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Homeowners and Business Properties Risk Being Underinsured, Says APCIA Survey

Only 30% of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs, the APCIA survey found.
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homeowners and business properties risk being underinsured, says apcia survey

A majority of insured homeowners have not taken important steps to ensure their insurance coverage is keeping pace with rising inflation and increased building costs, which could leave policyholders underinsured if catastrophe strikes, according to a new survey from the American Property Casualty Insurance Association (APCIA), conducted online by The Harris Poll.

Meanwhile, Selective Insurance announced the results of a January 2022 study which found that only 43% of U.S. business owners have increased their business insurance policy limits to account for inflation.

Only 30% of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs, the APCIA survey found. Additionally, among insured homeowners who completed renovations or remodels during the pandemic, less than half (40%) have updated their home insurance to account for those changes.

“It is critical that homeowners make sure they have the right amount and right types of coverage during this period of significant inflation, but unfortunately our survey shows that many individuals may not be properly prepared," said Karen Collins, assistant vice president of personal lines at APCIA. “Our survey found that about two thirds of homeowners may be without key additional coverages, such as annual inflation adjustment, extended replacement cost, and building code/ordinance coverage, that can better protect them in these challenging market conditions."

“Homeowners should be aware that rebuilding costs are increasing, and they should take steps now to update their coverage and mitigate against potential damage," Collins added.

The survey also uncovered a significant knowledge gap over whether insurance covers the cost to rebuild or the market value of the home, with 64% of insured homeowners indicating they are not sure or believe their homeowners coverage limits are based on the real estate market value of their home rather than the rebuilding cost.

Further, as climate change is causing more severe and frequent natural catastrophes—and hurricane season approaches—consumers are unsure or unaware if they have the right coverages in place to insure their homes against the realities of inflation and rising building costs.

As many as 63% of insured homeowners say they have not added or are not sure if they have added annual inflation adjustment coverage, 67% have not added or are not sure if they have added extended replacement cost coverage to their policy, and 69% have not added or are not sure if they have added ordinance coverage for new energy or building code upgrades.

“This should be a wake-up call to homeowners to pick up the phone and call their insurer or agent to discuss their insurance policy and make sure they have the coverages they need," Collins noted. “Too often people overestimate their preparedness for natural disasters and other emergencies, and this can lead to gaps in preparedness and insurance coverage."

The Selective study found that nearly 2 in 5 U.S. business owners do not fully understand the scope of their insurance coverage. As a result, they likely do not know how to assess on their own if they are appropriately protected. Additionally, nearly 1 in 4 business owners (22%) have not purchased insurance for their business. 

"With inflation's impact on the economy, it's imperative that business owners work with their agents to evaluate the adequacy of their insurance coverage and limits," said Brenda Hall, executive vice president, commercial lines chief operating officer, Selective.

Will Jones is IA editor-in-chief.