It is a never ending battle. Every time you look to adjust your client’s property valuations they see it is you just trying to “sell more insurance”. The reality of it is that you just want there to be sufficient coverage to:
– Cover a large or total loss and get the insured back to the point they were before the loss
– Provide an appropriate Replacement Cost valuation
– Stay away from coinsurance problems.
You are being asked to act as an appraiser when most agents have had little or no appraisal training. The industry standard computer valuation method will produce a “fair” valuation but does not provide a “guarantee” that the valuation will be appropriate at the time of loss.
So what should an agent do about it?
- Understand your exposure to providing proper valuations. An excellent article was recently published and can go through how and when an agent can be liable. http://www.iamagazine.com/NewsViews/2011/March_03/Forms-Substance.aspx While you may never be able to prevent a potential E&O claim for a undervalued dwelling, there are many things you can do to lessen your exposure.
- Learn every thing you can about the automated valuation software so that you can use it appropriately. Remember, garbage in equals garbage out. You need to be able to properly use the software and then be able to explain the results to your client so they can understand and agree to the proper valuation.
- Disclaimers. Ya, I know, insured’s hate these. They think you are only trying to cover your rear end but you need a solid defense when going into court. Many times the information you are given by your client may be inaccurate or out of date so you need to protect yourself from any errors they may have compounded.
- Have the insured get an appraisal. This will provide an independent third party’s view and one from a professional who does valuations for a living. I know these cost money but you will find the cost cheap when there is a loss with the valuation being too low.
- Make sure to include Ordinance of Law coverage.
- Review on a regular basis. Set a schedule of every 2 or 3 years and follow it.
- Take courses on proper valuations. California is now requiring this if you are a resident California agent selling homeowners insurance. Valuations have been a huge problem in CA and this looks like an attempt to help resolve this problem.
- Look at valuations for both Coverage A and Coverage B. Don’t assume the limits the carriers automatically provide for you are the appropriate amounts for your client.
Last of all, develop procedures in your office on how valuations should be handled on a consistent basis. Don’t just use the limit they currently have when you are quoting new business since you have no idea on how that number was arrived at. You will just be compounding mistakes if you use that as a starting point. Go out and take measurements yourself. Look for special features. Do your homework.
When I hear numbers like 92% percent of the homes in San Diego that were destroyed in the fire in the early 2000’s were under valued, I get alarmed and wonder why we are so off course. It takes a fundamental approach to make sure that we are putting our best work forward when dealing with one of our client’s most prized assets. There is nothing worse than having an unsatisfied client at one of the worst moments of their lives.