It’s spring renovation time, and a TD Insurance poll indicates that many Canadians are once again contemplating home renovations that they probably won’t mention to their insurance broker or company.
Brokers say they are constantly telling their clients, both during renewals and throughout the year, that they need to report any major home upgrades, installations, or renovations to their brokers and insurers. But the message seems to be missing the mark.
In an online Environics Poll of 2,748 Canadians aged 18 and older, including 1,851 homeowners who have insurance, only 6% of those surveyed said they have checked their policy to ensure they are covered during upgrades. Just 16% asked their insurer if their policy needed an update following their last renovation.
The TD-commissioned poll revealed three “myths” that reinforce policyholders’ beliefs that they don’t need to notify insurers or brokers about their home renovations.
• Fifty-six percent of homeowners incorrectly believe they will always be covered by their original home insurance policy while their home is being renovated, while 24% are unaware that moving out for more than 30 days during renovations requires a policy update.
• 41% of homeowners incorrectly believe that if a contractor is hurt on their property while working, they will not be liable under their home insurance policies (i.e. the contractor’s insurance will pay).
• Many homeowners don't know the types of renovations that can impact their premiums: 22% are unaware that upgrading their electrical system or replacing a weathered roof could lower their premiums, and 53% did not know that installing granite countertops or expensive appliances could increase their premiums.
And so what more can brokers do to dispel these myths?
“We send out renewal letters and we bring it to their attention [that homeowners should report their renovations],” said Peter Heitmann of Heitmann Insurance Brokers Inc. “We have one sentence that says, ‘…please notify us if you’ve made any major changes, upgrades and renovations to your house’ – if you’ve finished a basement, or added a deck, or whatever.
“Some will and some won’t. You can’t put a gun to their heads. Unfortunately, it’s hit or miss.”
Heitmann said the failure to report usually rears its ugly head when water damage destroys the $100,000 basement renovation that no one reported to the broker or the insurer.
The failure to report does lead to the insurance-to-value issue, which is still a problem in some communities. Brokers are still reporting major discrepancies between the true value of a home and its insured value. One broker in a community neighbouring Toronto said he has seen a $5-million home insured for as little as $2.1 million.
“Some people want to hide [renovations], because they’re not dumb,” Heitmann said. “They know that if they made a $150,000 addition to the basement, it is going to cost them additional money [in premium]. Most people are smart enough to know that they have guaranteed replacement cost, and so even if the building is insured for $599,000, and it should be $799,000, the company will have to replace it.”
Some insurers choose to pay the (inflated) guaranteed replacement cost instead of pursuing insureds in court for failure to report a material change, some brokers say. These insurers would prefer to pay out the full value of the claim rather than look bad in the press and potentially add exorbitant litigation costs on top of the already-inflated costs.
Independent brokers who keep their ears to the ground in local communities are likely to fare better than others when it comes to convincing policyholders to report their renovations, said Heather Lyons of Lyons & Mulhern Insurance Brokers Ltd. (Huron Insurance Managers Group)
“Brokers are part of the community,” she said. “They meet their people in the grocery store. You kind of know what’s going on. Especially if something’s happened. Around my own neighbourhood, I can see who’s added an extension and who is getting their floors replaced. It’s that whole thing about staying in touch.”
Lyons said if producers at her brokerage cannot see a property themselves, the brokerage will pay an individual who is part of the staff to go out and take pictures and measure up the property, to make sure it is insured to its proper value.
