Home insurers are increasingly showing a human face to their customers, but it's a safe bet that many people won't like it.
That's because the human face belongs to a home inspector whose job it is to tour your house, looking for risks that would necessitate higher premiums on your property insurance.
The fine print on home policies has long given insurers the right to examine a home they have been asked to insure, but these inspections have recently become more common than they used to be.
"I am hearing about more of it being done," said Mark Yakabuski, a vice-president with the Insurance Bureau of Canada. "What you're seeing is the industry collectively, and some companies more than others, exercising a degree of underwriting discipline that we haven't seen in the industry for several years."
Mr. Yakabuski argues that the inspections are actually a positive development for policyholders because they allow companies to charge higher premiums on riskier properties rather than passing on these costs to all customers. This sounds reasonable, except that my own home insurance policy premium jumped 12 per cent this year. My insurer hasn't requested an inspection, but the image I'm left with is of an industry that wants to use both inspections and higher premiums to bolster its profits.
Property insurers had a bad time of it in the late 1990s and early this decade as rising replacement costs for homes hurt profitability. Now, they're getting aggressive about shoring up their financial health in a way that recently drew an approving nod from the country's financial sector watchdog.
"I am impressed by the property and casualty insurance industry's commitment to strong discipline in pricing and underwriting," Nick LePan, the federal superintendent of financial institutions, said in a speech last month. "That reduces the risk of a repeat of the bad times of a few years ago."
It's a great relief for all of us homeowners to know the bad times aren't coming back for property insurers. But this trend of higher premiums and inspections that can potentially result in higher premiums bears watching.
Most people renewing or taking out new home insurance won't have to worry about an inspection because it's a measure generally reserved for old homes or houses in neighbourhoods that underwriters have targeted. The following are some prime concerns.
Wiring. Is it the older knob-and-tube setup, where wiring is wrapped in porcelain insulating tubes instead of the plastic or PVC used today? Aluminum wiring may also be an issue.
Electrical service. Is it lower 60-amp capacity that older homes were built with, or more modern 100-amp service?
The furnace. If it's old, it could be a concern.
Oil tanks. Old, worn out tanks may leak.
Wood-burning stoves. They are a potential hazard if not installed properly.
The roof. If it hasn't been replaced in a long time, it could be vulnerable in a major storm.
As well, older houses and heritage homes may come under special scrutiny because of concern about the cost of replacing elaborate mouldings and other architectural details.
Your home insurer may start the process of delving into your home's weak spots by asking you a few questions. From there, you may get a letter from your insurer or broker telling you an inspector will contact you. "Economical Insurance is pleased to service your property insurance needs," says one such letter that a co-worker received from a broker recently. "As part of our normal underwriting practice, they request an inspection of your residence."
Tempted to say no thanks to a request like this?
"In many cases, it's a choice of letting the inspector come over to look at your place or not getting the insurance coverage you need," Mr. Yakabuski said. "The insurer may well make coverage conditional upon the inspection being created."
My co-worker's home passed the inspection without a problem, but others may face higher premiums, or costly bills to update systems in their homes that are working fine at the moment.
Over all, Mr. Yakabuski said that premiums in the property insurance business have been stable in the past few years, a contrast to some noticeable declines in car insurance premiums. My own experience shows that some insurers are jacking up their premiums with abandon, however.
It used to be that you could try to avoid higher home insurance premiums by shopping around for cheaper coverage. Today, though, switching to a new company raises the risk of a home inspection that results in higher costs to you. Yes, home insurers are really hitting us where we live.