A new survey for the American Property Casualty Insurance Association (APCIA), conducted online by The Harris Poll among over 1,000 U.S. homeowners who have a homeowners insurance policy, revealed a majority of insured homeowners have not taken steps to ensure their insurance coverage is keeping pace with rising inflation and increased building costs. Missing these steps could leave policyholders underinsured if catastrophe strikes.
Only 30 percent of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs. Additionally, among insured homeowners who completed renovations or remodels during the pandemic, less than half have updated their home insurance to account for those changes.
“It is critical that homeowners make sure they have the right amount and right types of coverage during this period of significant inflation, but unfortunately our survey shows that many individuals may not be properly prepared,” said Karen Collins, assistant vice president of personal lines at APCIA. “Our survey found that about two thirds of homeowners may be without key additional coverages, such as annual inflation adjustment, extended replacement cost, and building code/ordinance coverage, that can better protect them in these challenging market conditions.”
In 2020 and 2021, U.S. insurers paid out $176 billion for natural catastrophe claims alone, the highest total for a two-year period for natural catastrophe claims. Inflation, recent supply chain issues, and increased demand for skilled labor and construction materials following unprecedented natural disasters in the last two years have contributed recently to a significant increase in the costs to rebuild homes and businesses. From December 2019 through December 2021, the price of construction materials rose by 44 percent. These trends are impacting post-disaster recovery efforts across the U.S. – leading to higher costs and longer reconstruction timeframes.
“It is important to conduct an annual review of your insurance policy with your insurer or agent to help ensure you have enough coverage to repair or rebuild your home should disaster strike,” added Collins. “Homeowners should be aware that rebuilding costs are increasing, and they should take steps now to update their coverage and mitigate against potential damage.”
Other key findings of the APCIA survey include:
-There is a significant knowledge gap over whether insurance covers the cost to rebuild or the market value of the home. Sixty-four percent of insured homeowners indicated they are not sure or believe their homeowners coverage limits are based on the real estate market value of their home rather than the rebuilding cost. Most residential property insurance policies cover the cost of rebuilding a home, with recommended coverage limits typically based on estimated reconstruction costs for similar interior and exterior features, size and finishes.
-Sixty-three percent of insured homeowners say they have not added or are not sure if they have added annual inflation adjustment coverage, which automatically adjusts a homeowners policy each year to account for inflation.
-Sixty-seven percent of insured homeowners say they have not added or are not sure if they have added extended replacement cost coverage to their policy, which increases the coverage available to rebuild the home if labor and materials costs skyrocket after a disaster.
-Sixty-nine percent of insured homeowners say they have not added or are not sure if they have added ordinance coverage for new energy or building code upgrades, which provides additional coverage to account for higher costs associated with rebuilding to up-to-date building codes.
-Only 20 percent of insured homeowners say they created or updated a home inventory in the event of a loss less than a year ago, and 25 percent say they have never completed a home inventory.
To keep from being surprised in the recovery process following a natural disaster, APCIA urges homeowners to talk with their agent or company about adding key coverage features, such as replacement cost coverage, automatic inflation guard, building code/ordinance coverage, extended replacement cost coverage and additional living expense coverage.
APCIA also recommends creating an inventory of the home’s contents so policyholders can quickly and easily account for all belongings and report the loss to his or her insurer if disaster strikes. Many insurers have free tools available to help their policyholders create a home inventory. On their own, homeowners can take photos and videos using their smartphone. Storing the inventory to the cloud is also recommended.
For complete survey methodology, including weighting variables and subgroup sample sizes, contact Sarah Revell at Sarah.Revell@apci.org.