Coinsurance/Insurance to Value Revisited: An Essential Concept in Property Insurance

when it is offered. Instead, companies often offer what can be described as a cushion, that is, additional amounts for dwelling coverage ranging from 20 to 30 percent above the dwelling coverage limit in the event the replacement cost of the loss exceeds that limit. This added coverage should minimize the risk of underinsurance and it is recommended that insureds make sure their insurance company provides this coverage. Care should be taken at the time the insurance is written to ensure that the amount of coverage accurately reflects the value of the home or building. This applies whether insurance is written on an actual cash value or replacement cost basis.

Replacement Cost Estimating Tools
Various estimating tools and services are available for this purpose to assist the insured and agent in arriving at a realistic replacement valuation. Note that the focus here is on determining an accurate replacement value of the building when the insurance policy is initially written or when it is renewed. This discussion does not encompass estimating the cost of repairs after a loss, as that is
another matter.

According to conversations with agents and company executives, the replacement cost estimating system of Marshall & Swift/Boeckh (MSB) appears to be the tool of choice in the industry to determine replacement value. The system designed for insurers known as Residential Component Technology (RCT), is used by 90 percent of insurers, according to MSB President Peter Wells. In addition, the company offers consumers the opportunity to calculate their own dwelling replacement value in the event they do not agree with the figure calculated by the insurance company. Consumers may use AccuCoverage (, a consumer version of the system used by insurers, for a nominal fee. This estimating tool

insurance adjusters at damaged building

consists essentially of a detailed questionnaire concerning the construction and amenities of the home, with numerous prompts to assist the consumer in completing the replacement value estimate. Since it is designed for non-insurance people, it takes longer to complete than the version designed for insurance practitioners, who are more familiar with construction terminology. This program walks the consumer (or insured) through a questionnaire that usually takes 20 to 30 minutes to complete, compiling details on the home — square footage, year built, number of baths, architectural style, custom features, its ZIP code, and other amenities — into the worksheet to provide a replacement value. The worksheet also considers the