More homeowners have inadequate insurance than ever – a business opportunity for appraisers

A consequence of the housing boom that has been overlooked – by homeowners and appraisers alike – has been the growing problem of underinsurance.

As property values have bulged in recent years and so many homeowners have cashed out equity to invest in further improvements, the homeowner's insurance policies they bought when they closed on their mortgages are likely out of synch with the value of their homes.

According to the Wall Street Journal, spending on home improvements reached $155 billion last year, an increase of 27 percent from just two years before. And material and labor price increases have driven replacement costs up by seven percent a year over the last five years.

It's not a matter of homeowners not being able to keep up financially. A survey released this week by Travelers reveals homeowners by and large don't know the details of their policies, such as what is covered and not covered, and what they would be due in the event of damage or destruction.

Forty-four percent of 1,300 respondents in the survey had not revisited their homeowner's coverage in the last year. Twenty-seven percent weren't sure if their policy would cover the total replacement cost of their home.

"It's not at all unusual for homeowners to get insurance coverage when they buy a house, but not revisit it for years," said Joseph P. Lacher Jr., executive vice president of Travelers Personal Insurance. "The survey suggests that few people are making sure that as changes occur, their insurance remains in-synch with their lives."

The WSJ meanwhile cites a forthcoming survey conducted by Marshall & Swift indicating that 58 percent of houses are undervalued for insurance purposes, by an average of 20 percent.

In the last edition we described a new WinTOTAL/XSellerate plugin that helps you market to owners of past appraised properties from your database. A replacement cost update is just another professional service you can offer to owners of past appraised properties that can help them out.

Homeowners are used to dealing with insurance agents to help determine their needs. While this is a path of least resistance, you have a number of things over an agent. You work for a fixed fee, not a commission. You are a professional appraiser who values property for a living. And, in the case of a past appraised property, you're seen as familiar with the house and have done reliable work on it before.

It's important for both you and the homeowner to understand that a qualified insurance agent is the way to go to estimate the replacement value of personal property, coverage needed for homeowner's liability, and the like. But no one knows better than you the value of home improvements like new siding or a roof, an inground swimming pool, or an addition. That's your area of expertise.

For an appraiser who may not like marketing, "cross selling" is going to be another foreign concept. But if a homeowner is interested in bringing his or her insurance up to date and wants you to help, you have a great opportunity to convince them to buy a full appraisal which will tell them the current market value as well as replacement cost of their home.

Even if you're not yet using the WinTOTAL/XSellerate automated marketing plugin, the problem of reinsurance and the alarming number of homeowners who are not keeping up with their coverage is potentially a huge marketing opportunity. As you cast about for new sources of business, remember this one.