Placing You First Insurance Podcast by CRC Group
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Placing You First Insurance Podcast by CRC Group
When Rebuilding Costs More: Navigating Residential Reconstruction Risks
Rising construction costs coupled with widespread labor shortages have created a perfect storm for homeowners facing property losses. The gap between insurance coverage and actual rebuilding expenses continues to widen, putting families at significant financial risk..
Mary Roy, Senior Underwriting Team Leader at CRC Group, breaks down the complex factors driving this trend. The fundamental difference between new construction and reconstruction after a loss creates much of this disparity. Rebuilding involves unique challenges – from debris removal and working around existing structures to scheduling complications and protection of remaining assets. These projects lack the economies of scale found in new developments, where contractors purchase materials in bulk and efficiently schedule labor across multiple properties.
Don't wait until disaster strikes. Connect with your clients today to review their homeowner's policies and ensure they have adequate protection against today's rebuilding realities. Subscribe to the Placing You First Podcast for more specialist insights on navigating the complex world of insurance coverage.
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Welcome to the Placing you First podcast, where we spotlight timely topics and insights to help insurance professionals move faster and go further. I'm Amanda Knight.
Scott Gordon:And I'm Scott Gordon. Today, we're joined by CRC's Mary Roy, Senior Underwriting Team Leader, to talk about an issue that continues to grow why homeowners may not be fully covered when it comes time to rebuild, which is a thing.
Amanda Knight:Unfortunately.
Scott Gordon:So let's get into it.
Amanda Knight:This is the Placing you First podcast from CRC Group. This podcast features news and insights from a vast knowledge base of more than 5,500 associates who write more than $30 billion in premium annually. Plus, we give you the latest information on what's happening at CRC.
Scott Gordon:This is the Placing you First podcast.
Amanda Knight:And now the hosts of the podcast, amanda Knight and Scott Gordon. Welcome to the podcast.
Mary Roy:Mary, thank you so much for having me. I'm so excited to be here.
Scott Gordon:All right, Mary, let's start with the big picture. Home prices and construction costs have surged in recent years. We all know this. What's driving the increase in residential construction costs?
Mary Roy:So prices for everything have gone up, right, I mean, just walk out the door to your house and you'll see it. But there's more to it than that. When we're talking about construction in general, when we're talking about construction in general, things are rising same as milk, bread and eggs. The national rebuild costs rose in 2023. I think it was just over 4%, 4.1% I think, and some states were even as high as 9% In 2024 to 5,. That went down a little. It was 3.3%, so it sort of took a little bit of a dive, but it's still higher than it has been for years.
Mary Roy:And I guess we can start off by talking about reconstruction costs versus brand new builds from the ground up. Reconstruction lacks the economies of scale seen in new construction, so this pushes costs for labor and material. Just everything goes up from there. We can unpack that a little bit more in detail later, but if you have hired a contractor at all in the past few years for anything, you may have had a little bit of a sticker shock when you've received your end bill or your invoice. I know I have, and of course it depends where in the US you live.
Mary Roy:But increased costs of labor, inflation of materials and another real biggie is the workforce shortages. Those all go into play here and that's just really generally speaking. And so the more you talk on a general basis, people start to understand, just in layman's terms oh geez, I sort of get it. And I mean, just as far as workforce shortages, we see that in other markets too, but specifically in respect to construction workers. Here in the US we currently, as we sit now, have nearly 500,000 construction workers on shortage right now. I mean that's a huge number and I mean this is affecting all of us for jobs, both big and small, whether you've had a claim or you're just doing a little addition around the house.
Amanda Knight:So we talked, you know, you just mentioned, you know, when it comes to construction versus reconstruction after disasters or something like that, that there's a difference there, right, in terms of labor, materials, timelines. Is that the economy of scale you mentioned as far as maybe a lower price versus a higher price? How does that economy of scale apply? Does it apply just to materials or other things too?
Mary Roy:Oh gosh, there's. You know, if you can picture kind of a web, it shoots out in all sorts of different directions from there. You know, we can start off talking really generally and then go off into lots of different tangents. You know, when we talk about the shortage of labor, it's easy to understand that. It makes sense that a general contractor is going to have to pay top dollar for reliable help, right, right, you want your guy to be there when you call and so you're going to pay a little bit extra for that guy who's always going to pick up the phone and who's going to do the job right, exactly, and so everybody's going to agree yeah, I want that guy working on my house, right, and that makes a lot of sense.
Mary Roy:But there's also, when you talk about materials, specific materials that have significantly increased in price In the US. I mean, if you go up to Canada, that's even gone up a lot more. You can get the statistics there up a lot more. You can get the statistics there. But here in the US over the past five years there are real specifics that make sense. Just to the average Joe Drywall, for example, that's gone up two and a half percent. Copper, electrical four percent. Framing and lumber. Framing and lumber 1%. These are real things that you know affect every single one of us. So concrete is a huge one. That's 5%. This is all just 2024 to 2025 figures, and so these are real specifics that just keep driving the number, driving the number. And you know, just on a side note, certain carriers will figure these little, you know specifics into their rates and apply construction costs adjustment factors into their increases too. So when you see premium renewal increases on your homeowners, that falls into it too.
Mary Roy:So, it's just like every little you know when I talk about that web. It just sort of compiles and compiles.
Amanda Knight:Well, and I assume that in new construction a lot of times at least here a construction crew is, maybe they're building an entire subdivision so you can maybe get a discount on some of those supplies and materials. But then if it's just me rebuilding one home, those discounts don't apply. You're not buying enough lumber or concrete or copper for 25 houses, you're buying it for one.
Mary Roy:And Amanda. And here's the difference right, when you're talking about have you had a loss or not, when you're talking about building a subdivision brand new or after a catastrophic disaster, it's a whole different ballgame where everybody's fighting for those same materials and that same geography. It's really, really a different ballgame.
Scott Gordon:Yeah, and from that number you mentioned earlier, half a million. They're also fighting for bodies too. It sounds like you can't find the people.
Mary Roy:Carriers actually contract with workers from other geographies, in that case Scott. From other geographies, in that case Scott. So you know, if there's a loss, you know, in gosh, the wildfire area, they'll, you know, send people from Florida or linemen from the Northeast over, and so if you don't think that costs more money, we're paying for those guys to stay overnight places, whether that's hotels or apartments, and so all of that drives up the cost, for sure.
Scott Gordon:Wow yeah. So now in the article you mentioned that reconstruction often involves a top-down approach. So for dum-dums like me, why is that more expensive or difficult than the standard building process?
Mary Roy:So this is a real easy concept to understand. When you're building a house brand new, you put in your foundation and you sort of build ground up right, but say you have a loss and it's just a partial loss, water damage, your washing machine overflowed or your toilet overflowed and it created some water damage. That's sort of a top down rebid right, there's an existing structure there and you sort of a process because, unlike new construction, there's access and logistics to have to maneuver through. Rebuilds often involve site challenges like debris removal, mold remediation perhaps in our water damage, you know illustration or obviously you want to protect some existing landscaping that might already be there.
Mary Roy:You don't want these guys bulldozing over. You know things that are already already in place. Contractors may have to get their big machinery around existing structures. Sometimes it's a game of Jenga You're taking out one and putting it in a different spot, and so the scheduling is also a lot messier, whereas in a new build you can sort of set your timeline. The general contractor's done this a million times. He knows when the electrician is coming, the roof guy, you know.
Amanda Knight:Right.
Mary Roy:All of that kind of goes out the window, especially if the materials aren't readily available.
Amanda Knight:Right.
Mary Roy:Maybe they're on water, and so it's really. It's amazing how these guys are just on their toes.
Amanda Knight:So there are obviously a ton of moving pieces and you know different perspectives and sides to all of this. So, from a coverage perspective, what do you think is the biggest misunderstanding homeowners maybe have about replacement cost versus an actual rebuild cost?
Mary Roy:replacement cost versus an actual rebuild cost. So there are a lot of general misunderstandings surrounding homeowner policies. That's why it's so important that we educate and we do things like that Right. Sure we talk about that. The biggest confusion usually centers around the difference between market value what the house can sell for versus replacement cost. That's always the biggest one that we're having to sort of educate about. Depending on location, these two values can be very, very different. Depending on location, these two values can be very, very different. I'm here in Massachusetts and so you know. An example is a home on Cape Cod. It could cost a million dollars to build brand new, but the market value of that same home could be $4 million because it's situated along the coast, right on the beach, right. So easy to understand in that example.
Mary Roy:But some other misconceptions, particularly if there's a claim. It could be if a home is newish, like built in the last 10-ish years, insureds may request to keep the value on the lower end because we just built this for X amount. You know why would it be higher? And so maybe they're not taking into account some the unknown possibility at time of claim. This could happen and so we have to account for those unknowns. The other one that I think we come across a lot is people in the construction industry. Industry, the contractor who owns the home says well, I could rebuild my own home. Right, that is very well possible. However, if that same insured had a loss, particularly if it was a catastrophic loss, probably everybody of his clients would also in that general area also have a loss. And, as we know, the contractor is last to rebuild his own home and all of his clients are calling for him to do the work.
Mary Roy:So when real life kind of takes over, you sort of have to talk clients through. You sort of have to talk clients through being the overall bigger picture and that unknown possibility and sort of all the possibilities right, and sometimes it just takes a realistic conversation to talk through replacement costs, rebuilding costs, market value and, like this, education.
Scott Gordon:Now can you walk us through how stuff like inflation, labor shortages or local surges in demand, maybe like after a storm how they can create out of pocket expenses?
Amanda Knight:Because that's the part that, like an insured, is that hurts the most. Right Is those out of pocket expenses that you are like right. You feel like you got blindsided by, even if you shouldn't have been blindsided, because you should have known. So how does that work?
Mary Roy:So for an insured if they're feeling like they're taking on too much. That's definitely not the intent of an insurance policy, right? The intent of the policy is to make the insured whole after a loss. However, it is a contract between the insured and the carrier. Way to go about this is for the retail agent to really go and have that conversation with the insured ahead of the loss to say here's all of the coverages available and what amount of risk are you willing to take on yourself and what is comfortable for you? Every insured has a different amount of comfort with respect to risk. It's like playing the stock market right, and so someone may be risk averse and someone may say put it all on red.
Mary Roy:So, depending on that comfort level for the insured, their policy may be tailored in a different way that meets their needs. And so for an insured to take on more with respect to, say, a deductible they may have a larger deductible they may have a larger deductible Another insured may have the ability to take on, say, certain endorsements that are exclusionary, where others say nope, I want everything covered, I want the lowest deductible, I want my company to pay for everything and I will pay a higher premium for it because at a loss I want them to just show up and write a check. I don't want that. And so, knowing the intent of the insured upfront, before the claim happens, when you write the initial policy, that is the best time to be discussing that, not after it happens.
Amanda Knight:Right, it's too late then.
Mary Roy:Yeah, too late. Then Right, exactly. Hopefully I explained that well.
Amanda Knight:No, that makes sense. So I think, at least to my understanding. Some policies offer, like, an extended replacement or some sort of inflation protection. Is that a thing, and are there any meaningful differences between how carriers handle that that we would want retail agents to be aware of?
Mary Roy:Yep, absolutely so. There's extended replacement costs that you can apply to your homeowner policy. I would urge every homeowner to add this to their policy. If it's available through your homeowner carrier, scott, write that down, talk about that in a percentage 10%, 25%, 50%, even. That will give you an added buffer layer on top of your dwelling limit, and so this is just advantageous for any homeowner. Just in case you don't have enough, even if you do have enough, it's just great to have any sort of buffer layers built into your policy. It's peace of mind and typically it doesn't cost all that much.
Mary Roy:Extra Inflation protection that typically bumps the dwelling limit automatically at the policy renewal every year. This is also a great option for both the insured and for the carrier. So this keeps up with inflationary trends that we've just talked about and, depending on geography, the inflation increases can be as low as 2% and as high as 10%, so it's worthwhile. Mostly the inflation percentages are pushed forth on policies by the carriers and you know it's probably on your policy and you just don't even know it's there and you're not paying any extra for it. It's just part of your package. You know the extended replacement cost that you probably pay a little extra for, and you have to ask to have that added.
Mary Roy:It's worth to note here, too, that there's a ton of bells and whistles that can be added to a homeowner policy that don't just automatically come with it, and this is part of that tailoring to meet the needs of the insured that we were talking about Personal injury, water, backup, mold, id, fraud, ordinance and law, cyber flood, I mean, I could go on and on and on. These are just, you know, really amazing coverages and things that retail agents should be talking about with their insurance and things that retail agents should be talking about with their insurance.
Amanda Knight:And, side note, we are going to put out a subsequent article to this about some of those additional bells and whistles that you just mentioned. So stay tuned. You'll hear Mary again and you'll see more from her later, but we're going to go take a little more of a deep dive into some of those that we didn't explore in this article and podcast.
Scott Gordon:And next. Now we've touched on this, but the million dollar question is what risks do agents run if they don't proactively address these issues with clients?
Amanda Knight:I mean, obviously you could end up with an unhappy client, right? That seems to me like a risk right. Somebody is going to be upset, but are there other risks?
Mary Roy:I mean, I'd like to think that all retail agents are proactively addressing these coverages with their clients. If the insured has a loss and they're not adequately insured, then the retail agent is the first call that they make, right, that's the line of the chain and I wouldn't want to be on the other end of that phone call. Okay, by diligence with the client. And so, yes, you could have an angry insured on your phone call, sure, but beyond that, you know lawsuits, litigation, for sure, I mean, it can get into scary and scarier levels beyond that. So you're talking about, you know, people, their assets and oftentimes their large asset, right, and these are personal things. And so when an insured has a loss, particularly on their homeowner, these are their, you know, family pictures, their children's item.
Amanda Knight:Where their kids grew up.
Mary Roy:Yeah, right, there are values that you often can't put money to wedding dresses and family heirlooms and pets. So when you start talking like that, there are feelings associated and so things can get hot and heavy pretty quickly, more so than even you know. When a restaurant owner has a fire and I'm not downplaying that at all, right, sure, a family loses a pet in a fire or when you know there are big feelings that come about there, so, come about there. So, yeah, there's a heavy amount of diligence that really needs to be done on the front end.
Amanda Knight:So what sort of proactive diligence or proactive steps can retail agents take to ensure their clients are better protected when it comes to a reinsurance scenario? I mean, we've talked about making sure you understand what their intentions are, what their level of risk sensitivity is, what the client's comfortable with. Is there anything? You know? I love checklists, so for me, if I were a retail agent, I would love a checklist of okay, what kinds of things do I need to keep in mind proactively, before I ever, even you know, talk to this person or this family?
Mary Roy:So when writing a homeowner policy, for the very first time retail agents can run a replacement cost estimator. This gives an estimated valuation of the home even before they ever go out there, ever take a picture. We ever inspect. That way they can have an upfront conversation with the client. Say here, this is what we think you know, if you had a loss, this is what we think it would be to rebuild it. So there's your conversation, upfront.
Mary Roy:The retail agent should be confirming the area, the square feet of the house, the construction type, if there were any updates over the years that the homeowner has lived there wiring, plumbing, heating, roof have you done any additions? Anything in particular that we should know? Do you have any alarms? Central station fire, burglar, water shut off devices is a really big one these days. Any other protective measures If you're in a coastal area, do you have shutters? If you're down in Florida, what are your hurricane protections? And so you know, depending on geographically, they really do know their area, they know their backyard, you know better than anybody. And so you know. In the wildfire zones they'll ask wildfire info or possibly quake retrofitting info.
Mary Roy:And so to take that detailed assessment on the front end really, really helps because you're getting all of the info where, when there is a loss, we can say here, we did all of this diligence, we know this insured, we know the intent of the policy. We went out, we inspected, this is what it did look like, this is the information we gathered and here's how we're going to put it back same as it was before. So we're partnered with the client and that's really the intent of the insurance company, the policy, the insured, the broker everybody's on the same page. And if you're not taking all that info up front, there should be a big question mark here like wait a minute, my agent doesn't do that with me. You know they should. They really should, right yeah.
Mary Roy:So that's what I would say those proactive steps really, really do make a difference.
Scott Gordon:As the old ad used to say, it makes sound financial sense. It makes sound financial sense. So let's talk a bit about the role that CRC's wholesale brokers can play in helping retail agents find better fit coverage.
Mary Roy:So I mean, I've been doing this I think this is my 23rd year and my answer to this question has not changed in that whole time.
Mary Roy:Answer to this question has not changed in that whole time Complete submissions, well-constructed narratives, supplemental applications if necessary, any supporting data, prior carrier info. If you've got pictures or inspections or any details, anything you know about the client, the retail agent knows that client the best and so getting gathering and giving that information to the wholesale broker is the best. So when we get that detailed, completed submission, the extra effort made on the front end makes all the difference in terms of turnaround, eligibility, rate coverage. The CRC wholesale broker has access to so many carriers so we can find the right fit for that insured. We can tailor the coverages to meet their exact needs. No two insureds are the same and find the most competitive rate, and so it's really the insured's best interest, no matter how unique or how challenging they might be. They might be. So that's the part of the job that's so rewarding and exciting to me, and really that's what makes the partnership between the CRC wholesale broker and the retail agent.
Scott Gordon:So awesome. That's great. I don't even need coverage and you're making me want to go out and get some. All right, I think we're done with. Have we covered everything, Amanda?
Amanda Knight:Yeah, on to the fun stuff, scott. Yeah, oh my.
Scott Gordon:God, you know what that means.
Amanda Knight:Rapid fire.
Scott Gordon:It's time for what we like to call rapid fire, where you just answer questions off the top of your head. And here's the first one, first concert you ever attended.
Mary Roy:This First concert you ever attended. This one is very easy for me. I was very young. I saw Debbie Gibson and Tiffany open for Bruce Springsteen in Disney and if you think that's epic. That was a early 80s epic concert. Yep.
Scott Gordon:It's all downhill after that. Really, I mean, have you seen anything like that came? I know this isn't the question, amanda, but now I want to know you seen anything that lived up to that since then? Metallica was pretty awesome okay, yeah, well, normally we don't answer these, but am Amanda? I'm kind of curious. What was your first concert experience?
Amanda Knight:My first concert. Granted, I'm a Midwestern farm kid, so my first concert was John Michael Montgomery. Wow, I don't even know if he still makes music. I don't even know if he still exists.
Scott Gordon:I have a vague recollection of who that is.
Amanda Knight:Everyone. Go Google and see if that guy is still alive. All right, Scott, I'm going to Google while you tell us your first concert you don't want to know, I don't want to reveal my age.
Scott Gordon:I was. I was eight years old. When I was eight years old, I went with my mom and my grandmother to see the Bee Gees and the Pointer Sisters. Oh, that's a great one, but the first one that I really the rock concert that I really like got tickets for and went to was in 1984. I saw REO, speedwagon and Cheap Trick opened for them and it was amazing. It was really good.
Mary Roy:That's a really great one.
Scott Gordon:Okay, question number two the book on your nightstand right now.
Mary Roy:So currently I have no book on my nightstand because I just put it in my beach bag to the beach this weekend. It is Life is Short, so wear your party pants.
Amanda Knight:When you come back on the podcast after your next article. We're going to have to get a review of that because it sounds. I'll let you know how I'm going to get it. It might be something right after All alley, it might be Okay.
Scott Gordon:Last question your go-to pick-me-up on a long day.
Mary Roy:That's an easy one I'm hanging out with my girls. I have two extremely sassy daughters and they have the uncanny ability to put me instantly in a great mood, so they are truly the light of all things Fantastic.
Amanda Knight:I love that because I have a 13 year old and sometimes she is not the light of all things. So I will say, most of the time she is, but at the end of a long day I'm not sure that it's always yeah, 13.
Scott Gordon:They talk about terrible twos, but 13 is 10 times worse than any of that for a girl 100%.
Amanda Knight:Well, Mary, thank you for joining us. It was so good to get to chat with you today, Same same.
Mary Roy:Thank you guys for having me.
Scott Gordon:And to our listeners. Thanks for tuning in to Placing you First. If you found today's episode helpful, be sure to subscribe and share.
Amanda Knight:And to learn more or connect with a CRC specialist, visit crcgroupcom. We'll see you next time.
