As an underwriter, you’ll be evaluating a home based on the risks it presents and the type of residential inspection you’ll want may depend on the size, age, location and value of the home.
For newly built homes, an exterior photo inspection may be all that’s required, since this home will likely have been thoroughly checked and cleared by building and electrical inspectors during construction and before an occupancy permit was issued. The primary purpose of a residential inspection is risk and liability management, so your company can avoid future losses due to unreported liabilities present in the home.
Older homes are likely to have at least some risks and potential liabilities and should have a more thorough and comprehensive residential inspection than the basic photo report. The highest value inspection includes both interior and exterior photos and a full report detailing the condition of the home and estimated replacement costs should a property loss occur. Full residential inspections will typically include checking:
- Roof, gutters and siding
- Exterior structures including fences, sheds, gazebos, swimming pools and detatched garages
- Utility systems including electrical, plumbing and HVAC
- Windows and doors
- Fire alarms, fire extinguishers and anti-burglary system
- Surrounding grounds
Two Purposes for Residential Inspections
Home inspections have two basic purposes: to identify any existing risks that require attention and to accurately estimate the home’s replacement cost. A home’s replacement cost isn’t the same as its market value, since replacement cost considers the materials and labor needed to rebuild the home back to its previous condition.
During the inspection, the property’s condition will be evaluated in reference to potential risks, hazards and possible liabilities. Inspectors will also take note of how well the homeowner takes care of the property, known as pride of ownership, and determine whether the homeowners are proactive in the prevention of potential losses with installation of items such as anti-theft deadlock bolts, fire/smoke alarms, fire extinguishers and security alarms.
When Does it all Happen?
Often, a residential inspection won’t occur until 30-90 days after a policy has been issued, although it could be done beforehand. If it’s done after the policy has been issued, the premium amount may be adjusted to conform to any risks and/or liabilities uncovered during the inspection. If it’s determined that the property in question represents what the company considers an unacceptable amount of risk, the policy could be cancelled altogether. As an option, you, as the insurer, could set up a reasonable timetable within which the homeowner will mitigate the risks and liabilities to your satisfaction in order to continue being covered.
On the flip side, if the evaluation of a policyholder’s home shows that it’s in better condition than was previously reported on the policy application, premium costs could conceivably be lowered. While a home inspection is primarily done for the protection of insurers, it also can provide valuable benefits to the homeowner. Call us here at Insurance Risk Services to learn what we can do to help aid in your underwriting activities.