Colloquially referred to as McMansions, large tract homes (LTHs) have historically been difficult for insurers to value for a number of reasons. As extreme weather events from recent years have underscored that close enough is no longer good enough when it comes to keeping reconstruction costs current and accurate, a recent tech update aims to provide insurers with the ability to better assess and price LTH policies.
Global property information, analytics and data-enabled solutions provider CoreLogic has now released its updated RCT Express reconstruction estimating and risk assessment solution, which includes the ability to provide valuations for LTHs, in turn putting better coverage adequacy tools in the hands of the insurance industry.
While they might look grand, LTHs are different from high value homes in a few key ways. Their location and design is similar across an entire subdivision, the construction materials are lower in quality, LTH construction practices are focused on efficiency, and other LTH construction costs are more predictable and less expensive. Despite those differences, insurers can run into problems when assessing the reconstruction bill for an LTH.
“A lot of times, the sheer size of them [means] a lot of carriers classify them with a much higher reconstruction cost when it comes time to rebuild,” said Benjamin Abbott, product manager for CoreLogic Insurance Solutions group, adding that the latest RCT Express release “allows carriers to visually see whether a home is classified as a large tract home or not. And if it is, then we turn down the reconstruction costs a little bit with our assumptions and allow the tool to more accurately price [the property].”
The valuation distinctions between McMansions and high value properties becomes important as natural catastrophes bear down on many parts of the US, at the same time as a lot of new homes are being built in the LTH model.
“It’s very important because the trend right now for builders of new homes is really to build these large tract homes or McMansions in lots across the country,” explained Abbott. “As we’re seeing new growth in urban areas specifically, these are the types of homes that are being built.”
Policies that accurately reflect a property’s value are likewise beneficial for insureds, and help to build trust in the insurer-insured relationship.
“It’s important for the insurance carriers to accurately value the reconstruction costs of any property they have because their client, the homeowner, is going to see the impact of that reconstruction cost directly in the premiums that they pay,” Abbott told Insurance Business. “Prior to this update and with other tools out there, they are potentially over-insuring, meaning that premiums may be inflated, which hurts the homeowners directly.”