Many homes could be underinsured over garages, ADUs: ZestyAI

A detached garage, garden shed or accessory dwelling unit could spell doom for homeowners regarding their property coverage. 

Just under half, or 45%, of residential properties nationwide have at least one additional structure besides their home, according to an analysis by ZestyAI, a property risk analytics firm. The extra buildings can go unnoticed by insurers, which could exacerbate insurance claims. 

“Homeowners’ carriers are often left in the dark on the presence of secondary structures and their value,” the report said. “Incomplete information from policyholders or agents and manual processes creates fertile ground for inaccuracies.”

The findings did not state a specific rate of underinsurance, or dollar figures behind potential damages. But they come on the heels of a ramp-up nationwide in insurance costs, driven by a multitude of factors including climate catastrophes. 

The artificial intelligence insurance firm sampled 1 million residential properties. No state had less than 26% of residential properties with secondary structures; rural states had higher shares, led by Montana with 59% of properties identified. Those extra buildings included barns, sheds and guest cottages. 

Georgia and North Carolina had 26% and 29% of homes with secondary structures, respectively. Densely-populated areas where local governments have encouraged ADU construction contributed to the rise, according to ZestyAI.

In addition, 11% of homes had 3 structures, while 4% included 4 or more buildings. 

“It’s challenging for insurance carriers to identify all structures on a property,” the report read. “The third or fourth structure could go undetected even when a secondary structure is found.” 

The company revealed its findings alongside its launch of Multi-Structures, a product providing insurers with aerial views of properties mixed with non-imagery data for clearer assessments. 

Residential insurers this year have pursued large rate hikes, and in some markets pulled back underwriting, in response to larger climate-related losses and inflation heating up reconstruction costs. More recently, mortgage delinquencies in November rose on borrowers affected by Hurricanes Helene and Milton. 

Other dangers to residential structures are also rising. Hail was responsible for the largest percentage of insured property loss in 2023, according to Corelogic. The frequency of natural disaster claims along with nonweather incidents like water leaks and theft also rose 52% last year, the firm found.