A Model to Evaluate the Rebuilding Costs of Dwellings

Under-insurance is one of the scourges of homeowner Insurance: when it is established after a claim that the rebuilding cost of a dwelling has been under-estimated by the policyholder, the proportional rule applies in the sense that the indemnity is reduced in proportion of the under-insurance. To avoid this dramatic problem, prejudicial to all parties concerned, a Belgian company has in 1983 marketed a model to evaluate rebuilding costs: if the policyholder fills in correctly a two-page form, the company forgoes the application of the proportional rule The construction of this model is explained; then, it is shown how a statistical study sponsored by the Professional Union of Insurance Companies allowed the model to improve.