Hugh Cairns: Home inspections and home insurance
Home insurance underwriters greatly value home inspection reports.
It’s obvious to home inspectors that their written reports produced for their clients are graciously being accepted by the home insurance industry. That makes sense, because many of the conditions that are determined during the course of a home inspection are relevant to determine insurability. This sometimes causes disappointment for home inspection clients when a condition that is commonly found during a home inspection is not desirable to the insurer.
Say, for example, when a home inspection results in the documentation of the presence of Poly B piping. With the home inspection report in their possession, the insurer has documentation to take immediate action and protect the underwriter from a risk that can now be mitigated despite that the product may be performing flawlessly.
A host of regular findings from home inspections are critical to the approval in the underwriting process. Insurers are quite pleased with the thorough results and findings produced by home inspectors. Home inspection reports and underwriting cross paths with information about the structure, electrical and plumbing components, heating and air conditioning and roof coverings to mention a few.
How home insurance works
Insurance is one of those things that you purchase and hope you never have to use. Home insurance is designed to help protect homeowner’s from an unexpected costly loss that they wouldn’t normally be able to afford. Most homeowner’s give little attention to their insurance until they need it the most – when it comes time to file a claim.
Home insurance is unlike other financial products or services. Most people erroneously think of insurance as a bank account. You put some money and take it out when you need it. Home insurance companies are somewhat like money managers that collect insurance premiums from their entire client base and distribute it to those that have qualified insurable losses.
Factors influencing home insurance premiums
One way your home insurance company works for you is by trying to minimize the amount of risk to the group by selecting participants with low risk factors. Another way is to control what type and the amounts that insurance pays for. Yet another is to calculate premiums and deductibles based on predictions about what may be needed.
In the long run, home insurance companies want to select homes that are less risky. Some people take it personally, but it’s not the person they are insuring, it’s the quality of the risk. Cherry picking, if you would.
Insurance companies used to tolerate many conditions that are documented in home inspections reports without much resistance, but economic times have changed, as well as the amount of people who unscrupulously abuse the system.
Here are some the popular conditions that are found during home inspections that insurers are using to determine risk:
Home insurance and Knob and Tube wiring
The presence of Knob and Tube wiring is an issue that home inspectors of older homes built prior to 1945 often encounter. More than 1.5 million Canadian homes were built with knob and tube wiring.
· Knob and Tube is a two wire system without a ground. Sending unwanted or excessive electricity to ground is the safest place to do so.
· As Knob and Tube wring ages the protective covering on the exterior of the wiring deteriorates leaving conductive wires hazardously exposed.
· When Knob and Tube is present it is usually matched with smaller 60 amp services. 60 amp services are considered inadequate to meet the demands of the modern home.
Home insurance and 60 amp electric service
A 60 amp electric service is typical of older houses and in itself does not create an unsafe or hazardous situation. It can become unsafe when the homeowner places more demand than what it is rated for.
Typically, 60 amp panels become a fire and safety concern when occupants increase the number of circuits, receptacles, lights, switches and when circuits are surreptitiously over fused. Additional risk is incurred with the installation of a major appliance, like the addition of a second electric range. The modern addition of numerous small appliances such as microwave ovens, computers, stereo equipment and the like will contribute to a significant draw on the system.
Most insurance companies are quoting homes with 60 amp electrical services in a ‘high risk’ category. There may be little concern with the service from a defect recognition viewpoint, but unsuspecting purchasers are getting hit with quotes for 60 amp homes that are about twice the going rate for a similar home with a 100 amp service, or a flat out denial of coverage.
Home insurance and aluminum branch wiring
Seasoned home inspectors are aware that aluminum wiring may have been used as an alternative to copper wiring in homes constructed in our area between 1965 and 1973. We don’t always find that the houses built in this era are wired with aluminum, but if we do, we’ll tell you.
There were about 450,000 home in Canada wired with aluminum during those years. As copper wiring was escalating in price, builders sought relief from this cost, and the industry offered aluminum as an alternative. Despite being approved for installation, after a decade of use, some of the inherent properties of aluminum lead to its disuse as branch wiring material.
Generally speaking, the aluminum wire itself is okay. It is where the aluminum wiring makes a connection that is the focus of the problem. After many years of use, and while still remaining functional, connections may deteriorate and fail faster than others.
Based solely on the presence of aluminum wiring and not its actual condition, insurers are hesitant to insure this risk category. Ironically, some studies have proven that aluminum wiring doesn’t represent a higher risk than copper. Underwriters may require a complete electrical safety inspection by a trained and certified electrical contractor before policies are sold or renewed.
Home insurance and heating oil tanks
Often, during home inspections of older properties, home inspectors may become aware of the presence of heating oil tanks. As modern day fuel sources have become available, many above and below ground oil tanks are now abandoned or decommissioned. The problem with both is they are potential sources of contamination to soil and groundwater. In certain conditions they can be a fire hazard.
There are many reasons to remove residential heating oil tanks. Homeowners may want to improve the environmental conditions and the value of their property, satisfy a lender, prospective purchaser, and insurers. Bottom line is insurers don’t want to be involved with potentially liability and cleanup costs.
Homeowners’ insurance is a necessity, something every property should have. If you have a mortgage, your lender will require coverage — and if your home is mortgage-free than you should have coverage anyway. Having a heating oil tank on your property may affect your ability to secure home insurance.
Home insurance and Poly B piping
The usage of Poly B has raised concerns within the home insurance industry regarding their risk exposure. Not surprisingly, the residential insurance industry is approaching the issue in much the same way that they do with other residential risk categories. As a result, some homeowners are finding insurance companies are offering varying opinions and different reactions to underwriting Poly B coverage when it comes to renewal or new policy time.
The discussion of Poly B and its relation to insurance underwriting often occurs well ahead of purchase offers. Should the presence of Poly B be determined in the home that you intend to purchase, you should initiate dialogue with your insurer immediately. The presence of Poly B may affect the underwriting of the home and your acceptance of the terms offered to you by your insurer.
Home inspections and galvanized pipes
As the name infers, this plumbing product was used in attempts to reduce or inhibit rusting. And that it does. However these pipes are not rust proof. Galvanized pipes are usually found in homes over 50 years in age. Commonly, these pipes will rust from the inside out. The pipes can corrode at any time however this rust accumulates over decades.
Although the water pressure can be reduced the volume of water is often restricted from the rusting. This occurs as a result of the pipe rusting on its interior and becoming smaller and smaller over time. Home insurance providers view galvanized piping as a hurdle because in their opinion it represents a higher risk.
Home inspections and wood stoves
A wood stove is a contained heating appliance made from iron or steel that is capable of burning wood for fuel. Unlike standard fireplaces, wood stoves are typically contained entirely within the living space, rather than inset in the wall. Wood burning appliances are an item that a home inspector will usually pay a lot of attention to. If you are thinking of buying a home with a wood stove ask if there is a WETT certification in place.
Insurance companies will be concerned with its CSA or ULC certification, its installation, permits, code compliance and venting.
Home inspections and vermiculite insulation
In some cases attics in older homes may contain vermiculite insulation. The concern with vermiculite insulation is that it is known to contain asbestos fibres. In order to be certain, the material must be tested. Not all vermiculite produced contained asbestos fibres. However, to be safe and in the absence of evidence to the contrary, it is reasonable to assume that if a building has vermiculite-based insulation, it may contain some asbestos.
I’m always on the lookout for asbestos products during home inspections. Asbestos poses health risks only when fibres are present in the air that people breathe. You can’t always tell if a product contains asbestos just by looking at it. If you suspect, or you are in doubt that asbestos is present call in a qualified professional.
Due to the inherent risks of vermiculite insulation, it likely will affect the insurability of your home.
Homebuyer insurance checklist
- Research and select your home insurance provider well ahead of looking for your dream home.
- The sooner you check with an insurance provider and their policies the smoother the process of obtaining insurance will be.
- Check the claims-filing history of properties you are serious about.
Ask your insurer about their policies and their insurability on these sensitive items that may be observed by your home inspector:
- Poly B piping
- Galvanized piping
- 60 amp electrical services
- Knob and Tube wiring
- Aluminum wiring
- Buried heating oil tanks
- Wood burning appliances
- Vermiculite insulation