MS/B Unveils Annual ITV Quality Index Results – Undervaluation Improvements Continue

Undervaluation statistics for the United States homeowners business have continued to improve since 2004, according to Marshall & Swift / Boeckh (MS/B).

MS/B, a provider of building cost data and estimating technology to the property insurance industry, has been tracking home valuation statistics since the early 1990’s and reports it as the MS/B ITV Quality Index”.

In 2005, MS/B’s research shows the percentage of undervalued U.S. homes has dropped over the prior year from 61 percent to 59 percent, and the average percentage of undervaluation has improved from 25 percent to 22 percent across the industry. This is a significant improvement from five years ago when approximately 73 percent of homes in America were undervalued by an average of 27 percent.

According to Bob Dowdell, chairman of MS/B, this improvement represents a continuation of the insurance industry’s efforts to adopt risk-specific valuation tools and “best practices” strategies to both new and renewal property business. “Analysis of claims results and trends in books of business clearly demonstrate the benefit of risk-specific valuation tools,” said Dowdell. “By eliminating imprecise valuation methodologies, such as the use of indices to determine and update coverage amounts or tools that rely on quality judgments or square-foot-only estimates, carriers improve business when written and maintain it more profitably while improving policyholder protection.

“The realities of underinsurance manifested by incidents such as the
California wildfires of late 2003 have motivated more and more policyholders to become proactive about verifying that their coverage amounts are appropriate,” continued Dowdell.

Over the last few years the MS/B ITV Quality Index has shown steady
improvements in the undervaluation results. The net impact of the improvement in undervaluation has been substantial ever since the conversion from square foot to total component estimating methodologies began.

Prior to 2000 when the insurance industry began adopting component estimating, it was estimated that undervaluation could cost the U.S. property industry nearly $8 billion in lost premium revenues. As component estimating proliferated, this number improved drastically. Nearly $4 billion of these lost premiums have been collected as policy coverage has been more properly aligned to better protect each individual home.