Insurance Conditions Making A Comeback in 2020?

Photo Credit - Architectural Digest

Insurance conditions in an offer have fallen by the wayside in most cases over the last few years. Especially in an active market where the fewer conditions you have, the more attractive your offer is from the seller's perspective.

Not to worry, in specialty-type homes like century homes, rural, waterfront, even log homes, it’s still the norm…but for the average subdivision home it just hasn't seemed necessary anymore. But that’s changing!

Here’s a quick sample of some of the asks we’re seeing from insurance companies:

  • Criminal checks on the buyer (huh?!)
  • Buyer’s credit score
  • Asking agents to make declarations (at great liability to ourselves) on whether there is knob & tube wiring or galvanized plumbing in a home, when we are not electricians or plumbers, nor do we have x-ray vision to see behind the walls
  • Requesting home inspection reports & adding clauses or limitations to policies based on those reports
  • There is even a particular insurance company that will not insure a home where there is a certain breed of dog in residence, namely Pitbulls, Rottweilers or Dobermans.
f     The really scary part is if any of the information provided is incorrect, whether inadvertently or not, a future claim could be denied!

With so many questions & so many of them seemingly irrelevant, & it being much tougher to qualify in general than it used to be, it would seem that the insurance companies are getting as bad as the banks at squeezing people! Now apparently some of this is due to new ratings software, & it’s frustrating for the front-line insurance agents as well, but the onus is on you to figure this out because if you need a mortgage to purchase a home, you can’t get it funded without proof of insurance.

Whether you're talking life insurance, car insurance or home insurance (and I'm sure there's other types of insurance as well), it's all about risk assessment & risk management for the insurance companies. Realistically they are in the business of making money, not paying money out.

When it comes to home insurance they want to know every single detail they possibly can about the home so that they can assess the chances of you making an insurance claim. And with the new ratings software that I mentioned above, if any of the information is missing, you can't even get a quote! 

They will want to know things like age of the house, condition of & age of all the major components of the house, where is the nearest fire hydrant & fire station, what is the neighbourhood profile when it comes to crime & even other insurance claims in the area...basically the greater the risk of theft, storms or damage, the higher your premiums will be...or they may choose to not insure that home at all. They will even look at what YOUR personal history is when it comes to making insurance claims. Side note, professional appraisers & lenders will factor in neighbourhood profiles as well when determining the value of the home & establishing how much they are willing to lend on it!

They don't like knob & tube or aluminum wiring, cast iron plumbing, mold, oil tanks...and the list probably goes on, but those are some of the big ones off the top of my head! And it doesn't matter if an insurance company has insured a home before, for example, using the same insurance company that the seller used. Once a policy ends, a new policy evaluates a home starting from scratch using the insurance company's most current policies.

Condo owners in a Fort McMurray complex are struggling with a  551%  increase in their insurance premiums, which still leaves them under insured when it comes to replacement cost - it's an unprecedented situation...

Take a look at current events & I guess it shouldn't come as that much of a surprise that this issue is rearing its ugly head! 

There are some truly heartbreaking stories coming out of Alberta recently about the continued fall-out from the Fort McMurray fires in 2016. Sky-rocketing insurance premiums are causing people to lose their homes - read about it HERE

And of course the wildfires in Australia - Global News has a very insightful article tying what's happening there, with real estate here in Canada - read it HERE

Even right here in our own backyard we're seeing the effects of weather events & insurance...after the hard spring we had in 2019, I had a client trying to arrange insurance on a waterfront property & she had to wait as there was a hold on issuing new policies for waterfront because of all the flooding!

Bottom line…talk to your REALTOR® to see if it makes sense to include a condition of "arranging insurance satisfactory to you, the buyer, in your sole & absolute discretion".

The conditions you include in an offer are YOUR tools for risk management, use them wisely!

Until next time,