Private Client Risk & Resilience
Private Client Risk & Resilience
Property replacement costs are going up, up, up! Here's why with Skip Coan of e2Value
Personal Risk Advisor at Ericson Insurance Advisors and CEO of RiskRevu, Kurt Thoennessen, CAPI and SVP of e2Value, Skip Coan have an in depth discussion about the impacts on the replacement cost of property yesterday, today and tomorrow. From supply chains and inflation to the labor market and natural disasters, Skip shares his perspective on these and other areas that impact the replacement cost of property around the world. Join them for this stimulating conversation and learn why the costs are what they are.
Episode resources:
E2Value website - e2Value.com
London Instech Podcast - https://www.instech.co/podcast/instech-london-podcast-12-todd-rissel-ceo-e2value-us-property-data
National Association of Home Builders - NAHB.org
There are more wealthy people today than ever before in the history of the world, the risks they are exposed to through the assets they acquire, and their unique lifestyles are significant. The bigger the asset, the bigger the potential loss. The bigger the potential loss, the more complicated the mechanisms for protecting those assets becomes. This show seeks to uncover the risks that successful people face. So we can provide some guidance towards minimizing, mitigating and transferring them. From Coverage contracts and carriers to client experience, technology and claims, we will cover it all. Whether you're an agent looking to hone your skills, or someone with significant wealth to protect, I hope this show becomes a valuable resource you can come to rely on to help you protect yourself, your family, and your clients. Welcome to the private client risk and resilience podcast. My name is Kurt Thoennessen. And in addition to being the host of this amazing show, I am also a personal risk advisor at Erickson insurance advisors in Washington, Connecticut, and the founder and CEO of RiskRevu, which is a amazing technology that we've built to help agents revolutionize the way that they interact with clients. So that's a little bit about me, and but more importantly, we're gonna get over to skip Cohn in a minute. But I am super excited to be here today. It's been a couple of weeks since I've been behind the mic recording an episode. So I'm really excited not only to be back behind him, but also for the conversation that we're going to have today. Which, you know, I'm I'm pretty sure where, you know what, what exactly we're going to talk about, but, you know, you know me, you know, our guests, sometimes we just get off on tangents and talk about other stuff. So that's okay, well, we'll figure it out along the way. But skip, and I go back several years. And so for those of you who know, skip from E to value, or from other areas of the business world, or the personal world, you know, Skip's an amazing guy. And since I met him, the first time was at the private Risk Management Association Summit, that he was there representing E 2 value and, and I was there as an agent at that point, and subsequently as a vendor with RiskRevu. But we just got to talking and, you know, really hit it off, personality wise, and interest wise. And since then, you know, Skip's been very generous in helping me with some business ideas on the risk review side, giving me some ideas and also giving giving me some, some access to their technology, so that I can really understand how that works. And, and, and what that could mean to my platform going forward. So really appreciate, you know, the engagement to the relationship over the years. And, and the knowledge that skip has shared with me. So looking forward to hearing what he's got to say today as well. But, you know, that's a little bit about that. But you know, Skip, why don't why don't we give you give you the mic for a second? Have you introduce yourself as well tell us a little bit about about you, and what's going on? What's new?
Skip Coan:Well, thank you, Kurt, I appreciate being invited here. You know, I've been around in this risk assessment appraisal side business since the late 80s, started in the field, worked my way up, built, the company sold the company, and I've been with the value for the last few years, I've been a user of every valuation tool that's out there. I have active use and knowledge on most of them. And I just think that I'm in the best place for that type of evaluation tool right now. And we've been doing a lot of meetings and podcasts and other interviews on value. In the last 12 months. After 30, some years in this industry, it's kind of refreshing that people finally understand value and understand the importance of it and why it's necessary to get that coverage right at the front door is that you do a service to yourself, you do service to your client, you do service to the carrier, and if you can get that number right at the front door, and you're able to hold on to that business over time, valued correctly over time, because things change, as we know, you know, no one knew what, you know, COVID and what it would do to our industry and how build materials have been affected by it. And so there's it's a very interconnected world. And it's really important from an insurance standpoint, that you understand that, you know, it's not just about a what's covered in this and I'm writing the policy limits. It's about how do we get to this and how do these things like the COVID shutdowns and war in Ukraine and things that we don't think about, but they affect how we do business to and our businesses. well into everything affects the insurance business. It's an encompassing process. And it's important that we understand that. Yeah,
Kurt Thoennessen:absolutely. And I think one of the things you just said, is really important for us to recognize is that you, Andy to value have been in this space, the replacement cost data space for, like you said over 30 years. And so that perspective is going to be incredibly valuable. And you just said, you know, been in it for 30 years. But just recently, it's been gangbusters with all of the, the publicity around this topic. And I've, I've noticed that too, about your business and about you, and your partner, Todd, on LinkedIn, it's just, you're all over the place, like you said, you're doing podcasts, you're writing articles, you're going to all these conferences, I mean, I, I can't imagine the amount of miles that you guys have on your airline cards these days. But it's just a testament to, you know, the longevity of the business, but also just the time that we're in and how important this is.
Skip Coan:Yeah, that's right. And, you know, we're talking to folks who in the past, were less concerned about it. You know, we just had a call this week, again, with another reinsurance carrier, at a London value in the US and Canada, which is where we operate, has really gotten the attention of the London markets, they are really concerned about the data and the values that have been submitted to them over time and how they're dealing with it from reinsurance and a couple holder standpoint, from there. And the same thing holds true in the US market. I mean, especially in this private net worth group, which which you function in mostly, things have changed. And part of that is because I think, not only losses and cats and fires and, and everything, but also, you know, insurance had begun to understand because of the articles and the and the publicity on things insured, the insured has begun understand how important it is to have this coverage. And, and I think, and I hope that there is this transition from selling costs to selling value. And I think that's where we can come in as providing that that value, that assurance, that financial stability through through a homeowner's policy that an agent can supply we can help provide that number and make that a more solid piece of security, financial security for the insurance.
Kurt Thoennessen:Yeah, no, I completely agree. And, you know, I think you're spot on is that clients are really getting it these days to a to a greater degree. And we'll get into more of that. But I also wanted to bring, bring up, your company recently got an award. It was the 1000 fan award. And this is great, because Todd, you know, he's flying all these jet setting all over the world. And he's bringing this you know, what do you call it? He got your award that has the 1000 fan recognition on it. And he's putting it next to a pool and taking a picture of it, putting it in the airport. It's traveling with him everywhere. Can you tell us about that? Yeah.
Skip Coan:We're members of INS tech London. And Todd's podcast was one of the 10 most popular podcasts that they did for in Tesla ins tech London. And he got the award for it. They he's, you know, Todd is he likes social media. So he has been taking it with and, you know, it's as if you travel with your daughter's teddy bear to show her where you are everywhere. And he's been doing that with the award. And it it really played out well over over. It was it was a masterclass. And in using LinkedIn and social media, it was we really did a great job with that. Well,
Kurt Thoennessen:that's incredible. So I guess that leads that we that means that we have a little bit of competition
Skip Coan:here. I don't pretend to compete with him.
Kurt Thoennessen:So here, here it is. If we get over 1000 people to download this, I will create that award as well. And then we'll send it over to you and then you can travel around you guys, and I
Skip Coan:won't take it every everywhere I go.
Kurt Thoennessen:We will make sure to put a link to that podcast in the show notes for this show as well. So if people want to check that out, but that's, that's funny. Yeah, I mean, definitely creating great content, and then promoting that great content, you know, really, really does add value to but the other interesting thing you said was that international, you know, instek London, you know, did that talk and so you both are traveling all over the country, the United States, Europe and Canada. And so talking about replacement costs and all these different places and and And I was thinking about this before the call is, even in just the United States, we have several different microcosms where the replacement costs are so drastically different. And I was thinking about New York City versus Florida versus California. And you deal in different types of materials, and you deal in different types of just environments for the construction. And so I'm sure you know London has different different things driving the cost there. Like in New York City, it's you know, steel construction, masonry construction, brick construction. In Florida, there's a lot of wood construction. In California, there's a lot of wood, there's a lot or I'm sorry, Florida's got a lot of masonry, right in California has got a lot of wood. So it's, it is it is interesting to look at the different areas and what what type of materials are being used in those locations.
Skip Coan:But they're, they're all different. And yet they're all interconnected through inflation costs that have been and and supply chain issues that have happened over the last two years. So even though everyone has different building codes, which we account for down to a five digit zip census block level, we account for that inflation, but it inflation on construction materials and play and things are different in each and each area. So, you know, a lot of people look at replacement costs, and they look at inflation as part of that question. They think it's a it's one thing, it's a monolith. And it's not, it's very specific. You know, for instance, concrete costs, the inflation of concrete costs are higher in Florida, than they are in the northeast, because they with the new building codes post Andrew, and now with the losses and you can you can see where newer homes fared better and even than older homes in Florida. So they built with concrete and and those materials, the inflation there is higher than it is in the Northeast, where it's mostly manufactured. And we build more with wooden steel and, and different types of materials. And they do on fire. So So inflation is not one thing. And replacement costs are not one thing. And then California you have to account for earthquakes and depending what zone you're in, or wildfire mitigation, depending what zone you're in. Same thing happens in Colorado, same thing happens in Oklahoma, there's tornadoes, so there's different building codes, different materials required. So the so inflation and replacement costs are not a standardized thing. You know, you can't say, oh, it's 103 100,000 square foot everywhere I go or $50 a square foot wherever I go. It's not how it works, you need to be understand down to that granular level, on that individual risk, what it's going to cost to rebuild that risk after a loss. And it's really important to be specific, and not general on that if you're trying to get that number right at the door.
Kurt Thoennessen:Yeah, I was talking to a friend before, maybe a couple days ago, and we were talking about replacement costs, because what, what else do insurance agents do? But talk about replacement costs? And, you know, the question was, is, is designing or determining the replacement cost of a building a home structure, an exact science? Or is it an art? And I, you know, at this point, I've been working as an advisor for 15 years and worked on homes valued anywhere from $300,000, up to $50 million. And it's just really, like you said, it is really dependent on that specific risk. And what the, you know, the architectural design is, what the construction is, what the unique features within it are. And really what goes into it,
Skip Coan:and where it is. And, and that's, that's really important. So I tend to your question, I would say it's an art based science. So or science based art, we're probably better way to put it. So it's really about data. It's really about materials. And it's about location. And I think, not that I want to do an advertisement for you to value I don't think I have to but that is something that differentiates us from other valuation tools is that we take into consideration where that risk is located, and who's going to build that risk. So as a for instance, since you're in Connecticut, we use a great example. Right? So if you drive along the Connecticut turnpike route 95, there's there's Greenwich to Stanford and Bridgeport and they're 35 miles apart, maybe on the same road. The same house is completely different cost structure in each environment, because of who's building it, the marketplace they're building it. So we sometimes get caught up particularly in private net worth risk, we get caught up in the in market value. Market value has no determination and replacement costs. But the marketplace does, where that risk is built and who's building it matters because those are additional cost factors and it's important to understand that when you're doing is it isn't just a strictly Hey in this three digit zip which which Stamford Greenwich and and Bridgeport are all the same three digit zip If we go down to five to the others use three, in that, theoretically, you would have the same cost per square foot, if you did it that way, which is not how any builder ever quotes a home home building process, by the way, they would have the same numbers, and they'd be radically incorrect and all three, because they're not down to specific risk, you know, and that's important. And the other thing that's important, too, is understanding, especially agents. But, you know, we get calls all the time about inflation cost. And, and it's important understand there's a difference between replacement costs, total replacement, cost, cost inflation, and partial loss inflation. So partial, if you have a partial loss on a risk, inflationary rates is over 20% in some areas right now. Because you have to take someone off of one job, you know, if your roof blows off, you got to get a contractor off of one place, and over to your place immediately to get that part put on that roof. And there's a few pay costs for that, where replacement costs is a lower inflationary rate, because time flattens costs. So when you're building a risk when you're replacing a home totally right, it used to be 1224 months, five years ago, now it's probably 36 plus months to get back into home. Because it's just takes time but you split the the inflationary costs are less because you're able to schedule contractors scheduled delivery materials, by materials in bulk. It's not just running out and getting a few things here and a few things there, you pay a higher cost, that kind of stuff. So where where partial claims loss, can inflation be running at 20%, we're having annual replacement costs, inflation rate is about eight and a half percent, on average. Overall, in the US, it's it goes really from seven to nine plus depending on where you are. But you know, you can figure out where either half so we've done we've added 16 to 18% inflation rates that over total over the last two years, to our cost for total replacement costs.
Kurt Thoennessen:Yeah, that's, that's very interesting. And high 16 to 18%, over
Skip Coan:two years. So it's really eight and a half. Yeah, but but in the past, we were averaging about anywhere from one and a half to three and a half percent for the last way number of years. And then, and we put that on, but a lot of carriers make the mistake of not revaluing their risks often enough. And they think, oh, it's only 1%. Oh, it's two and a half percent, we know, but there's a cumulative effect on that, you know, and it's important that you take these inflation, even if they're small, that you take them and incorporate them annually overtime, because it's like compound interest, you know, it builds value in that risk, and it makes sure that that risk continues to stay at so because for folks who did not take the lower inflation rates that were going on five years prior in a row, now they're really playing catch up. So so what you end up having is, you can overreact, put too much cost on, and then at some point, you got to step it back, because you're going to be overvalued, you won't be able compete, and you won't have enough right number, even to replace the costs. And to if you're an agent quoting and you've taken this absorbent amount of coverage, inflation rate, you're too high, that war you're in, you're incorrect. So you're incorrect and to watch, and then you try to compete, and then you have to take take a step back and have you go to a client say hey, you know, inflation has come back down, it's not as high as it was. So I'm gonna lower your coverage a and lower your premiums, that that doesn't happen. Right? And if it does happen, what does it say about you? We tend to be forward looking and understand what's happening and see what's going on. So we we are our inflation rates are forward looking, where others and other inflation rates are backward looking. They're they're reacting to what already happened, rather than what's going on going forward? Because insurance policies are about what's going forward. They're not about what happened to it. Right? So you can get caught up, you can be on the wrong side of that if you're not careful.
Kurt Thoennessen:Yeah, no, and this is, like you said earlier, clients are really understanding this, this topic more more today than they did in the past. And agents are too so and it's like you said, it's important to keep up with this number and not ignore it. And, you know, in in our space, the high net worth insurance space, we work with a product that provides guaranteed replacement cost. So the first the number that we start with most of the time is going to be an accurate or close to accurate number. And we have guaranteed replacement costs. So we have a real big cushion there to make sure that our clients are very well covered. The challenge that other insurance companies and clients might face with other insurance companies is they don't have guaranteed replacement cost. They have a cap on what the insurance policy will pay in the event of a total loss, which if you are not keeping up with that inflationary increases over the years, and you have a cap that can that can leave the client, you know, with paying money out of their pocket. And so that's what you know, maybe a regular homeowner's policy that has 125 or 150%, extended replacement cost, there's less risk there than there is with a policy that does not have any extended replacement cost that might be like an excess and surplus lines policy, you might find in a coastal state on the coast in a flood zone, where those numbers don't get adjusted automatically every year through an inflation factor. And they don't have the extended replacement costs. So, you know, there's the bottom line is it's really important, no matter what contract, you have to look at this number and assess it on an annual basis. But some contracts, it's a lot more important than others.
Skip Coan:Yeah. And, you know, we've seen this that shows that opportunity, you and I have been to one of the biggest proponents of coverages that has been affected because of inflation across his ALA. So everyone, if you're not injured, you don't have that cover j right up front, it's, you know, nevermind that it's a coverage be covered, see, and all those things are on there as well. But Alternative Living expenses have I've really skyrocketed because it's taking because of the problems with supply chain delivery and shortages of materials. And certainly, the the ALA has been extended. So A and then there's a housing shortage on top of it, right? So you're trying to find a risk that you can move them to so much. So there's that problem, then there's an extended period of time, and then the coverages are running out on the A le, if you don't have coverage a right. And these are things that we don't really think about first, you know, because you know what, less than less than 1% of total losses are around 1% total losses. But it seems like there's been a lot more total losses with the cats that have come through over the last five years. And, and Al Lee has become a real issue. So that's another reason. You know, we were always talking about replacement costs, because we want to see this structure and its physical material. But there are other parts of why the replacement cost of the coverage as getting it right matter. Right, we sometimes lose sight of
Kurt Thoennessen:that. Yeah, no, I agree. And we've covered so in this short amount of time, we've covered quite a bit because there's there's a lot going on, right now with replacement cost. And you mentioned supply chain issues, reaching the word inflation. You mentioned, construction labor. And so there, you've mentioned, additional living expense, and housing availability. And so there's all the there's these, these four main kind of themes that we're dealing with today, I think more than ever, that was caused by the pandemic. And so if we go and we talk about supply chain delays, you know what? Let's start with supply chain delays. Are there any? Are there any specific examples or, or thoughts that you have around? Because COVID? Really, that's what started this whole thing is COVID prevented ships from being from coming into port. It prevented airlines from bringing people to different places, different countries, and products to different countries, and that caused the supply chain delays. And so what does that mean, when you get down into the data? Or, you know, from your vantage point, what did that mean, for the business?
Skip Coan:Sure. Well, let's, let's start with where we were, and then we can go to where we are, right. So if you call as you said, in the throes of COVID. Right, the ports were backed up both route and the sea, the borders were closed, couldn't ship things in from Canada, which is where most of our lumber comes from certain materials that are that are manufactured overseas that we need for binding agents and things like that, that could for petroleum based products while it's affected. So all that shut down. So then what happens is the excess supply gets all eaten up. And then we don't have supply never. So we haven't gotten the supply chain yet as a deliverable to the location where you need it. It's just the wholesale spot, right? We don't have that anymore. But we knew when we were setting this up that you know, Georgia Pacific wants to sell lumber, you know, it was all piled up in Canada waiting for the border open to come in. And then it becomes a supply chain issue of can we deliver these two things. So right now where we are, for instance, from let's go to the ports. So we're the Portsmouth remember all those pictures of the Long Beach and Norco port Norquay were backed up into the ocean. But right now, the biggest problem they're having is they can't store the empty containers because they have so much product here that they delivered. So actually, the shipping costs from Shanghai to California right now is lower than it was pre pandemic, but they have nothing to ship because there's still supply issues in Asia because of COVID. So and there's fewer orders, because everybody received all the materials eventually. And now there's a surplus of a lot of materials that would have normally been shipped in in certain areas. So the ports are quiet. They're not getting near what they used to the business they used to have because you Part of what the US has done too is we started re returning to the old way. It's right, everything's always circular, right? So we're returning back where they're building production facilities now on materials that they used to only import, you know, the building more chips, and they're gonna start building more chips, computer chips in the US are going to start coming to new chemical plants, which are going up online in 2023, which there hadn't been plants like this built in 20 years. So these kinds of things are happening that are going to change that supply chain too. So and that affects all of us, you know. So when they open the borders, and the lumber started coming back in in the middle started working, and it took a little while for that to get caught up. But right now, soft lumber costs are back to pre pandemic levels, they're just about there. There. There are shortages, though still with concrete, because of being the source shipping it to Florida, where it's produced, how is producing the chemicals that are using in producing concrete, petroleum materials was still a backlog because there was a goes all the way back to Harvey when the when the big refinery in Texas got shut down. And then they had the power loss. And this has been online issues with that, and also show you how interconnected we are. One of the chemical plants in Ukraine was the biggest producer of a component that was a chemical that facilitated the combination of petroleum products that allowed them to call it to build together so they can build these petroleum products. It's some type of chemical like creates that adhesion. And so there's a shortage of that. So that caused tires, for instance, he couldn't get another cut. So it's everything is interconnected. Right now actually is in construction, inflationary trends is by changes and trends are getting are much improved. Everything's better tourism. That's why the railroad strike was it could have been a really big deal, I could have broke the back of everything. Because most of most everything gets transferred, transported to a local spot by train, and then they get shipped out by truck, who still has a trucking issue. So there was a shortage of truckers is sort of that. So that is probably the biggest supply chain issue right now. But other than that, you know, you can get what you need. You know, it's hard to write policies couldn't get reinsurance, that's a whole different issue. But as far as construction costs, materials are there, they're available costs have stabilized. Are they ever gonna go back to pre pandemic, it is very rare, if ever look at any cat loss out, there's a spike in immediate supplies, and then it flattens a little bit and then stays, they never reduce, no one's ever going to give money back. So there we are already, essentially accustomed to paying more for these products than we had that we did four years ago. They're gonna stay there.
Kurt Thoennessen:Right. And that's a great point. Because a lot of the, you know, some some clients conversations I've had over the of the last few years have been okay, lumber costs are going up. That's why we're seeing the replacement costs go up. And then they say, well, Kurt, you know, talking today to clients. Well, Curt, the lumber costs are now back down. So as my replacement cost going to come down because the replacement cost has come down. But like, like you were saying the cost of concrete has now gone up. So and you know, so if you look at these different types of materials, you look at steel, gypsum, concrete, lumber, and you look at the producer price index for each of them from starting from before the pandemic to today, you can see the drastic change in the price. And interestingly, during the pandemic, the pricing was very stable, if not negative. And then all of a sudden, in 2021, it just shot up, right, and then stabilized towards the end of 2021 and ended 22. So you know, and so the answer to the client who's saying shouldn't these things now come down? Is is No, it's because you know, some things are coming down, but other things are going up to to counterbalance those things. So yeah, it's
Skip Coan:labor labor is still an issue. So you know, that the housing shortage or the slowing of the housing market from a real estate side now is providing a drop in cost for labor costs. So there is more labor available. That's why the lumber is one of the reasons that the lumber has dropped a little bit. Some of the other materials have dropped a little bit, but that's also transitory. So, for instance, en is going to create labor shortages and concrete issues in the northeast, because you want to work you want to do a roof in Indiana and December or do you want to go down to Fort Myers and replace someone's roof? You know, it's not a hard choice. So your seat you so labor is somewhat migratory, it does shift around a little bit to markets and depending on how busy the market is, you know, you you go where the work is. So there are some some of these, some of these costs, although they may be going down locally. where you are, they're going up over there, because they're shifting the materials or the labor to where you are as opposed to over there. So it's, that's why it's wrong for that labor
Kurt Thoennessen:is going to go up. Yeah, migrant workers are going to go to Florida, because the rates are going to be higher, because the demand is more work.
Skip Coan:Yeah, right. That's exactly right. And wages have gone up overall, in every industry in the last six months, or last year, which I think is probably a good thing in the long term. But you know, there's a cost to them, you know, and, and it's the right labor, that's what we talked about earlier, when he said, it's not just the square foot, you know, just square footage, and some cost per square foot on a risk, it's who's building the risk. Who knew Who knows how to build this kind of house, you know, the guy that builds a 2000 square foot house, can't build a 6000 square foot house, and the guy that builds a six out or the guy who builds a 6000 square foot house, they don't want to build a 2000 square foot house. So it's really important to understand those kind of cost functions. And, you know, and how do you get materials and people understand how to work with these materials, particularly, as you go up, it's, it's not a linear line to go from a mainstream home to a to a high net worth home. It's, it's, it's, it's, it's really dramatic. So it goes here, and then it shoots up cost because materials are, are more expensive, higher quality. And, and as as important, you need to know how to work with those materials and how to use it, you need to have the right guys to put, you know, granite and marble or, or to, you know, put the right type of Corian countertops and how to cut them, right? What what materials are using these custom kitchens, you know, custom, you go from a standard kitchen, even up to a 40,000 square a 440 $1,000 house, you know, they're fine. I mean, you know, it's I don't have a custom kitchen, but but boy, you go from here, and also he's starting to move into Wilson stovetops. And you're and you're working on appliances, and you're working on custom materials for the cabinetry and the and the heart and the countertops, and then you're looking at 42 inch cabinets instead of 36. That's how it is. And these things is it's a dramatic drop. And again, you need more craftsmen than laborers to do this kind of work. And there is a shortage of those folks, there is a shortage of people who know what they're doing and know how to do it. And believe me, they know that they set the market.
Kurt Thoennessen:Right. Yeah, that is a that is an issue is contractors who can be selected. They are selected. That's exactly right. They're choosing the jobs to work on. And, you know, obviously, it is a competitive market. But you know, sometimes for these larger homes, $16 million $50 million dollar homes, the competition is a lot less. And people
Skip Coan:want a specific builder, you know, they know who can build the right home and where they live, you know, and these areas are expanding out. You don't have to tell you this, but you know, when you're in New York State, for instance, everything used to be Westchester County, and now, you know, it's moving up, you know, it's there's areas that we wouldn't have thought were these enclaves of multimillion dollar homes. And, you know, Washington depot is a great example used to be farm country right now. It's, you know, it's the seasonal mansions for the New York City elite and subways, you know, and hold they're building houses and Tolan county that they never would have built before. So things are changing about that, and they want you they want a specific builder and they're willing to, you're willing to wait for it. And, you know, there is there is this balance between the carrier paying out a loss and the insured, getting what they want, and how you mitigate that and manage that is also a cost factor. Because a lie still, you know, those kinds of things add up. So it's really important that everyone understands. This is what the coverages you know, and I think we also get caught up a lot in what the premium versus the coverage a you know, someone sees this large coverage a number and, and they think that's what they're paying on their house, you know, that the truth of the matter is, homeowners insurance is cheap. It's a great investment. You know, if you consider what the losses, homeowners insurance, no matter what your what threshold you're at, and your coverage a is a is a good sound investment. Strategies, maybe dri is great only if you need the return, but boy when you need it. It's, you know, I'd rather be I am over short, I rather be over to show that underinsured. I sleep better.
Kurt Thoennessen:No, I completely agree. And, you know, I think, you know, and I think even that concept of over insured is, you know, it's tough to be over insured, it really is, right? In today's world, you know, we as agents have tools like e to value that we will use to determine these replacement costs. We also have the carriers who have a treasure trove of data and experience in evaluating these properties. And so, you know, obviously we will work With the with the tools that we have to come up with a number that makes sense. And you know the problem with today, I think that we see. And this came up recently with a client who was building a home, and they started free before the pandemic. And they had the contract with the contractor, and the price was set and everything and then they start construction, and then the pandemic hits. And there's delays. And there's changes to building code that happened along the way, because the delays are so long. And now it comes to the end of the project. It's two, three years later. And then they do a final inspection, the insurance company does a final inspection. And instead of the $5 million initial purchase price, or build cost, it's a $7 million reconstruction costs appraisal. And so you know, to the client, they're like, how's that possible, I paid 5 million. Well, we went through the pandemic cost when materials cost went up, labor costs went up, all these things changed, building codes changed in that period of time. And so now, we have a much higher replacement cost.
Skip Coan:Yeah, it's also it's also important understand, right, the difference between building cost new building and replacement costs. So if you're doing replacement costs, you're building after a loss of total, assume a total loss. As a rule of thumb, you can't until you can anticipate, and I don't know if this home was built last week, and it burns down next week, you can you can anticipate a 30% up to a 30% increase in cost replacement costs after a loss just because of debris removal, new codes, can you know, can you get materials? What materials can you get new design costs new everything you got, you're starting over, except you're not starting from the thicker piece of land anymore, right. So are wherever you are. So it's even it that's even exacerbated. If you're in a high end development, you know, somebody's private Congress farms and Connecticut places like that, where when they're building these homes didn't they build them one after another, even though they're their custom, the same contractor developing the whole site, they're going from site to site to site, they're ordering things in bulk, they have contractors lined up. That's not how it works after a loss, you have to find contractors, you have to find materials, you have to get these. So So those replacement cost numbers are, it's not uncommon for them to be higher than brand new market value brand new building costs, that wouldn't be uncommon at all, insurance someone accurately. And I know it's hard to explain that to people sometimes, you know, especially if you have an engineer or a developer built his own place. You know, they think, you know, what, if you're in the fire when the house, you know, those are the things that we run into, and that just and then that's the art of negotiate, that's the art of replacing cost. Right. Right. And I think
Kurt Thoennessen:I think today, like you said, insurance, homeowners are getting that more and more. So just reminding them sometimes is enough. And so I guess my next question is, you know, for you skip it, and you may have answered it already is, you know, going forward now, you know, and we're still in the midst of this pandemic, we're still waiting for the, you know, for the the end all answer to how this is all going to affect everything. But let's say just going in the near term, you mentioned eight and a half percent for the last two years is kind of your inflation factor for your your data set. What do you think going forward? I mean, let's say you're in New York City, and you have a $3 million apartment that's 2000 square foot or 1500 square foot, or you have a place in Florida on the water or California, you know, what are the inflation factors that, you know, agents and homeowners should be thinking are reasonable, you know, well, he's time
Skip Coan:barred has got a much bigger problem than just inflation factor. So you know, if you buy I have family with places in Florida, my advice to them if they offer you a policy taken. Let's, let's put Florida aside, I think, you know, let's, I'm hoping that next week, when they have their legislative session, that they're going to come up with some changes that are going to help but the fundamental problem in Florida from our side is that they are 30 to 50% underinsured, on average for everything in Florida. That's a whole that's a whole different scenario about why and where we can talk to have all different compensation on that. But as far as as where inflation has gone, so I think, preliminarily, we anticipate to be about the same rate. We expect it to stay in that range. I'm not looking for a big change. There will be changes in some areas California is going to have changes as it continues to add requirements for building so Florida in the California assurance department with adding sprinklers earthquake requirements and the new wildlife urban interface and the wildfire mitigation issues that they're putting in required building and required coverage. Or you can't be punished for this not having certain things in California. And Colorado, by the way, is doing the same, the very similar wildfire herb interface requirements. So those who got those prices, is there only going to increase coverage? Will they allow the carriers to get increased rates? I don't know. I doubt it, because I think California gave one I saw, they had one rate increases here. So first one is six years to one company that I saw. So that's gonna be an issue in California, places like that. Places like New York City, you have other factors that are included now, I mean, has COVID affected occupancy rates right there, they've really fluctuated in the city. So if you're talking about valuing condos, they're changing, you know, some of these condo Co Op contracts are changing overall. So what used to be skinning in is maybe more than that, or less than that. So you really need to understand the contract that this individual owner homeowner has, within that unit, we have tools or other tools that are not bad, but we know we have a tool that allows you to do a scan, and then and make edits on what is included and what's not in there. Because you know, valuing that type of apartment, or unit in in, in New York, or Boston, or LA or anywhere, is a different animal than providing coverage on a standalone single family home in the Hamptons, you know is two different things. And you need to understand that as well, too. So you got to know what's in that. So as an agent, it's really important to know what you're including and not including in that contract, what is covered and what is not, I can tell you that just from the work I have done in my time, and I live near I live in New Jersey near New York. And you know, I spent a lot of time looking at those types of condo units in the city. A lot of them, I would say upwards of 75% of the market in short, by significant amount. Because working in an environment like New York, and that's why it's important to what I said earlier about being specific, being risk specific. So if you're working on a condo in New York City, for instance, high end, you know, the code type of place, right? There are specific hours, you're allowed to have contractors come in and out of that building. There are specific ways you're allowed to take materials in and out of that building specific elevators you have to use. Some don't let you put a shoot up for demolition. So you've got guys who are taking materials out in five gallon buckets, just think about the time element of that. So it's really important to understand where you're building and where you're not. And then you're trying to deliver something, I mean, we've driven it everyone's driven in a major city, try driving a delivery truck, or getting sheetrock delivered and hoist it up to the 47th floor, see how that works for you. With the cost factors are at that, you know, and if you don't understand, you know, so that's why these ideas about a cost per square foot, you know, to develop value. That's why it doesn't work, especially in your marketplace. That doesn't work.
Kurt Thoennessen:Right, especially in New York City, where you know, you have such a vast difference in in the construction and the quality and the in the size of the space that's being insured. I mean, just just a couple, couple of weeks ago, we were at the private Risk Management Association Summit, and there was a talk on construction costs. And one of the panelists said, and they do construction in New York, that's exclusively their their role. And they said that the cost per square foot, they've seen God go anywhere from, you know, $800 pre pandemic to now $1,000 is not uncommon per square foot, and they're seeing up to $2,000 a square foot, because of these issues that you're talking about, you know, the limited time windows that you can bring construction materials up in the elevators, the challenges of getting materials up to the 37th floor, and you know, just delivering materials into the city getting him know the bridges, and so on. So it is it is something that condo Co Op owners should be aware of, and if they're not, you know, want to get educated on either through you know, this podcast or through their agent. And like you said, and I wonder if you have any other specifics on how condo Co Op contracts are changing because I know you know some of them are like you say skinning or walls in contracts, some of them are walls out. And you know if there's any trends along those lines,
Skip Coan:I haven't seen a trend but we have seen we've been asked about different factors to be included or not included. Because part of the problem with a condo and really you Surfside in California and Florida as a great example. Right. So the problem with condo boards is a If you're on the board, and you're trying to get an insurance policy for the HOA reinsurance costs and other costs have dramatically changed that. So, you know, no one wants to be the person on the board to buy a policy and then tell everybody in the building that you owe me another $1,000 a year, or whatever the number is for the eight nevermind for your own unit for the HOA. So and that's why building a Surfside want to collapse, right? They have insured for $42 million. I looked at that I was on with with our CEO, Todd Russell, when we were watching the live thing on it what happened. And I said that is not a 42 minute, I'll go, you know, so I ran it up took me two minutes, because they're our tool is terrific. And they have also have a sister building right on the next block, you can see what it was a mirror that and I came up with 89 million in about two minutes. And since then they have come up with a coverage a of 100 million on that building. And with everything else, they're paying out a couple billion dollars in liability, anything but that but that's the thing. And the reason that they had that is because no one on the condo board wanted to raise the coverage, they figured what's going to happen, you know, but we saw it happen. And that's just happening in. So that has, so what that was so the follow from that is right, directors insurance has changed. So the responsibilities and in order to get a director's insurance for everyone on or for these people on the board of directors to be covered in the decisions they're making, that that they have raised the premiums on that. And they've changed the requirements to be eligible to be covered under meeting you have to do proper due diligence. And part of that proper due diligence and open is holding meetings and doing minutes and that kind of thing, officially and ensuring a properly getting engineering reports doing it. So what's happening is all these older unit, great buildings, right, but they've never really had this kind of engineering review or evaluation review on the HOA, and they realize that they are woefully underinsured. So what they're doing is they're trying to come up with ways to make those policies as close to accurate as they can. And some of that is changing what's included and what's not included. So they're shifting some burden to the unit owners that maybe wasn't there before. And that's that's kind of the trends we're seeing. So the unit art is getting hit both sides, they're getting hit with their own policy increases, because they realized they were underinsured as well, or they are cost factors, as we talked about, and then they're getting hit from the HOA side. So those are the things we're seeing in those units, especially at high in urban areas.
Kurt Thoennessen:Yeah, no great point about the contracts being changed. And I think, you know, many of us know and are aware that we're in a heart a hard market, you know, where the rates are going up, and the availability of coverage is going down. And so and what happens in that period of time to is the contracts change carriers will change their coverage terms, to mitigate risk from both sides. And so those are the things that, you know, in addition to replacement cost, but it's all interconnected, like you said, that people need to be aware of is how their coverages changing, I got a renewal from one of my carriers, where it was, you know, a specific coverage, and it was cut in half on renewal. And in order to get back the half that you got cut, you had to pay an additional premium. But you have to read the letter that was sent to you at renewal that says this coverage was cut in half, right? It's really important to pay attention to these things with replacement costs, probably being one of the most important things,
Skip Coan:while the replacement cost is going to set your contents costs, it's going to set your birth structures cause it's going to send you a really, you know, it's it's really important to have that especially on policies that cap, you know, pay out at under 50% or 20% of coverage a total. You know, that's that's why it's really important. And I don't know, that, you know, I'm fortunate that I don't have to deal with the with the general public in that sense, you know, but we talked to a lot of agents. And we have a lot of agents who are one off clients on their own rather than deal with the carrier, they'd rather deal with us and provide value, they're more comfortable with the what they use for the carrier tool. And, you know, they, they are beginning to explain that to the insured about the additional coverages and why everything matters and why the coverage is important. And if it seems high, it also has an effect here, here and here. Again, it's an education process that has been long overdue.
Kurt Thoennessen:But I'm glad you mentioned that you have a one off tool or an agent tool. Because we didn't really talk about eating value that much maybe we can right now. But each value obviously provides replacement cost data not only to carriers, but mostly to carriers, but also to independent agents. And I've used the tool many times myself to analyze reconstruction costs for clients. And sometimes it's helpful as a third party opinion on particular replacement costs for a building so it really helps to solidify some of our replacement costs that have carriers Putting on. So do you want to share a little bit about that tool and how to access it?
Skip Coan:Sure, I'll give you the so we eat of it as a full service, right? We we value, every structure in the US and Canada, literally farm and ranch, everything, we have everything in the way of the tools available, we have an API. So you you can if you want the API, you can buy the API and build it into your platform we have, we're on every major platform that you can think about that Greek guidewire, you know, insurance off everybody, we're all those are quite a bit incorporated into those platforms. So carriers are biased directly sticking into their API into their, their their policy management system and use as part of the process. And we also have a web based product that in an agency contract that agencies can buy, and have access to the tool and use it, you know, credentials, you have your own database, your update renewals, you can work it, you know, it has practically the full complement of tools that the API does, it just doesn't let you customize it as much. But you can use it as a as a web based tool. And that's available, you just have to reach out to our sales, sales add value, and we can we can set you up with that anytime.
Kurt Thoennessen:Awesome. Yeah. And I have used it myself, as I said, and it's great. And it does, it does lend itself well to high net worth properties. Yes. And not only the single family homes, but like we talked about to condos and co ops in New York and Boston and California. It does, it does a great job on those two, and they are there very good reports that you get back.
Skip Coan:Yeah, the single on homes, let's let's stick with officers. So single family homes, we we have a tool, which I would recommend that everyone would use. It's called pronto. And it's a public record data poll, we too, we pull public records on this risk. And we go down on census block, as I said earlier, which depending on where it is Connecticut, it could be 15 blocks and and Montana could be 150 miles, whatever the census block is, and we pull that once we have data all the way down to that level, and all we need from you is an address, you give us the address, we'll pull back a value for you. You can and you're able to edit it from it. So if one of the public problems with public rec data, and it's getting better all the time is it's not standardized. So especially in the Northeast, where we are, it's really controlled at the local level, you know, Florida, California, Texas have great public record data, because it's at a county, usually at a county level or state level. So it's really terrific. But get places like where we are, it's a local level, sometimes it can be spotty, and it was some person at some point who put that data in. So you know, you got to check it. And they there's no standardization of, you know, what's a res RANTES? What's a bi level, what's a colonial, you know, some of that they can be a little confusing. So the beauty of each value in our patent, part of our patent is that we can pull that data in, standardize it. So it can be usable in our platform, and you can get a valuation and you're able to edit it from there. So you can make changes and do things that you need to do. And it'll document when the changes were made, who made them and you know, and if you go and come around next year, and you'll need to renew it, you want to renew it, just call it up, recalculate it, you don't have to put anything else in as long as nothing's changed, and you're gonna get an updated value for it.
Kurt Thoennessen:That's, that's amazing. In a world where as advisors, we're working to bring value to our clients, and and to give them knowledge that's going to help them be better protected, more resilient to loss in the future. I mean, this is a prime example of that, you know, being able to show them, you know, how the replacement cost is built, what it's made of, and what the data is in the system, at the local level, is, is a tremendous value. So yeah, thank you for sharing,
Skip Coan:that HC two also allows you to go because you know, Washington depot or you or places like that get older homes. So you can do full replacement, you can do functional replacement, you can do ACV, all of that onto the tool. And we can you can you can do it. So if you're you know, if you're doing an older home and you want to do functional, because you want to replace it with modern equivalent of what's there, done historic record, you can even value it off of the historical costs, we can do that too. You know, we're fully placement is like, like a con quality, similar things so that you have the ability to value again, get down to the specific risk, and
Kurt Thoennessen:it's awesome. Awesome, we'll skip this, this has been an amazing conversation. I know, we're, we could probably go on for another hour. And now we're getting into data, you know, wise and so we can keep going forever. But this has been an amazing educational conversation and so much so much going on with replacement costs. From the for the pandemic to now things are still dynamic, they're still moving, you know, as we finish up the conversation, is there any final thoughts, any words of wisdom or advice you want to share with folks to for them to leave with?
Skip Coan:Well, you know, I would say if you've got a book of business that you've had for a while you are very likely underinsured by quite a bit. And I really think it's important I think one of the things we followed out as an industry is not keeping up is starting, if you start with the wrong number, you're never going to get to the right number to try and start with the right number. And if you have an older book, it's this is the time to reevaluate. If you haven't met the inflationary costs and needs that are going on right now, for your client, you're under serving your clients. So you really need to, and you know, use whatever tool works for you, you know, I have my opinion on what's right and what's not. But you know, it's really important that you run your existing book, and get those numbers up to where they need to be with an explanation to you in short on why it's important to be covered. Right. But you know, there's a lot of people in Florida right now who are reaching into their pocket or not rebuilding it all, because they didn't have the right coverage. So it's really important to have that coverage, you know, up to current standards.
Kurt Thoennessen:Completely agree. Yes. And to be able to use technology like yours, to do that type of analysis, in a short period of time, so you can deliver it to the client is so right, you know,
Skip Coan:you don't have to go out and wait 90 days for an inspection, you know, you don't have to do that, you know, there are lots of ways to do virtual reporting. Now, you know, we have a tool called spec connect that does that as well. So a lot of ways for you to get that through your carrier or through your own network of vendors to get that information, then it's really important to get it updated.
Kurt Thoennessen:And completely agree. You know, one of my friends in the business has been doing doing this for a long time, said, if you set up a client, the beginning the right way, they're going to be much better off in the long term. And this is one of the key areas we need to look at. So thank you so much for this conversation for sharing your knowledge and experience and, and your company. With the private client risk and resilience audience. This was phenomenal. So hopefully, we can do it again sometime. And once we hit that 1000 Download, I'll email you, and we'll get started working on the award, we'll have to design something, you know, it'd be like
Skip Coan:the gingerbread house would be great.
Kurt Thoennessen:Yeah, shape, it will shape it in the right house. So put a little gingerbread man out there where you guys can cost like a book, you know, to do an appraisal. But thanks again. And so real pleasure. If people want to get in touch with you, what's the best way to do that?
Skip Coan:You know, it's you can get through it at value website and reach out to us through there for a customer service link or sales link through there. And we'll get Believe me, we'll get back to you.
Kurt Thoennessen:And that's e the number two.com.
Skip Coan:That's correct. Yeah, very good.
Kurt Thoennessen:Well, thanks again, skip. Thank you as well to everybody who's listening in to this podcast, and to who tunes into the private client risk and resilience podcast every time we drop an episode. I really appreciate it. If you're enjoying the episodes, please let me know. Either send me an email or write us a review would be awesome. And we'll keep it going. And if you if you have an idea for a guest or if you're a guest that you'd like to be on the show, please reach out to me as well. We're having a lot of fun with these conversations. Look forward to doing more. Thanks again, and have a great day.