False Premise: Falling Home Prices Mean Less Insurance Coverage Needed

Atlantic Mutual Suggests Alternatives for Cost Savings

New York, NY, (October 5, 2006) - Homeowners who confuse market value with the amount of insurance they need can be in for a rude financial awakening if they have an insurance claim, noted Atlantic Mutual, best known for the Atlantic Master Plan personal insurance policy.

Consumers who watch sales prices of existing homes stagnate or decline might be tempted to think the value of their home for insurance purposes should follow a similar trend, noted Dan Olmsted, president of Atlantic Mutual.

“Homeowners insurance is based on replacement cost – the cost of rebuilding a home after it’s destroyed – not market price,” Olmsted explained. Market price can fluctuate greatly based on the value of the land, not just the home. While replacement cost excludes the land value, it does include special costs such as debris removal and bringing an old home in line with current building codes. Sometimes, it can even exceed market price.

The confusion between replacement cost and market price is one of the reasons why 58 percent of homes in the United States are underinsured, with an average amount of underinsurance of 21 percent, according to industry analyst Marshall & Swift/Boeckh.

One way a homeowner can avoid the problem of being underinsured is to choose a policy that provides guaranteed replacement cost coverage. In this case, the full cost of rebuilding a home will be covered – even if it exceeds the value specified in the policy. Few policies offer this benefit, but it is especially worth looking for when insuring a high value home with distinctive features, since they may be difficult and costly to replace.

Contrary to home prices, replacement costs for homes have not stopped climbing. Construction costs in the second quarter of 2006 were about 12 percent higher than a year earlier. Driven by global demand for labor and materials, prices have risen dramatically for drywall, copper, and concrete.

Even as replacement costs continue growing, there are ways for homeowners to economize.

  • Choose a higher insurance deductible. Premium savings can be considerable. Outside of New York, the Atlantic Master Plan also includes a “deductible reserve program,” a benefit that effectively reduces the deductible by 10 percent for each consecutive claim-free year.
  • Earn discounts for safety enhancements. Check with your agent for safety-related discounts as well as discounts for “package” policies that combine homeowners, auto, and/or umbrella liability coverage. Homeowners can consult their independent insurance agent and look for helpful hints in the seasonal SafetyWise newsletter at http://www.AtlanticMutual.com.

“While Atlantic Mutual and some other companies analyze replacement cost trends every year and keep coverage current for insured homes, homeowners have a key role to play in preventing ‘underinsurance,’” Olmsted stated. Consumers should check that their policy provides guaranteed replacement-cost coverage and notify the agent or insurance company whenever they make additions, improvements or renovations.

About The Atlantic Companies

The Atlantic Companies, also known as Atlantic Mutual, is a group of diversified financial services companies with a Wall Street heritage dating back to 1842. The group is widely known for the Atlantic Master Plan insurance program, which is designed specifically for affluent individuals and sold through a select group of independent agents. The Atlantic Companies acts as a property-casualty insurer, manages claims for commercial insurance, and helps other business partners target profitable niches in the insurance marketplace. Additional information about The Atlantic Companies and the Atlantic Master Plan can be found at www.atlanticmasterplan.com.


Contact: Peter G. Scott
Corporate Marketing & Communications
973-408-6044