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The price of reconstruction in natural disaster-prone areas is increasing. According to CoreLogic’s new 2019 Insurance Coverage Adequacy Report, in the four most vulnerable regions of the U.S.—the Northeast Atlantic and the Gulf Coast; Houston; California; and Oklahoma—reconstruction costs are going up by between 5.6 percent and 7.6 percent. Why these areas specifically? According to CoreLogic, these locations are the most at risk for storm surge, wildfire or tornados.

With heightened risk and a heavier burden in cost, today’s homeowners need to update their insurance policies frequently to ensure they have the proper coverage. If underinsured, they risk being susceptible to financial tragedy, which could prevent them from being able to pay their mortgage. The CoreLogic report looked at the increase in reconstruction costs for policies that have not been updated in the last two years or less to determine how being underinsured relative to high reconstruction rates can increase loan delinquencies.

“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,” says CoreLogic’s Chief Economist Frank Nothaft.

Coverage inadequacies by region:

In Southern California, over 110,000 properties are at “very high” or “extreme” risk of wildfire, according to the report. The reconstruction cost is about $46 million, estimated to have increased by 5.6 percent between 2016 and 2018, primarily due to the rising costs of building materials and labor.

Undervaluation Risk: The undervaluation reconstruction cost would be nearly $205 million if coverage is not current.

Northeast Atlantic and Gulf Coast
In Florida, the now more than $240 billion worth of reconstruction increased by an estimated 5.6 percent between 2016 and 2018, with about 1,118,000 properties determined to be at “very high” or “extreme” risk of storm surge-caused losses.

Undervaluation Risk: If coverage is not current, the undervaluation reconstruction cost would be about $205 million.

For Houston, the reconstruction cost is estimated to have increased by 7.6 percent over the last two years. In 2017 alone, Hurricane Harvey caused more than $2.3 billion in flooding damage to residential homes.

Undervaluation Risk: If the coverage is not current, the undervaluation costs would be over $49 million.

Due to Tornado Alley, CoreLogic determined that 1.3 million homes with $257 billion in reconstruction cost are susceptible to high wind damage. Over the last two years, the reconstruction cost has increased by an estimated 6.6 percent.

Undervaluation Risk: The undervaluation costs are about $34 million if coverage is not current.

Home mortgage delinquency rates tend to spike following these natural disasters because homeowners are underinsured and unable to afford a rebuild. For example, after the 2017 hurricanes—Harvey, Irma and Maria—these rates tripled in the Houston, Texas, and Cape Coral, Fla., metro areas. In San Juan, Puerto Rico, they quadrupled.

Similarly, states the report, the Tubbs Fire of 2017 caused delinquency rates to spike by 50 percent in Santa Rosa, Calif.

“Underinsurance issues can cause financial devastation for property owners, artificially low coverage limits for insurance carriers and increased loan delinquencies,” says Amy Gromowski, senior leader analytics at CoreLogic. “Homeowners who experience natural hazard events, such as the California wildfires, are often struck by personal and financial devastation and many aren’t able to rebuild their homes, which prolongs the region’s recovery and often causes homeowners to default on their mortgages.”

Although legislation in California requires insurers to recalculate policyholders’ reconstruction costs at least every two years, CoreLogic states these costs can drastically increase in a short amount of time. Homeowners should routinely monitor these costs to ensure they have the funds to repair or rebuild their homes should a natural disaster hit.

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Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at