On 12 August, Richard Deakin and Gary Thornley from data and analytics provider CoreLogic hosted an ANZIIF webinar entitled Taking the guesswork out of property insurance. They explained how insurance calculators can help insurers make fast, informed property evaluations – but only if they’re supported by the right data.
New Zealand is no stranger to natural disasters, with flooding recognised as the country’s #1 natural hazard1. With major fault lines running the length of the country, New Zealand also experiences around 20,000 earthquakes per year2. While the vast majority are too small to be felt, there have been far more serious instances like the 2010–11 Canterbury earthquakes, whose effects caused damage to over 100,000 buildings and required the demolition of almost 16,000 homes3.
Across the Tasman, Australia regularly makes global headlines for its extreme weather conditions, which range from floods to droughts to cyclones. Then of course, there are the bushfires, like those that destroyed more than 3,000 homes nationwide last summer4.
Mother Nature’s unpredictability is just a part of life in Australasia, which is why property insurance is so vital. Just as importantly, homeowners need to know their property is insured for the correct value so they’ll be covered for a rebuild if the worst happens.
So how can insurers make sure their clients have the right level of cover? It all comes down to the accuracy of their property rebuild estimates – and that means using the best tools available.
Getting the methodology right
In the recent ANZIIF webinar, CoreLogic’s Head of Insurance, Richard Deakin, discussed some of the reasons why homeowners can end up being underinsured.
“Rebuild calculations based on a generalised dollar-by-square-metre might not include all aspects like kitchen fittings, carpets and curtains, or take into account expenses such as demolition, site clearance and permits,” Richard said.
“Going by the property market or council rating valuation is also problematic because there’s little correlation between sales prices and rebuild costs. Even using a registered valuer is likely to result in a square metre valuation that isn’t dynamic and doesn’t consider different types of structures.”
Under its Code of Practice, the Insurance Council of Australia now demands the use of an up-to-date and frequently reviewed calculator to estimate rebuild costs. But as Richard explained, a good rebuild calculator needs to replicate the construction methodology used by builders themselves.
Five years ago, CoreLogic acquired Cordell, which has provided construction cost information to the building, property and insurance industries since 1969. Now, CoreLogic has combined its comprehensive live attribute data with the latest construction cost data in the Cordell Sum Sure calculator. With this powerful tool, the process of estimating rebuild costs becomes easier and more intuitive than ever before. In fact, major insurers are already providing it to their customers, which has meant the calculator now has thousands of users every week.
Powerful, reliable data
Cordell Sum Sure acts like a virtual quantity surveyor, taking into account a property’s known features and material components and associated services that would be needed to rebuild it. Within seconds of keying in an address, the calculator completes around 250 individual calculations to provide a rebuilt estimate. The user can then verify, amend or refine the result as required.
Cordell Sum Sure is maintained and updated by a team of researchers and estimators, headed by Gary Thornley, CoreLogic’s National Construction Costings Estimating Manager. According to Gary, the team applies virtual building principles to ensure their data reflects the same materials and processes used in the field.
“We source prices from over 1300 suppliers of building products, with a focus on Australian and New Zealand icons like CSR, Caroma, Boral and Fletcher Building,” Gary said.
“But unlike prices dictated by builders, we use benchmarks that represent the middle of the market and make adjustments as needed. We also update the labour and material components used in our costings on a daily basis.”
A key feature of Cordell Sum Sure’s methodology is first-principle estimating, which involves breaking down individual rebuild components to a granular level rather than relying on ratios. For each component, the costs of materials, labour and any fixings or plant are added together. All components are then combined in a ‘modular recipe’ to determine the overall rebuild estimate.
The first-principle approach relies on a specific data hierarchy to ensure the integrity of each costing. Housing datasets are then overlaid to modify the costings to factor in variants like local environmental conditions, such as earthquake or bushfire zones, and property-specific attributes like height, slope and architectural style.
“Applying these variations to Cordell Sum Sure’s 3,526 modular recipes offers more than 8.7 billion possible combinations to give us around 30,000 housing models,” said Gary. “The calculator also provides full visibility over each cost component, which can all be tracked regardless of the model’s complexity.”
A range of business solutions
Cordell Sum Sure is available as a standalone desktop solution, which insurers can walk through with their clients to provide fast, automated cover decisions and premium calculations. It can even be customised with the insurer’s own branding, imagery and additional disclaimers.
Increasingly – and particularly since the COVID-19 pandemic began – many insurers are looking for digital solutions that will allow them to conduct more of their business online. CoreLogic had already anticipated this change in consumer behaviour, and responded by building a solution that is powered by APIs.
“The API will allow the Cordell Sum Sure experience to be incorporated into the insurer’s own online Quote to Bind solution to simplify and inform the process for consumers, reduce question duplication, capture more of a property’s attributes at quote time and also set boundaries around the sum insured,” said Richard.
Also soon to be launched in New Zealand is the Cordell Commercial Estimator, which functions like Sum Sure but is specifically for commercial, industrial and rural properties. Another recent addition to the CoreLogic calculator family is CoreLogic’s Renovation Calculator, which can help guide clients’ decisions around whether to renovate or sell and inform consumers about potential renovation costs. As well as being a helpful tool for client engagement and lead generation, the Renovation Calculator can be used to educate homeowners about the benefits of contract works insurance or specific policy terms, and to encourage them to update their sum insured following a renovation.
“Integrating the Cordell Sum Sure calculator and our other tools into your business can streamline the insurance journey, in turn improving client satisfaction and driving sales conversions,” Richard said. “What’s more, it helps reduce underinsurance risks by ensuring that homeowners are paying the right premium for the right level of cover.”
1 NZ Ministry for the Environment, Flood risk management in New Zealand.
2 NZ Earthquake Commission, Earthquake statistics, 2020.
3 New Zealand Herald, New footage shows catastrophic damaged caused by Canterbury earthquakes, 2019.
4 AFAC, Cumulative seasonal summary, 2020.