Risk Management for Homeowners
Presentation by Mohamed Metwally
The Pandemic Impact
A Quick Review
- At the beginning of the pandemic, people stockpile supplies such as toilet paper, paper towels, and hand sanitizers. Those were like gold for everyone. If you have hand sanitizer in your home, you are the richest one in the area.
- And then they came up with a new lifestyle and work environment. People started to work from home prompting homeowners to take stock of the current state of their homes. Like needing more room to accommodate 24/7 confinement or needing home office spaces.
- The interest rates at that time were at an all-time low. People rushed to buy bigger homes and so there is a need to build new homes, which raised the price of the material.
Construction and Renovation Costs
- The construction and renovation costs went way high because of the lumber industry. There was a huge reduction in demand for construction and renovation. To stay afloat, they reduced supply. Sawmills slowed down production and inventory was unloaded. And the reduced need never materialized.
- There was an increase of 300% to 400% in the material cost, which, was because they didn't have workers to do the work. Most of the people didn't want to go out to work after that the supply chain and the damage actually affected us, and affected the whole world.
- Fewer workers mean fewer products being made
- Container ships are unable to offload products and materials because there is no one to unload the products from the ships
- Not enough drivers mean the deliveries cannot be delivered
- Demand is up, everybody needs and wants something but there is no supply available
- Demand is less than supply and so the prices go up
And now you're sitting home. You can see that small hole in your wall, and you can see that you need to do more work on your house or you can see that you need more space at your home. That caused everybody to want to do renovation in their home. And that took away the products/supply that was available then.
In the image above, it tells you that if you need to renovate your house, or if you have any claims that you need to fix, the prices have already increased like crazy.
As seen above, Insurers paid over $176 Billion in Catastrophic Claims (CAT) alone between year 2020 and 2021. Reduction coverage will continue as profitably of property insurance continues to erode. For example, if there are fewer claims, the premium for the policy actually goes down. And in the last two years, the high number of claims was actually the main cause for the increase in the premiums of insurance policies. So what do we do?
How We Ensure Our Risk Management Program Keeps Pace
Confirm that the current coverage limit for our clients is adequate, given the increase in cost for materials and labor
Check policy replacement cost language and make sure what is included is clearly defined
- Sometimes you will find a fine print that will tell you that you have an x amount for the roof and you have an x amount for dry walls, ceiling, etc. If you didn't check your policy thoroughly and you didn’t read every part of it, you might get yourself a trouble.
- Guaranteed replacement cost OR Extended Replacement cost, with the percentage accurately communicated
- The insurance company provides an extra cushion of protection for you if the materials and labor costs have spiked by being the cost needed to rebuild the home.
- No question asked, they know what they got into, they will do their inspections. The inspector will determine what is the right replacement cost for your home. And from there, they will be able to rebuild your home to the same condition it was on.
- Provides an extra monetary cushion in case the dwelling amount coverage limit on the policy is not enough.
- It depends on what is agreed upon with the insured (can be 25% or extra 10%).
- Will repair your home with materials similar to what was there before the damage, without any deduction or depreciation.
- It gives you the same amount that was already written in your policy. Therefore, if you were under-insured, you will not be able to get your home the same way it was on.
- Reimbursement which factors in depreciation.
- Provides the least amount of protection and may cost the homeowner significant out-of-pocket costs in the event of a loss.
Quantifiable Benefit To The Client
The scenario above proves how important to have the right agent. One who goes through your policy reviews with you every year. You need to make sure that they know all the updates that you had. And ultimately, you need to make sure they are not just premium or business driven. Your agent should be driven with their relationship with you. That agent is Mohamed Metwally.
Mohamed Metwally is a USI Personal Risk Specialist based in New Jersey.
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