March 6th - 2004

Pre-listing inspections may ease insurance woes

Alan Carson argues that if homes were inspected before they went on the market

Alan Carson argues that if homes were inspected before they went on the market, many of the issues surrounding insurance would be eliminated and everybody would be ahead.

It follows naturally that Carson, as the vice president of Carson Dunlop and Associates, a consulting engineering firm that is a leader in the home inspections field, should feel this way. But he makes some persuasive arguments.

Home insurance rates are rising dramatically, up 34 per cent in 2002, a year when insurers realized the lowest return on investment ever. Premiums are expected to rise another 15 per cent. Insurance companies, Carson says, are being very cautious, focusing on risk management, turning away bad business and not writing new policies. In some cases, homes that have been insured for years can’t get policies renewed.

In the eyes of insurers, there are a number of triggers that set off alarm bells (see accompanying list). Some of these triggers (grow houses for example) are clearly realistic signs of real, or at least potential, problems. However, there are others, says Carson, citing knob and tube wiring and 60 amp service, which are inherently safe. Insurers don’t like them simply because they are indicative of old wiring.

And that’s the crux of the issue: the insurance industry can’t afford to evaluate each house individually. As a result, the industry is proposing solutions such as removing the perceived, but not necessarily real problem, adding exclusions to the policy, premium surcharges, or steering the applicant to the specialty risk market.

These solutions can result in unnecessary expense and don’t serve the consumer, Carson believes. Better, he says, to implement higher deductibles in order to eliminate many of the small claims which result in large penalties for the claimant in the long term in any event.

However, the most elegant solution is to implement a system of pre-listing certificates, based on home inspections before the house goes on the market. This allows insurers to underwrite houses individually, relying on the inspection data. And improvements to be made can be built into the sale price and mortgage.

According to Carson, the trend in Canada is more and more in this direction, with most houses having inspections at one point or another. However, in terms of pre-listing certificates, the US is well ahead of Canada.

"By having the information available to all parties, a lot of conditions can be removed from offers. It makes life easier by taking much of the anxiety and frustration out of the transaction for all parties,” he says.

Here’s a list of top issues that ring alarm bells with insurers:

  1. Knob and tube wiring
  2. Oil tanks (buried ones  in particular)
  3. Wood stoves
  4. 60 amp electrical
  5. Aluminum wiring
  6. Galvanized steel supply plumbing
  7. 20-year-old furnaces
  8. Old roofs
  9. Grow houses
  10. Income properties
  11. Mould

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Senior Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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