What a McMansion looks like to an insurer

I find McMansions to be fascinating but rarely have I thought how an insurer might view a Large Tract Home (LTH):

While they might look grand, LTHs are different from high value homes in a few key ways. Their location and design is similar across an entire subdivision, the construction materials are lower in quality, LTH construction practices are focused on efficiency, and other LTH construction costs are more predictable and less expensive. Despite those differences, insurers can run into problems when assessing the reconstruction bill for an LTH.

“A lot of times, the sheer size of them [means] a lot of carriers classify them with a much higher reconstruction cost when it comes time to rebuild,” said Benjamin Abbott, product manager for CoreLogic Insurance Solutions group, adding that the latest RCT Express release “allows carriers to visually see whether a home is classified as a large tract home or not. And if it is, then we turn down the reconstruction costs a little bit with our assumptions and allow the tool to more accurately price [the property].”

The valuation distinctions between McMansions and high value properties becomes important as natural catastrophes bear down on many parts of the US, at the same time as a lot of new homes are being built in the LTH model…

“It’s important for the insurance carriers to accurately value the reconstruction costs of any property they have because their client, the homeowner, is going to see the impact of that reconstruction cost directly in the premiums that they pay,” Abbott told Insurance Business. “Prior to this update and with other tools out there, they are potentially over-insuring, meaning that premiums may be inflated, which hurts the homeowners directly.”

Interesting assessment: the size of McMansions would lead to a higher reconstruction cost until the insurer considers the quality of the construction and the reconstruction cost drops. I assume this then means it could be cheaper to insure a McMansion than a different kind of home of a similar size?

More broadly, I wonder if insurance companies could provide data on McMansions:

  1. Just how many McMansions/Large Tract Homes are there in the United States?
  2. What is the worth of all such homes?
  3. How many and/or what percent of McMansions are located in areas more prone to natural catastrophes (such as coastal areas where beachfront McMansions can be popular)?
  4. Because of the lower-quality construction of McMansions (as noted above), do McMansions have an above average number of claims on the home insurance over time? The lower-quality construction claim is a common one but we have not necessarily had enough years pass before we can easily see more issues with the longevity of McMansions.

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