Customers buy a homeowner’s insurance policy in order to minimize the risk to which they are exposed should an event occur to their homes that causes damage, destruction, or other financial loss such as theft or liability suits. By underwriting the policy, your company is assuming most of the risk (minus the deductible amount) in exchange for set premium payments. As the underwriter, part of your job is to determine an accurate replacement cost for the home and everything in it. You’re also responsible for assessing the amount of risk represented by the property, the property owner, and deciding if issuing a policy is prudent.
Home Inventory
Homeowners should be encouraged to complete a current home inventory of all of their personal belongings in order to aid in identifying losses that may occur while covered by your company’s policy. Consider how much this will help when submitting a claim in the event that they’re hit by a catastrophic loss such as a house fire that burns their home to the ground. Their home inventory should contain a listing of all items in the home and be supported by photos or a video of every room in the house. The report should be stored off-site, such as in a safety deposit box, with a copy submitted to the insurer. Make sure they don’t make the mistake of keeping it on their computer which, if the house burns down, will be lost. Items listed should include:
- Furniture
- Appliances
- Electronics
- Clothing
- Jewelry
- Family heirlooms
- Artwork
- Firearms
- Collectibles such as coins, stamps, etc., and anything else of value
In a recent year, it was reported by the Insurance Information Institute (III) that almost 98% of all claims made on homeowner’s policies nationwide involved property damage, which includes theft. During the years 2008-2012, 7.3% of homes that were insured filed claims, with losses averaging $8,255 per claim.
Liability is the Name of the Game
As the insurer, your number one concern with writing any homeowner’s coverage is the amount of liability your company is willing to accept and how much the policyholder should pay in premium in order to transfer his or her risk to you. If liability projections are too high, you may elect not to offer insurance coverage to a particular homeowner, otherwise, your odds of profiting from the transaction are greatly diminished. Since the aim of your business is to make a profit, issuing a policy with the distinct potential of creating a loss is counterproductive.
Determining an Acceptable Level of Risk
Determining risk levels involves the study of risk research data you have available on the homeowner and others in the same risk class. Add to this the data delivered through an insurance inspection of the property in question. While every home and homeowner is different and may present their own unique risks, there are certain factors that increase a property’s potential liability and make it riskier to insure. In no particular order, here’s a list of some red flags to consider:
- Preparations for bad weather – In some states, such as Florida, high winds are a common occurrence and can cause significant damage to homes not prepared for them. While a home unprepared for windy conditions should be rated as riskier and carry a higher-priced policy, those that have passed a qualified wind inspection may earn a price discount.
- Property location – Just as in high-wind areas as mentioned above, properties located in areas prone to tornadoes, wildfires, floods, earthquakes, sinkholes or hurricanes are all riskier to insure and should reflect this higher risk in higher policy prices.
- Trampoline, swimming pool, and treehouse safety – All three of these items hold an almost magnetic draw for children and when allowed to exist without proper safety precautions can be responsible for causing serious injury or death. Yards containing any of these items need to be fenced with a locked gate, but no homeowner allowing children into their yard with a pool, treehouse, or trampoline can ever be totally safe from potential liability suits. In these cases, it’s recommended that the homeowners significantly increase the liability coverage on their policy or, better yet, add a high-value umbrella policy.
- Fire suppression – Location of a home also matters when it comes to proximity to a fire hydrant or a fire station. Having a house located too far from either of these makes a property riskier to insure, thereby causing a price increase in policy rates.
- No pride of ownership – Poor maintenance of a home is a red flag that can cause policy rates to be raised or a policy to be denied or canceled altogether. A home that looks run down is a bad sign. Cracked walkways, driveways, or sidewalks all pose liability hazards no insurer wants to have to deal with. Old, worn-out water heaters and leaky roofs are a sure sign that trouble may soon follow.
- Area crime – According to recent Insurance Information Institute statistics, more than one in 200 insured homes suffers a robbery per year and files an insurance claim. As a result, insurance companies are likely to charge higher prices for homeowner’s policies written for homes in higher crime areas. Certain steps can be taken to lower the chances of being robbed and should be considered during the underwriting process. These include the installation of double dead-lock bolts on doors, burglar bars, and monitored burglar alarms, all of which may provide discounts on policy prices.
- Frequent claims – Policyholders who make frequent claims, whether with their current insurance provider or those from the past, will certainly draw scrutiny from your underwriting office whether applying for a new policy or renewing an existing one.
- Dogs and other pets – Your company may maintain a list of dogs considered to be aggressive and if a policy applicant owns a dog on the list you may either be compelled to charge higher rates for coverage or deny liability coverage for incidents involving this dog. This also applies to risky pets other than dogs such as tigers, monkeys, and more.
- Bad credit – Insurers are expected to do a credit check on policy applicants to see if they pay their bills on time and what kind of credit score they have. Simply said, lower credit scores often spell higher policy premium rates. Poor credit risks often indicate poor insurance risks.
Home Insurance Inspection
Many potential liabilities can be discovered during the underwriting process by simply reviewing the answers given on the insurance application. Unfortunately, not everything can be covered on a standard application and, in some instances, applicants may not be totally forthcoming with requested information.
The best strategy to uncovering any hidden risks or potential liabilities is to have the home inspected by a highly qualified residential property inspection team such as Insurance Risk Services (IRS). We’ve been assisting property and casualty insurance underwriters with quality property inspections and underwriter field services for 40+ years nationwide. IRS utilizes the latest in insurance inspection technology and prides itself on personalized service. Contact us today for more information.
