Better Coverage, Safer Loans: Why Reshopping Protects Your Book and Your Borrowers

There's a loan sitting in almost every servicing book that looks perfect from every angle a servicer usually checks. No missed payments, the policy has renewed without anyone needing to touch it, and nothing on any report has ever raised a flag. By every measure the industry tracks, that loan is healthy. The problem with it only becomes visible on the worst day of the borrower's life, when they file a claim on a house that's insured for a lot less than it would cost to rebuild.
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After digging into the data from this year's Insurance Trends Report, I am surprised how often that loan exists.
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Reconstruction costs have risen 38.5% over the past five years. Materials and labor got more expensive, and the cost of rebuilding the same house with the same square footage moved a long way in a short time. Homeowners' policies don't keep pace with that on their own. Most carriers apply a modest inflation booster at renewal, but those adjustments often fall short of how fast rebuild costs actually moved. To measure how widespread this is, we took HO3 applications on our platform from January through August of this year and compared the dwelling coverage on each one to what it would actually cost to rebuild that home today. 43.5% of those borrowers were carrying coverage below 80% of their rebuild cost, and the median gap between what their policy covered and what a rebuild would cost was $150,000.
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Every one of those policies is active, paid, and renewing on time, so from a servicer's chair there's nothing to see, and the gap only becomes real the day someone files a claim.
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What is coinsurance?
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Coverage A is the part of a homeowners policy that rebuilds the physical structure, and it's measured against replacement cost, meaning what it would take to rebuild that specific house today at current material and labor prices.
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Most policies carry a coinsurance clause that engages at 80% of replacement cost, and that changes the math on ordinary claims, not just catastrophic ones.
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A simple illustration: Say a home would cost $400,000 to rebuild, and the policy carries $280,000 in dwelling coverage, which is 70% of replacement cost. The coinsurance requirement is 80%, or $320,000, so the policy is carrying seven-eighths of what it's supposed to. Now there's a $60,000 kitchen fire. The borrower files a valid claim, and instead of $60,000 the insurer pays out roughly $52,500 before the deductible, because the payout gets scaled down to match how short the coverage is. That's a $7,500 gap, plus the deductible, that the borrower is on the hook for, on a claim they did nothing wrong to cause and filed exactly the way they were supposed to.
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On a total loss, the same policy pays out its $280,000 limit against a $400,000 rebuild, and the $120,000 gap has to come from somewhere. A repair bill the policy didn't cover is the kind of shock that pushes a current borrower into delinquency, and the collateral securing the loan is now a house that can't be fully rebuilt.
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The numbers add up
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The Coverage A figure comes directly from the servicers, it's the dwelling limit actually on file for that loan, the same number that would determine a payout if the borrower filed a claim tomorrow. On the other hand, we calculate a current rebuild cost for each specific home, using the same methods and many of the same third-party data sources the rest of the industry relies on, including carriers.
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With a rate as high as 43.5%, I still wanted to rule out the possibility that we were looking at a pile of bad records. Data errors usually show up as random outliers scattered at both extremes. What we found is the slight majority of policies fell into adequate coverage ranging from 81%-130%, with a slight skew left of the 80% benchmark. The 2nd and 4th largest cohorts were the 70-80% and 60-70% current coverage to RCE.
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A cluster like that comes from a systematic issue where coverage A has not adequately kept up with RCE in a period of time with high inflation. That's a sign the problem lives in how policies get maintained, and solving it means changing that process across the industry rather than cleaning up individual files.
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What this looks like across a servicing book
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I want to be cautious about projecting it onto the whole country or any singular servicing book. But it's worth thinking through what a rate anywhere near this means at portfolio scale. If even a meaningful fraction of a servicer's book looks like ours, a portfolio of 250,000 loans could be carrying thousands of properties insured well below what it would cost to rebuild them, each with a gap that could run into six figures.
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Servicers do already monitor insurance risk, and across the partners we work with, that monitoring is thorough where it's built to look. They confirm the mortgagee clause is correct, and they check whether flood and wind policies carry sufficient coverage, flagging shortfalls as impairments when they find them. What the monitoring often doesn't measure is whether the dwelling coverage on the homeowners policy is enough to rebuild the house. A borrower can pass every one of those checks while carrying a home policy that covers 68% of their rebuild cost.
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Even with a replacement cost estimate in hand for every loan, a servicer or monitoring company would still have to figure out how to reach each borrower, explain what the gap means in a way that makes sense to them, and then give them a real way to fix it, which means a partner who can actually quote and remediate the coverage. Telling a borrower they're underinsured through a letter in the mail, with nowhere obvious to go next, doesn't usually get you very far. What moves people is learning about the problem and being able to solve it in the same place, at the same time.
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That's where borrowers shopping makes this work. When a borrower reshops their insurance through an embedded experience like ours, we enrich that with property data to build an accurate replacement cost estimate, so the coverage check happens right inside the quote. This means the borrower sees where they stand at the exact moment they're comparing options. The data work underneath creates a contextual shopping experience and it gives servicers a complementary check on the homeowners line that sits alongside the monitoring they already do.
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The other angle
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It's worth saying that the mechanism behind all of this cuts both ways. A smaller group of the borrowers we looked at are carrying coverage above 130% of replacement cost, which may make sense for the individual circumstance but also may help homeowners unlock large savings. The median borrower in that group could save around $666 a year by moving to a policy sized to their real home.
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A limit gets set once, an inflation factor works on it for a decade, and nobody checks the result against an actual rebuild estimate. In one direction you get a coverage gap, and in the other you get wasted premium, and in both cases the borrower has no idea anything is off, because the policy renews, escrow pays it, and the number on the declarations page doesn't mean much to anyone without a current rebuild estimate sitting right next to it.
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The fix costs less than you may assume
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For the median underinsured borrower on our platform, getting to adequate coverage only costs about $297 more a year, which works out to roughly +$25 a month. More than a third of those borrowers can find a policy that costs less than the one they already have, because a policy that has drifted on its limit has usually drifted on price as well, and putting it back in front of a competitive market tends to correct both at once.
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That matters a great deal for servicers, because the obvious worry with underinsurance is that fixing it creates a different problem. More coverage usually means a higher premium, and a higher payment is exactly the kind of thing that can tip a stretched borrower into delinquency. What our data shows is that, for most underinsured borrowers, that tradeoff mostly disappears once they're shopping a real market. The median gap is $150,000, and the median cost of closing it is about twenty-five dollars a month.
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What happens when borrowers find out
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In July we started telling borrowers directly when their coverage was below replacement cost. For every shopper, we can calculate what percentage of their rebuild cost their current policy covers and how many dollars short it falls, and we show them that alongside their quotes. The share of underinsured borrowers who engaged, proceeded and bound more than doubled. When a borrower sees a new quote that's higher than what they pay today, the natural assumption is that it's a worse deal. Often it isn't comparable at all, because the new quote is pricing enough coverage to actually rebuild the house. A quote that's lower can be just as misleading if it carries the same outdated limit forward. Without that context, borrowers end up comparing two prices for two different things. Showing them their coverage next to the price is what lets them make an apples-to-apples decision, and that education seems to be a big part of why they act.
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What servicers can actually do about it
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The most practical step a servicer can take is to be deliberate about which insurance partner they put in front of their borrowers. Today, the gap we've been talking about gets caught most reliably when a borrower shops, and what they see in that moment depends a lot on the partner behind the experience. Shopping isn't the only place this could happen, though. There's a lot of room for servicers, monitoring companies, and insurance partners to work together on new ways to surface coverage gaps earlier, and we're eager to be part of figuring that out.
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A partner built for mortgage understands that the policy a borrower buys is also protecting the collateral on a loan, and it treats coverage adequacy as part of the quote rather than an afterthought. That also includes showing the borrower how their current coverage compares before they choose anything, because an educated consumer also protects the servicer's books. When that work is done well, the borrower gets a fair comparison and a real chance to save, and the servicer gets a check on the homeowners line that supplements the risk management they already have in place.
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The moments for it already exist, at renewal, post renewal, escrow, loan boarding and any self-serve option a servicer offers its borrowers are all points where a borrower can shop, see where their coverage stands, and close a gap at a price that usually turns out to be manageable. It just requires putting the right experience in front of borrowers at the moments they're already making a decision.
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Closing the gap before it counts
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Somewhere in almost every servicing book right now, there's a borrower who has done everything right for a decade, never missed a payment, renewed every year without a second thought, and is about $150,000 short of being able to rebuild their house. That borrower is going to find out about the gap one of two ways. Either someone shows them while they're shopping and it costs them around $25 a month to fix, or they find out on one of the worst days, when they file a large claim expecting their insurance to come through for them and learn it won't cover what they thought it would. By then it affects their ability to rebuild, and it puts a big piece of the collateral behind the loan at risk for their servicer too.
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The gap is the same in both cases. The only thing that changes the outcome is whether anybody shows them first.
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My colleague Doug has written about the other half of this story, which is how macro conditions are reshaping the availability and affordability of homeowners insurance, and what that means for the borrowers trying to find coverage. You can read that here.

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