With more of your clients staying home during the pandemic, more are renovating their homes. And that means your clients need to make sure that they have the right insurance coverage in place, and that the renovations are properly reflected in their total insurance coverage, a Travelers Canada executive said Friday.
Depending on the renovation — whether it’s finishing a basement to add a home office for remote work or adding on a new storey — your client may be required to increase their insurance coverage, advised Rick Wirkowski, Travelers Canada’s vice president, national product development and support – personal insurance.
It’s common in policy language to stipulate that a homeowner must advise their broker, insurance representative or insurer if there are plans for remodelling, renovations or rebuilding that hits a certain threshold, Wirkowski said. “As an example, anything over $5,000 needs to be disclosed in order to maintain certain coverage provisions.”
But do your clients know the difference between renovating, remodelling and rebuilding? “Even though we refer to them all maybe as renovations, they can be different, and they can have different insurance implications in terms of your coverage,” Wirkowksi said. “I think that remodelling versus rebuilding is really a key consideration for the homeowners as they’re talking to their broker.”
Remodelling usually involves upgrading or improving the existing space without significant structural changes. This could include things like updating a kitchen, putting in new flooring or finishing a basement. “Usually, different coverage is not required here,” Wirkowski said. “But what is required is that the replacement cost of this remodelling, that needs to be considered in the total amount of coverage for your home to make sure it’s adequate.”
Replacement cost is the cost to construct or replace at a given time (including time for materials and labour), “which can be very different than what you paid to get something done or what your whole house costs in terms of market value,” Wirkowski said. And replacement cost is what’s used in the policy. “That’s where your broker or your insurance representative will help, because you’ll basically tell them what it is you’re doing, and they’ll be able to use the different tools at their disposal to come up with a replacement cost.”
On the flip side, rebuilding or reconstruction is usually more of a structural change to a property, such as adding an additional storey or extending square footage, Wirkowski explained. “In most cases, specific coverages are often required for rebuilding. So, for example, you could have things like a course of construction (COC) endorsement that you would add to your policy, or a different policy altogether.”
Standard homeowner policies have exclusions for when a dwelling is under construction. “When you get into COC, it’s really to negate some of the exclusions that are in your base policy,” such as vandalism, glass breakage, theft or water escape.
“There’s a difference between renovations while you’re still living there, and others where you actually need to move out while they’re being performed,” Wirkowski added. “And that can have different implications as well in terms of coverage and policy needs.”
Property reconstruction is a hot topic these days, particularly around the high cost of lumber, which Opta Information Intelligence estimates has increased 120-140% between May 2020 and May 2021. The skyrocketing price of lumber was one of the major contributing factors to a 6.4% increase in property reconstruction costs year-over-year (May 2020 to May 2021), Opta reported at the beginning of June. According to Opta’s Reconstruction Cost Updates report for Q2 2021, nearly one in every 20 homes inspected by Opta Precise Services have significant renovations underway and include a COC endorsement.
Wirkowski offers the following considerations for brokers to pass along to clients who are renovating:
Start an inventory of new items that are purchased during a renovation, such as appliances, furniture or other contents. “In the event of an unfortunate property loss… this inventory will certainly go a long way to help assist in the settlement of a covered loss or claim.”
Consider who is doing the renovations, whether it is the homeowner or a contractor/subcontractor. “You also need to do research on your contractor,” Wirkowski said. “If you’re going to be using a contractor for the project, it’s really important to make sure that they’re properly licensed and insured. If the contractor doesn’t have proper insurance, you can really be liable for some of the actions that could occur on your property.”
For contractors, know the name of their insurer, policy number, coverage limits and policy term. Also include any trades or sub-trades that are used.
Consider whether building permits need to be secured prior to work being done.
Understand the expected project duration and timelines. “Whether something’s going to take six months or 12 months or two years, it could have different implications on your coverage and the policy coverage that you need,” Wirkowski said. “It’s important that they’re really understood, and that they’re shared with the broker, the insurance representative or the company before proceeding.”