ITV - Insurance to Value
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.
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.
Tags: ITV
Replies to This Discussion
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Permalink Reply by Glenn Norris Lau on -
13 million homes yes.
And like it is on the insurance applications, most of these homes follow very standardized building structures / codes ...etc. If we can come up with algorithms that can predict when the world is going to end(think of all the variables that are involved in that!) I think we can come up with an algorithm that can at least set a proper ITV rate, and from there Brokers can tweak / add / subtract to meet their client's needs.
The problem is...nobody wants to do it. Myself included.
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Permalink Reply by Steve Wilson on
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The cover feature article of Canadian Underwriter magazine’s FEBRUARY 2010 issue which has now been released is focused on the Insurance To Value (ITV) topic:
Mind the Gap
Insurance to value (ITV) data problems are now widely known in the insurance industry, but new technology services want to fill the void left by undervaluation. The goal of these "data validation" tools is to shrink the gap between valuations and premiums, by giving brokers easily accessible information at the point of sale and comparing building calculations to actual losses. Many brokers are on board, but the bigger question may be: are insurance companies interested?...
…Read the full article at canadianunderwriter.ca here. Or read the article within the digital edition of the February issue: http://digital.canadianunderwriter.ca
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Permalink Reply by Stephen Tang on -
I can't agree more with what Chris Lorne voiced in his comments on jan 29, 2010. Let's be frank about ourselves, take proud of what we do and remember where we come from. We are all in the insurance profession, not with building appraisals or evaluations. I've gone through all necessary courses leading to my professional designations with insurance and how many hours actually did we spent with building evaluation stuff and the like? The main issue we are facing now is not just that the insured building value may not be right, but that there are significant differences in the outcomes by different tools which are all acceptable to the insurers. The interim cure may be that a common agreement with ALL insurance companies to accept just ONE tool for assessment of rebuilding cost. This eliminates the spread with the outcomes derive from using different tool by different brokers. Additionally, someone should take the lead to re-offer a choice for policies with NO GRC and NO S/L options subject to the building being insured at least to 80% of the recommended replacement cost. The long term solutions may be for someone to step up and do all the evaluations for all dwelling buildings in town areas and store up in a central database, and all brokers to seek such info from this source at cost. The evaluations may not be right, though, as they will never be, but at least everyone will be working at a standard base. This may take years to complete this enormous task, but if there is no one starting up now, we will all be facing the same ITV problem 10 years from now!
Stephen Tang AIIC CAIB from BC
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Permalink Reply by Gouri Kulkarni on -
Replying to this even though this is an old thread.
I agree with your point, different insurance companies come up with a different rebuilding cost which could affect
the "sale". Similar to the central database/s we have for autos we could come up with one for property. It will definitely take years..
Gouri
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Permalink Reply by Kerry Diehl on -
I replied earlier to this, but now that I read more comments, and look at the original comments, the more I just want to stand up and ask everyone to chill out! that is - the industry, not the people posting. the purpose of the replacement cost guide is to be a GUIDE, in order to approximate the premium to be put into the insurance fund for those who suffer losses. In the industry attempt to apportion every nickle, divert responsibility, etc, the original purpose has been lost.
Wendy originally stated : "more to meet the needs of homeowners." should be our guiding principle. Insurance is slow to move in setting future rates based on past experience, so the big push to get it right has been seen as everthing from interesting to annoying.
If you get a quote to build a deck or fix a roof, you expect on that date to get quotes that vary by 10%. how can insurance companies expect an evaluation tool to last 5 years and be more accurate? especially when you are trying to get the information from a home buyer that has seen several homes, and the house they bought, seen once or twice, and they certainly weren't thinking about the exact square feet of the deck, or what percentage was carpet or laminate or tile or lino.
we dont need an ITV tool to be 100% accurate in all areas of canada, or to be updated annually on the client's policy. The annual inflation should be applied better by the insurers, and GRC is an absolute must on policies, as we cannot predict with 100% certainty what future costs may be.
so lets get back to the utmost good faith, and best possible guess, acceptable error margin, allowable differences of opinions, and probable future variations. and if all the insurance companies who increased policies by 30-50% from the new requirements, who are still paying the same amount of claims as before the increase, looked at the new revenue and reduced overall rates, then the insurance companies would come out the other end of the ITV process in a positive note.
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Here is a recent daily news item that may be of interest at canadianunderwriter.ca related to the ITV cost calculator issue: Canada's Competition Act negates dream of a single cost calculator:...
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Permalink Reply by Linda Hubert on -
Why not rely on experts who are trained in the building industry to come up with the building costs? Perhaps a homeowner could get an estimate to rebuild their house from a local contractor, or a commercial building owner could go to a firm that specializes in coming up with rebuild values for commercial buildings.
We would better serve our clients if we were to advise, explain and guide them to give us the right value instead of telling them we will do it all ourselves. We as insurance brokers and insurers cannot be a "jack of all trades" despite the fact that everyone else thinks we should be. We should be the experts on insurance and leave the other professions to the experts in that profession, what ever it may be.
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