What are instouch readers’ views towards solving the ITV issue?
There has been much discussion by various stakeholders within the general insurance industry about the issue of ITV:
• Broker associations recommend guidelines
• Insurers create protocols for accepting new and renewal business
• Service providers offer their own unique cost evaluations
However, a definitive solution remains a challenge as guidelines, protocols and evaluations do not produce consistent and predictable results. Guaranteed Replacement Cost (GRC) does not appear to adequately solve the problem.

Here’s a recent situation. Custom-built home destroyed by fire, home is woefully underinsured but there’s GRC on the policy. No problem, right? No, because homeowner’s claims experience becomes a nightmare as Claims department attempts to mitigate settlement stemming from incorrect ITV – it is a vicious circle.

There is a need for Industry stakeholders to collaborate more to meet the needs of homeowners.

And the ITV issue is not isolated to Personal Lines business. Commercial Lines values are not any better; in fact, clients do not even have the safety net of GRC. Despite everyone’s best efforts to date - consumers are not being well served and this forms a poor image of the general insurance industry as a whole.

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Here in Ontario, I am quite sure the brokers do not go out and inspect the homes and this is the root of the problem. not enough commission to go and inspect, walk around and do it right. If this was done, ITV would be resloved. To date, no insurer has acknowleged this and are forcing ridiculous inflated ITV's on us. for those that inspect - this is an insult - for those that don't - they deserve it.

The ITV's supplied by compuquote using standard wage rates are right in line with the correct numbers - but you have to have the proper square footage first (this is southern rural Ontario - where there are NO UNIONS!)

Mike O'Grady
One major problem is the poor job many brokers are doing in explaining to the insured the difference between rebuilding cost and real estate value.
I feel that one way to help resolve the issue is to seperate debris removal. If debris removal was a seperate coverage it would be easier to explain and easier for the insured to understand the value of rebuilding the home. If debris removal was a seperate coverage it could be adjusted depending on age of home and building materials (things like asbestos covered boilers cost a fortune to have removed).

Another issue is with in-ground swimming pools. I feel should be a seperate coverage for them. They increase the value of the home by 15,000 to up to $60,0000. May be easier for insured to have them as a seperate coverage as well. Just a few thoughts.
ITV values are what restoration companies charge insurance companies. This is not the real estate value, this is not the provincial/municiple tax value. and this is not what most builders would quote you in a sales pitch to build your home. Similar to what gemoligists have over appraised jewellery for years so that insurance companies would pay them the appraisal rate for replacement, overinflated from normal sales prices.
By insisting that values are current benefits all. It can also keep some clients from shopping around, as new ITVs would require them purchasing more coverage than normal, as the GRC will keep them longer with the same company. It is an appropriate spread of risk when the company is dealing with update values, as inflation of 2-3% over the last 5-10 years, while real costs have increased 10-15%. About time for everyone to catch up. Never mind the economy lagging this year, we all know the results will be adjusted next year....
Hi Wendy, One thing that usually gets missed in rebuilding costs when ITV's are done is the cost of labour to rebuild.. This is an largely influencing factor that must be taken into account to reflect true rebuilding costs. Appraisals and other valuation tools usually only consider specific values of building materials and other tangible items. While labour costs may be factored into the price of these items, insurers often get the shorter end of the stick since they must also put up additional costs of labour at the time of rebuilding.

Insureds can only benefit by insuring to value. Most isurers usually follow the principle of insurance which indicates that value increases have a direct corelation to rate reductions of the particular coverage. Also, brokers should help insureds to recognize that insuring to value is the cost of doing business and the best way to ensure peace of mind which is what insurance is all about!... Just something to think about... best regards:-)..anne
As an addendum to the above and to provide clarity to my earlier comment on ITV, I really mean't to say that it is hard to predict actual labour costs at the time of rebuilding due to economic influences, eg. if the loss happens when there is a labour shortage etc.. bottom line is that a true ITV often cannot be established since no one can predict when the loss will happen:-)..anne
For commercial properties we request the client get a replacement cost appraisal from a firm that does that sort of thing all the time. An appraisal company would keep up to date with the construction industry's costs in order to give a proper appraised value. We feel this is as close as we can get to the actual replacement cost of buildings. They will also give us a value range for debris removal as anyone I have spoken to believes debris removal costs will vary greatly.

Is there an appraisal company for personal homes?
Here in alberta i have seen many homes i have placed that the prior brokers had way under insured. Many clients with homes valued much less then $90 sq ft. Rather then the $250 + depending on the home. The company i am with actually makes the agents go out and inspect the home and get photo's before binding. As i was previously a broker i was shocked at how often homes never were looked at, and when you drove by them they were nothing like they should have been. I think it really all comes down to each persons book. I would rather decline or seem like a hard ass sometimes then put a company on risk for a total loss on a home that isnt insured to value.Many contractors and home builders i have spoke with find it sad how little people thinks it costs to rebuild a home and how many brokers/agents cant tell the client the difference between Reasonable rebuild cost and Realestate Market value. It comes down to educating the front lines ..... i know this has been siad a million times but i weekly shake my head at how low some people are willing to go just to get the business in the door.
Cody..... well stated! Unfortunately here in Ontario, I see the companies catering to the lazy or dumb ass brokers and we all get painted with the same brush too often. I think companies should INSIST on as you say, inspect, get photos and provide a sketch of the measurements backing up the square footage. This would then be a non issue. Why would they not insist on this is beyond me.
There are over 13 million houses in Canada according to Stats Canada. Everyone wants a piece of software that will allow them to calculate the rebuilding value of every dwelling to the exact dollar. They also want that software to work seamlessly and give them that figure in under 10 minutes becasue they are too busy to spend any more time than that on the value. If you ask a contractor to give you the cost to rebuild a house he or she will take hours making sure that they have the right dimensions and components and they will then work their magic and come up with a number two days later. The interesting thing is that the number they give you will only be good for 30-90 days. In insurance we falsely beleive that we can set the value once at the inception of the policy and that it will be accurate for the remaining 365 days. We also beileive that the buidling will be destroyed when there is no labour shortage, on a sunny day in the middle of June, when constrcution components will be at their lowest cost for the year and the policyholder will be willing to wait for 6-8 months for their house to be rebuilt.
If you add all of these factors together, I'm surprised we can even come close (25%+-) to the value.
Brokers/agents etc are not qualified to provide valuations- be it for personal lines or commercial. The E&O risk is huge, and I for one would refuse to get involved in the providing estimate valuations. By all means, a broker can indicate if he/she feels the values are low, but it's up to an insured to ensure they are providing proper values.

The cost per sq ft only gives a guide, and shouldnt really be considered as a definitive replacement cost.
Its not that a broker/agent should know be qualified. Yes it is up to the insured but if they say the value should be lower then say the Beork RCT then the companies are still going to base GRC on the Replacement cost calulator. All i was stating before is that the broker/agents are the first line in underwriting and should make a more active effort in knowing what they insure. I know the costs are high to go out to each house but just pushing some numbers isnt good enough and that is all everyone is trying to say.
Hi Chris, I can't agree more with what you said. Please see my general comments on this subject. With respect, too many brokers/underwriters think that they are experts on rebuilding cost and overgeneralise the whole issue. There is no quick-fix on this subject, but achieving a standard base is at least a step forward in the right direction, to me.


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