This article was produced in partnership with Intact Insurance.
Bethan Moorcraft, of Insurance Business, sat down with Patrick Magnusson, director, personal lines, at Intact Insurance, to talk about the opportunities brokers have to support customers with insurance-smart reno advice and help them protect their homes against water damage, hail damage and fire.
Canadian homeowners have continued to spend on home renovations and improvements, despite the COVID-19 pandemic contributing to major material shortages and price increases.
When a homeowner renovates or makes changes to their home, there are insurance implications for them to consider. Renovations often change the rebuilding cost of the home, a core element in home insurance premium calculation.
“If the rebuilding cost changes, it’s important for the homeowner and their broker to update the insurer before the renovations begin because the exposure exists throughout the renovation period, not just at completion,” said Patrick Magnusson (pictured), director of personal lines at Intact Insurance.
“Also, policies usually contain some provisions that require the insured to advise when they do upgrades and increase the value of their home by a certain amount – that might be $5,000, or $10,000, or higher depending on the insurer. That’s very specific to the guaranteed replacement cost coverage, which is there to protect customers in the event of a loss and if the home costs more to rebuild than what they insured it for. That’s a very valuable customer protection piece that they shouldn’t jeopardize by not letting their insurer know they’ve completed a renovation.”
There are a lot of misconceptions around how insurers will react to home renovations, according to Magnusson, including fear of non-renewal or significant rate increases if homeowners make big investments, such as adding a swimming pool.
“Homeowners sometimes worry that they’ll be penalized if they disclose too much information about their home. But the fact is, rating and underwriting is becoming increasingly sophisticated, so the more information that the homeowner and broker can provide about the home, the more accurate, personalized, and representative the premium will be of the actual risk,” Magnusson told Insurance Business.
It is important for brokers to get involved early in the renovation process so that they can understand the project and relay to the insurers the extent of the renovations, the duration of the work, and what additional exposures the renovations might create.
“That disclosure needs to be detailed, beyond just the square footage, for homeowners to really see the benefits of some of the sophisticated rating and underwriting that’s on offer,” said Magnusson. “For example, depending on the materials they choose or the investments they’ve made, they could gain additional premium benefits. Making upgrades to wiring or plumbing, using weather-resistant siding or roofing, and adding sump pumps and backwater valves could all have a positive impact on the premium, depending on the insurer.”
Renovations are a great time for homeowners to invest in measures to mitigate or prevent water damage. For a relatively small investment, homeowners can significantly reduce their exposure to loss.
“One of the best things a homeowner can do is add a backwater valve on to the main water line coming into their home to prevent water and sewer backups,” said Magnusson. “Sump pumps are also very effective, and a renovation is a great time to consider adding a back-up power system for the sump pump so that it’s able to run during a power outage. Water sensors with an automatic shut-off valve device are also important because they can detect and mitigate abnormal flows of water coming into the home.”
On the exterior of the property, Magnusson stressed the importance of landscaping and ensuring there is proper sloping and drainage for water to flow away from the home. He also suggested that homeowners use rain barrels to collect roof runoff and conserve water, and that they consider porous surfaces when paving areas.
Building materials can also have a significant impact on a home’s exposure to weather or climate change risk. First and foremost, it’s important for homeowners and brokers to understand the risks that properties are exposed to now and in the future, and to remember that the frequency and severity of catastrophic weather events are on the rise.
Some areas of the country are more exposed to certain risks than others. In British Columbia, Magnusson suggested homeowners consider an earthquake retrofit to reduce the impact of a quake. People living in Alberta and on the Prairies need to consider hail.
“If you’re in an area that’s prone to hail, you can use class 4 rated impact resistant shingles, which are more resilient to hail damage and often more wind-resistant. They cost about the same as traditional asphalt shingles, they’re readily available, and the installation process is the same,” said Magnusson.
“Likewise, homeowners should consider using materials like fibre cement board instead of vinyl because it’s more able to withstand hail damage and also more fire resistant because it doesn’t burn or melt like vinyl does. In addition to being more resistant to weather, these materials require less maintenance, increase curb appeal, and add value to the home. It’s a win-win.”
While some insurance companies may reward policyholders for efforts made to reduce their exposure to loss, Magnusson cautioned against too much focus on discounts or cost-saving.
“I don’t think the primary motivation for risk mitigation efforts in a renovation should be an insurance discount,” he said. “It should be protection and peace of mind for the customer. That said, it’s not unusual for insurers to recognize loss mitigation and factor it into their pricing algorithm and it can even influence the amount of coverage they provide. Again, it comes back to brokers accurately disclosing all of the pertinent information to the insurer.”
There are many great resources that brokers can access and share with clients who are carrying out home renovations. Magnusson suggested brokers visit the Intact Centre for Climate Change Adaptation to gain practical resources to prevent and mitigate loss or damage from climate risks.