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Feature Story:

What Drives Costs: Trends and Analysis from Xactware

In 2006, ISO acquired Xactware, the preeminent source of information for estimating the cost of repairing and replacing property. Each year, Xactware publishes a Property Report that provides insights about the property/casualty insurance industry during the previous year and indicates what to expect in the coming year.

The 2006 Property Report, published earlier this year, features information such as:
  • materials that increased or decreased in price and the effect those fluctuations had on claims costs
  • rising fuel costs and which markets saw the largest effects
  • material and labor cost trends, including how the escalating cost of certain materials affected the claims industry as a whole
  • detailed reports and analyses on claims handling, key material costs, and labor costs

Here are some highlights from the report.

Construction

For 2006, Mississippi had the highest reconstruction cost index — the percentage of change in the cost to build from fourth quarter 2005 to fourth quarter 2006. The state continues to rebuild after Hurricane Katrina, as the number of homes destroyed ranged from 65,000 to 70,000.
After back-to-back record-breaking hurricane seasons in 2004 and 2005, the continental United States saw only severe regional storms and one significant tropical storm — Ernesto —  in 2006. According to ISO‘s Property Claim Services, Tropical Storm Ernesto caused an estimated $245 million in property damage.  Record-breaking home appreciation also cooled in 2006, with values stagnating or depreciating in many of the markets that had been hottest over the past five years. New construction slowed, and remodeling held steady.

Nearly every measurement of new construction activity was down in 2006. By October, housing starts were at a six-year low, sales of new homes were down by more than 3 percent, and permits for new construction slowed to their lowest level since December 1997.

Like the new construction industry, the remodeling industry flattened in early 2006 but ended the year slightly ahead of 2005. The National Association of Home Builders Remodeling Market Index showed a slight increase in 2006 to $233 billion compared with $215 billion in 2005.

Property valuation

Hurricane damage can be due to wind and water. In 2006, the number of claims for wind and water losses was greater than for all other types of loss.
The storms of 2004 and 2005 brought increased attention to underinsurance in 2006.  Although opinions vary about the seriousness of the problem, most experts agree that the industry should work to create more accurate valuations for underwriters and policyholders. As a result, insurance companies appear to be moving toward the component-based model pioneered by Xactware. Xactware‘s system uses the same pricing information used by insurance adjusters to determine the cost to rebuild a home.

Property estimate values
The total dollar value for property claims reported to Xactware was more than $15.5 billion for 2006. The number of claims reported to Xactware averaged nearly 179,000 per month from January 1, 2006 to December 31, 2006. For the entire United States, the average claim value began the year at $9,258 and ended the year at $6,439. 

For 2006, Xactware recorded an average value for property claim estimates of $7,326, up from last year‘s average of $5,622.

Property claims for wind and water losses topped the list with the greatest frequency (901,810 and 590,584 claims respectively). As the industry expected, fire losses ($27,047 on average) had the greatest effect on severity. 

AVERAGE Estimate Value BY TYPE OF LOSS

The “All other type of loss includes loss types that either occur much less frequently (for example, vermin) or types that the user has specifically entered and therefore vary from the standard types of loss provided by Xactware.

The 2006 Property Report can help professionals in claims, underwriting, mitigation, and other trades better understand market pricing and its causes through statistics and analyses available only from Xactware.

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Comments

The comments posted by our readers do not represent the opinions of ISO or the author.

From: Joseph Hebert
Comment: This is just for one (non-cat) year. The wind load is probably understated compared the long term average including cats, and there is no earthquake component either. This would be very helpful if it represented long-term expected values by all types of loss.

 

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