Canadian Underwriter

Tips for brokers on insuring high-value homes

July 12, 2018   by David Gambrill

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High-value homes are good for business, knowing how to rate them properly is a must. Brokers need to be aware that high-value, custom-built homes or renovations should not be put on Standard Build when determining insurance to value, a broker told Canadian Underwriter Thursday.

Ivor Shanks, a senior insurance broker with Central Agencies Ltd. in British Columbia, recently posted a LinkedIn message raising broker awareness about not putting high-value homes on Standard Build policies.

The sales process may sometimes put more emphasis on price over coverage and wordings, he observed when contacted by Canadian Underwriter. A broker wanting the client’s business may face a choice of keeping the business at a lower premium price for the Standard Build policy, or risk offering the client higher premium point for coverage more appropriate to a high-value, custom-built home.

What makes a home high-value, and hence inappropriate for a Standard Build policy? Factors to consider include:

  • was it architecturally designed?
  • did the contractor use rare or imported materials?
  • was there specialty construction or custom work done?
  • were luxury products used?
  • were ‘green’ materials or high-tech components or electronic enhancements channeled throughout the building?

Pools, spas, meditation, green spaces, bowling areas, large theatres room, or large outbuildings to house the client’s toys – ATV, sports cars, and even helicopter hangars – should be further be considered.

Typically, brokers will ask clients questions about their home and enter this information onto a third party platform. Using its own algorithms, the evaluator will then calculate a number based upon the information entered and provide a replacement cost figure.  Not properly disclosing or calculating the ‘true’ costs for high value homes could lead to a claims nightmare down the road, including the possibility of denial of coverage, Shanks observes.

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He provided a recent example of coming across a Standard Build evaluator when he stayed with a friend in Kelowna.  One night, he and his buddy followed a convoy of fire trucks where a bush fire was spreading through the neighborhood and some his neighbors were even preparing to evacuate. This got his friend wondering what would happen to him, his home and his possessions.

Shanks said he advised his friend that he had “a beautiful, custom built home.” His friend “has his own theatre in the basement, where the electronics alone are worth about $45,000. Everything in the home is top of the line, from the floors to the countertops – everything.”

Shanks asked to see his friend’s insurance policy. “Well, he pulled it out and it and I noticed it was calculated based on a Standard Build,” Shanks recalls. “I thought, ‘This isn’t good.’ The whole house, there was nothing standard about it!”

If there is any discrepancy between the home’s value and the policy coverage for it, this will likely manifest itself during the claims process, Shanks observes. If it’s a Guaranteed Replacement Cost (GRC) policy, the insurer may pay for the full value of the home to replace it; in doing so, it would only use standard materials if it’s on a regular homeowners’ form.

“But if it’s a highly customized house like that, the adjuster’s going to go up there and say, ‘Can you prove that you had $45,000 of electronics going into your home theatre? Can you prove that this what made from that material? Why was this not disclosed?’” Shanks observes.

Clients have a price mentality: get the coverage the easiest way, at the cheapest price, Shanks said.

Brokers have a coverage mentality: ask questions, and customize a package to suit clients, their homes and their budgets.

“Brokers want to get a competitive price for our clients, but coverage is Number 1,” Shanks said. “If we’re not giving them the right product, we are not servicing the client correctly.”

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