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Bested | Homeowners Insurance Valuation Homeowners Insurance Valuation Course I. Differences Between Homeowners’ and Dwelling Property Policies ........................ 2 Dwelling Policy Up to Four Units.................................................................................. 2 Homeowner’s Policy- Owner Occupied ....................................................................... 2 Thorough Property Coverage ...................................................................................... 2 II. Basic Concepts of Property Valuations .................................................................... 3 Loss Settlement Provisions ......................................................................................... 3 How It Applies .......................................................................................................... 4 The Effect of Underinsurance on Settlement ........................................................... 4 Actual Cash Value ....................................................................................................... 6 Replacement Cost Value ............................................................................................. 6 New for Old .............................................................................................................. 7 Superior Coverage ................................................................................................... 7 Different Types of Structures.................................................................................... 8 California Residential Property Disclosure ............................................................... 8 Depreciation (Holdback) for Claims ........................................................................... 13 Initial Payment........................................................................................................ 13 Market Values and Insurable Amount .................................................................... 14 III. Components of a Structure Necessary to Estimate Replacement Cost .............. 14 Standards for Estimates of Replacement Value. ....................................................... 14 Type of Foundation ................................................................................................ 15 Type of Frame ........................................................................................................ 15 Roofing Material and Type of Roof ......................................................................... 16 Siding Materials and Types of Siding ..................................................................... 17 Building on a slope ................................................................................................. 18 Building Code Upgrades ........................................................................................ 18 Size and Square Footage ...................................................................................... 18 Geographic Location of Property............................................................................ 19 Number of Stories and Heights .............................................................................. 19 Features and Finishes ............................................................................................ 20 Cost of Demolition and Debris Removal ................................................................ 20 Architect, Engineer, Permits ................................................................................... 20 Age or Year Built .................................................................................................... 20 Attached Garage .................................................................................................... 21 Additional Costs Building a Single or Custom Home .............................................. 21 IV. Effects of Catastrophes on Replacement Cost ................................................... 21 Demand Surge .......................................................................................................... 21 Concentration of Risk ............................................................................................. 23 Services Added ...................................................................................................... 23 Construction Labor Shortages ............................................................................... 23 Building Supply Shortages ..................................................................................... 24 Fuel Shortages ....................................................................................................... 24 Transportation Issues ............................................................................................. 24 Permit Restrictions Can Result in Increased Costs ................................................ 25 V. Enhancements and Endorsements to the Policy .................................................... 25 Review of Significant Endorsements ......................................................................... 26 Catastrophe Coverages and Types of Replacement Cost ......................................... 27 Building Ordinance Coverage Requirements ............................................................. 28 i Building Code Upgrade .......................................................................................... 28 Types of Replacement Cost coverage ....................................................................... 28 Replacement Cost Coverages and Limits .............................................................. 29 Exclusions .......................................................................................................... 29 Misuse of Extended Replacement Cost ................................................................. 29 VI Basic Fire Policy ..................................................................................................... 30 ACV and RCV Differences ......................................................................................... 31 Exclusion and Limitations of Coverage ...................................................................... 31 SFP Extensions of Coverage ..................................................................................... 32 Standard Form Fire and FAIR Plan ........................................................................... 33 The FAIR Plan........................................................................................................ 33 Earthquake Coverage ................................................................................................ 34 VII Types of Basic Building Construction ................................................................. 34 Type of Construction .................................................................................................. 34 Combustibility Classifications .................................................................................... 35 VIII Methodology of Determining Value ..................................................................... 38 Insurable Replacement Cost .................................................................................. 38 Valuation Metrics .................................................................................................... 38 A. Proprietary Valuation Tools ................................................................................... 40 B. Real Estate Appraisals .......................................................................................... 40 C. Insurance Company Valuation Software ............................................................... 40 D. Contractor and Expert Estimates .......................................................................... 40 E. Cost per Square Foot Estimates ........................................................................... 41 F. Insured’s Opinion ................................................................................................... 41 IX. Fire Mitigation ..................................................................................................... 41 A. The Fire Problem ................................................................................................... 41 Mitigate the Risk and Hazard- Complete Fire Protection Approach ....................... 45 Mitigation imperatives ............................................................................................ 46 More Than One Tool .............................................................................................. 47 X. Broker-Agent Awareness of CCR 2695.182-.183................................................... 47 Documentation of Person Estimating Replacement Value ........................................ 47 Standards Used When a Licensee Estimates Replacement Cost ............................. 48 ii Homeowners Insurance Valuation Course When it comes time to purchase a homeowners’ insurance policy, those involved in the insuring process should have an idea of the home’s replacement cost. Part of calculating the insurance premium is knowing the replacement cost of a home. The California Department of Insurance has implemented new regulations in “Standards and Training for Estimating Replacement Value on Homeowners’ Insurance.” The regulations establish new levels of care for agents and insurers as follows; • Resident fire and casualty broker-agents and personal lines broker-agents are to satisfactorily
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