Accurate replacement values are essential for obtaining accurate catastrophe loss estimates. If a property’s replacement value is understated by 30 percent, the catastrophe loss estimate will be understated by at least that much. Widespread understatement of building values in a portfolio can lead to a significant underestimation of catastrophe risk.
For a variety of reasons, the insurance industry continues to face challenges—both at the point of underwriting and during policy renewals—in maintaining reliable residential and commercial replacement values. In fact, an AIR insurance-to-value analysis of a large sample of property portfolios found evidence of underinsurance in every one.
AIR has developed solutions to help insurers and reinsurers calculate, assess, and enhance replacement cost estimates both during underwriting and at the portfolio level.
360Value
360Value®, developed with AIR sister company Xactware, is a complete insurance-to-value solution. By way of a web-based interface, 360Value calculates component-based replacement cost estimates for residential, commercial, and agricultural properties during underwriting. 360Value also offers several options for insurers to recalculate replacement costs at renewal to maintain insurance-to-value through the life of the policy.
In addition to estimating replacement costs, 360Value can be used for catastrophe risk management. Since most of the data needed for catastrophe modeling is the same data needed for replacement cost estimates, companies can leverage property data collected for both purposes. AIR’s CLASIC/2™ is also supported in 360Value, enabling companies to assess catastrophe risk for individual properties at the point of underwriting.
TruExposure
TruExposure™ provides companies the ability to assess, compare, or enhance replacement cost estimates used in a catastrophe risk analysis. The validation module verifies the presence of a replacement cost estimate for each risk and assesses whether the estimate is reasonable based on the characteristics of individual buildings. The benchmarking module provides companies the ability to compare replacement values within their portfolios against industry averages. The augmentation module enables companies to replace missing or questionable replacement cost estimates for individual buildings with reliable estimates from 360Value.
For more information on AIR’s property valuation solutions: