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The Impact of Underinsurance on Delinquency

Without proper insurance, many homeowners impacted by natural disaster may be forced into foreclosure. CoreLogic’s 2019 Insurance Coverage Adequacy Report reveals how underinsurance can leave an impact on the lending industry.

According to Frank Nothaft, Chief Economist for CoreLogic, “The disruption of a family’s regular flow of income and payments, as well as substantial loss in property value, can trigger mortgage default; especially if homeowners are underinsured and cannot afford to rebuild.”

The report notes how each area at high risk for natural disasters, such as Southern California and wildfires and the Northeastern Atlantic and Gulf Coast regions from Hurricane damage, as well as Tornado Alley, can be impacted by insufficient funding.

California, according to the report, has seen an increase in reconstruction costs following recent wildfires, and these increases can cause significant undervaluation for the insurance industry.

According to CoreLogic, the reconstruction cost exposure for very high wildfire risk in Southern California is more than $46 billion, and $240 billion of reconstruction cost exposure in very high to extreme risk of storm surge in Florida. In Oklahoma, CoreLogic research identified 1.3 million properties with $257 billion in reconstruction cost exposure at very high risk or extreme risk of CAT winds.

Disruption to income from natural disasters including wildfires, tornadoes, and hurricanes can lead to mortgage defaults, and CoreLogic notes that delinquency and foreclosure spikes following a disaster.

“The financial impact of underinsurance touches everyone; this is especially true after a catastrophic event where widespread property damage can cost billions of dollars,” said CoreLogic.

For servicers, insurance companies, and property preservation firms looking to identify the probable damage areas to properties before a severe weather occurrence, Rose Hancock, Senior Leader, Client Delivery at CoreLogic said that technology such as hail forensics and roof age data can help in identifying properties that had the potential to get damaged during a hailstorm or tornado.

At a recent DS News webinar, experts discussed areas where technology is helping property preservation companies to identify cost-effective and timely solutions to protect and preserve homes. They pointed out that the data being used in property preservation at present helped companies understand the story that each house had to tell as well as  "proactively manage anything that can go wrong."

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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