Whether you are underwriting a policy for a large, elaborate mansion or a small, simple manufactured (mobile) home, Insurance-To-Value (ITV) is a key step in the process. Insurers need to be certain that they have accurate replacement cost or actual cash value estimates, so they can provide the proper amount of coverage for insured properties by accurately determining the replacement/ACV value and charging policyholders the appropriate premiums.
Data from the Manufactured Housing Institute indicates that there are approximately 8.5 million mobile manufactured homes, with about 20 million people living in them, in the United States today. That means these units make up more than 6 percent of the overall U.S. housing sector.
PropertyCasualty360 notes that the main reason for people to purchase these homes is affordability. According to the source, about 70 percent of all new single-family homes sold for under $125,000 are manufactured (mobile) models. However, sales have fallen dramatically in recent years, "and there is no indication they will return" to previous levels in the near future.
Aging inventory leading to higher loss frequency
Scott McDermott, who is in charge of residential products at American Modern, told PropertyCasualty360 that annual shipments of new manufactured homes are down almost 30,000 from their peak of about 82,000 in 2008. McDermott cited data from the Manufactured Housing Institute and U.S. Census Bureau to illustrate his claims.
He noted that with fewer new models being purchased, the existing inventory of manufactured homes is aging, which increases the risk of insured losses, because older units tend to be more vulnerable to the weather.
Risks heightened by concentration of manufactured homes in warm areas
The growing risk from the weather is particularly concerning for insurers because manufactured homes tend to be more popular in areas with warmer climates, and many of the states with the warmest climates are among those with the highest exposure to extreme weather. For example, approximately 18 percent of all the homes located in South Carolina are manufactured models. Every year, residents of the Southeast face the specter of hurricane season, which brings substantial risks that are hard to predict.
Last year, the National Oceanic and Atmospheric Administration (NOAA) predicted an unusually active hurricane season, with at least 13 named storms, seven hurricanes and three major hurricanes. Instead, there were only 11 named storms, two of which were low-level hurricanes. According to the Weather Channel, it was the first year since 1968 that not a single hurricane in the Atlantic Ocean, Caribbean Sea or Gulf of Mexico was rated higher than category 1.
While coastal communities may have caught a break last year, these events underscore the uncertainty that is endemic in meteorological forecasting. In future years, a relatively mild forecast could give way to an unexpectedly destructive season, catching communities and property owners off guard, which could potentially increase the severity of losses as a result.
Insurers need accurate replacement costs for manufactured homes
American Modern's McDermott noted that although some insurance carriers may be stepping back from this market, "there are still a number of carriers committed to the mobile home market that see this as an opportunity."
"The challenge for these carriers will be to continue to look for innovative ways to keep the product line profitable and still affordable for mobile home owners," he added.
In the current environment, being able to accurately value mobile manufactured homes is essential, both for providing the necessary coverage to homeowners and maintaining a profitable book of business. With web-based property valuation software, insurers can quickly update valuations for single structures or entire regions to account for changing circumstances.
McDermott said his firm is forecasting a "slight increase in sales" of mobile manufactured homes in 2014, "but no immediate return to the number of units sold prior to the recession." This means the inventory will likely continue to age and become more vulnerable in the near future.
Is your firm prepared for this scenario?