W. Rissel is the founder, CEO and chairman of e2Value, Inc. and is one of the nation’s leading experts on property valuations. Todd is a former insurance executive who recognized the shortcomings of the traditional appraisal and valuation systems. As such, many of the world’s leading insurance companies are now using e2Value to more accurately assess the true value of properties.

For more information visit www.e2value.com.