Canadian Underwriter

How is it rated?

August 15, 2011   by Suzanne Sharma

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Recently, a report in the media stated that certain neighbourhoods in Toronto will reduce firemen by up to 16%, and this could result in a rise in personal property premiums for each area. Canadian Insurance Top Broker decided to investigate and see how much truth there was to this matter. We interviewed Pete Karageorgos, manager, consumer and industry relations at the Insurance Bureau of Canada (IBC), and also found out what other factors affect your client’s personal property premiums.

Q. Could a reduction in firemen affect a neighbourhood’s insurance premiums?

A. Public fire protection class is one of many factors, in addition to the occupancy of the property, construction materials, size of the property, etc., that contribute to calculating premiums for fire insurance policies. Large cities like Toronto tend to have more sophisticated firefighting apparatus and excellent public water mains to supply water, all staffed by well-trained professional fire departments. A fire is more likely to be extinguished here than in a smaller community with no water mains staffed by volunteers. If the fire protection class changes then there may be an impact on premiums.

What do insurers look at when determining rates in personal property?

Where you live: Insurers keep records about such things as the number, type and cost of claims by neighbourhood. They can tell from past experience what the circumstances are in a particular neighbourhood, and how likely it is that someone from that area will have to make a claim. For example, in an area where most people commute to work and homes are left unoccupied during the day, the statistics may show that neighbourhood has more break-ins. The cost of home insurance, therefore, varies from neighbourhood to neighbourhood, from city to countryside, and is based on knowledge and experience.

Proximity to water: Insurers are concerned about fire, and will look at how far a home is from a source of water (e.g., fire hydrant, fire station). In urban areas, this is generally not a problem. The sooner a fire can be put out, the lower the cost of restoring a home.

Replacement cost: The factor that will make the biggest difference in the cost of home insurance is simply the size and composition of a house – as well as contents. The larger the house and the more contents, the more it will cost to replace. In addition to the square footage, insurers will take into account such things as the quality of construction used to build the original house, since it can vary greatly from home to home.

Heating: Because oil tanks have the potential for causing costly environmental hazards, an insurance representative will ask lots of questions about the age and condition of a tank. There is far less risk with forced-air gas furnaces or electric heat, so rates may be higher for homes that are heated by oil.

Electricity: There are several factors concerning electricity. Does a home have breakers or fuses? What is the flow of electricity coming into the house, i.e., the “amp”? And what kind of wiring is there? Insurers know from experience that breakers pose less risk than fuses, and that a minimum of 100-amp service is better than a lower level of service, as a lower amp can lead to overloading and fire. They also know that some older types of wiring, such as knob-and-tube or aluminum, can increase the chance of fire, especially if the wiring has deteriorated or been damaged during renovations. Some insurance companies may ask for a guarantee that a home does not have this kind of wiring; some may give you time to have it removed; while others may ask to inspect the condition of the wiring to ensure it’s safe.

Pipes: Galvanized or lead piping usually means that the plumbing is older, and older plumbing is more likely to crack, leak or run into other problems. Insurance companies generally prefer homes where the plumbing has been upgraded to copper or plastic.

Wood stoves: These are a common source of house fires and carbon-monoxide poisoning, particularly if they are not properly installed and maintained. Insurance companies may want to inspect such installations.

Age of roof: Insurers generally prefer it if a roof has been updated within the last 20 years. Some policies will pay only depreciated values, as low as 25% of the replacement cost, for damaged roofs that are near the end of their designated service life.

Other uses of your home: Insurers will want to know if an insured has a rental apartment or a business in the home, or has made any other significant alterations to the structure or the way the home is used.

Other factors: Insurers will ask about security and fire alarms, and whether they are monitored by an outside service. They will also want to know if there is a swimming pool or other structures on the property, such as pool houses or storage sheds that are worth more than 10% of the insured value of your home.

This story was originally published by Canadian Insurance Top Broker.