The study consultant reviewed the personal property rate manuals of five large insurers operating in Nova Scotia. A summary of their rating practices follows.
Insurance policies are offered for four principal types of dwelling risks:
• homes (homeowner policy)
• apartments (tenants policy)
• condominiums (condominium policy)
• Seasonal/vacation homes
Insurance policies are also offered for other types of risks, such as: rented dwellings, vacant dwellings, watercraft, and for specifically scheduled personal articles such as furs and art.
In general, the rates for personal property insurance for dwellings are based on the following criteria:
• Dwelling Type - e.g., house, apartment, condominium, seasonal/vacation property, mobile home
• Fire Protection and Territory – the degree of fire protection, and where the dwelling is located
• Amount of insurance on the building and/or contents
• Eligibility for preferred programs & rates - generally based on the property’s age; age and condition of heating, electrical, and plumbing systems, and roof; history of claims; and value.
• Eligibility for discounts and surcharges Dwelling Type
There are separate schedules of rates for homeowner policies, tenant policies, condominium policies, seasonal/vacation properties, and, for those that offer such policies, for “mini” homes (i.e., factory built houses), and for mobile homes.
Homeowner policy rates vary by number of families. Tenant policy rates vary by criteria such as number of suites in the building, whether or not the walls are fire resistive, and whether or not the apartment is located within a commercial building. Condominium policies rates vary depending upon whether the style of the condominium is townhouse or apartment style; and whether the construction is fire resistive.
Fire Protection and Territory
Personal property rates vary depending upon the degree of fire protection. Risks are categorized into one of three fire protection classifications: hydrant protected (i.e., within 1,000 feet of a hydrant), firehall protected (i.e., within 5-8 miles of a firehall station), or
unprotected (i.e., more than 5-8 miles from a responding firehall station).
Within each of these three major groups, particularly for hydrant protected risks, the insurers typically subdivide risks into rating territories, which may be based on either the postal code of the risk or the specific town or city in which the risk is located. In no case were the unprotected areas subdivided by rating territory.
The number of territories varies among the insurers, from a low of 4 territories to a high of 12.
Amount of Insurance
Rates also vary depending upon the amount of insurance coverage that is purchased. While premiums increase as the amount of insurance increases, the rate per $100 of coverage is highest for the lowest and highest amounts of insurance.
Insurers typically require that dwellings be insured in an amount equal to 100% of their replacement value. Replacement value is determined based on a valuation calculator used by the insurer. The amount of insurance typically automatically increases each year based on building cost inflation, which is measured in a manner determined by the insurer.
The amount of insurance selected on the dwelling is the basis for the amounts of insurance for other coverages that are provided: the insured’s property located in the building (contents), the value of outside structures (e.g., detached garages), and additional living expenses that are incurred in the event the dwelling is damaged. Additional amounts of insurance can be purchased. In some cases the amount of insurance for these additional coverages is a blanket amount that is frequently equal to twice the amount of coverage on the dwelling.
Type of Coverage - Standard, Broad, or Comprehensive
There are two basic types of personal property coverage: “named-peril” basis and “all-risk.” Named peril coverage provides coverage against losses caused by the perils specifically listed in the policy. All- risk coverage provides coverage against all types of loss, except for those that are specifically excluded in the policy.
The Standard Form policy provides named-peril coverage for both the building and the contents. The Broad Form policy provides named-peril coverage on the contents and all- risk overage on the building. The Comprehensive Form policy provides all-risk coverage on both the building and contents. Some insurers offer all three types of coverage, while others only offer the Broad and Comprehensive fo rms.
property located away from the premises; and coverage exclusions or restrictions may vary from company to company. Unlike automobile insurance, where the policy wording is legislated, personal property insurance policy language is not standard.
Tenant policies are typically offered on either a named-peril or all-risk basis for contents. Some insurers offer condominium policies on both a named-peril and all- risk basis, while some offer coverage on an all-risk basis only.
The type of cove rage offered for vacation or seasonal properties varies from very broad coverage (similar to homeowner policies) for the higher quality properties that are often used year round, to more limited coverage for summer cottages. Some insurers offer the limited coverage for summer cottages with the option of including or excluding the peril of burglary.
Eligibility for Preferred Programs and Rates
Risk must meet certain general eligibility criteria to be acceptable to the insurer. General eligibility criteria include such elements as:
• General quality and maintenance of the dwelling
• Attached, detached, or row housing
• Age of dwelling; typically less than 25 years is suggested unless electrical, heating, plumbing systems and roofing have been updated
• Number of families: a surcharge for over 2 families is common
• Approved heating system
• Claims history: preferred programs often must be claims free in last 3 years
Some insurers list the risks that they will not insure. Some examples include:
• More than 25 years old without updating
• Vacant properties
• Building with more than 4 rental units
• Risks with known or questionable moral hazards
• Non-standard heating as the main source of heat
• Risk with underground oil tanks
• Outbuildings not structurally sound
• Log construction
• Built before 1900
Some insurers list the risks that must be referred before the broker can bind or offer coverage. Some examples include:
• Losses in the last 5 years
• Risks with knob & tube wiring, galvanized steel plumbing, 60 amp service
• Century/heritage homes residence in unprotected areas
• Risks without previous coverage or gaps in coverage
are hydrant protected, for a single family, and without any claims in the last 3 or more years.
Eligibility for Discount and Surcharges
All insurers offer a variety of discounts, each with specific eligibility criteria. Some examples of the types of discounts offered by insurers include:
• Home Security (5%-10%)
• Mature Applicants (5%-10%)
• New Home (from 1% to 15%; generally decreasing as the home ages)
• Claims Free (5%-15%)
• Mortgage Free (5%-15%)
• Other Insurance with the Company (5%-10%)
• Non-smoker (5%)
• Electric or preferred heating (5%)
• Inside Oil tank (5%)
• Long–term client (5%)
• Living in Same Residence for a Certain Number of Years (10%)
• Quality Older Home (5%)
Most insurers limit the cumulative discount to 35%-40%.
Inadequate heating system is the most typical surcharge applied by insurers. Some insurers have large surcharges for those risks that do not meet their definition of an approved heating system, while other insurers instead choose to not insure such risks.
Most insurers do not insure risks with underground oil tanks, and often have age and steel grade criteria for risks that are above ground to be acceptable. Wood stoves must meet specified safety standards, and risks with woodstoves are frequently surcharged.
Rate Levels
As insurers differentiate themselves based on the coverage provided, eligibility criteria for programs, and by the discounts they offer, it is difficult for an insured to compare and evaluate cost and coverage among insurers. As an example, while an insured may wish to purchase a “Comprehensive” policy, one insurer’s Comprehensive policy may provide coverage for lock replacement up to $1,000, while another insurer’s Comprehensive policy limits lock replacement to $2,500.
Another difficulty for insureds in comparing rates are the definitions of fire protection and rating territory. Definitions vary from company to company. For example, some insurers define firehall protection being within 5 miles (8km) of a firehall, while others define it as being within 8 miles (13 km) from a responding firehall station. Hence, the rates for a homeowner who is located 6 miles from a firehall may vary significantly from insurer to insurer.
As an example of the varying rate levels among insurers, the premium (before any discounts) for a house in Truro that is insured for $200,000, with Comprehensive coverage, on the building and contents, is hydrant protected, and is eligible for the preferred rating program, varies from $846 to $1,102.