If you shop around and review the coverage you need, you should be able to reduce the cost of insuring your property
By Olev Edur
Turbulent weather has become a sign of our times, and one consequence, undoubtedly noticed already by many retirees, has been a sharp increase in home insurance costs in recent years.
According to a report from the Insurance Bureau of Canada (IBC), damage claims from floods, wind-storms, ice storms, and tornadoes totalled $1.9 billion in 2018; that amount averaged about $400 million a decade ago.
“In the last 10 years, that figure has jumped on average to about $1 billion a year,” said Pete Karangeorgos, the IBC director of consumer and industry relations for Ontario, in an interview with CBC News when the report was released this past summer. “2018 actually saw a record payout.”
These increasingly troublesome and costly weather-related events are making home insurance more important than ever before—and they’re also making coverage more expensive.
While there’s little you can do about the weather, there are some measures you can take that may help minimize the impact of those inexorably rising premium costs.
For starters, as with most things, it usually pays to shop around when the time comes to renew your policy.
“There can be major differences when it comes to coverage between insurers,” says Ryan Kirk, the vice-president of distribution for eastern Canada at Surex (surex.com), an online brokerage firm based in Magrath, AB. “For example, some insurers may not offer water damage or overland water coverage in certain areas, while other companies may offer full limits for that coverage and for a much lower premium. Some companies may also cap the limit for specific coverages, while other companies will offer unlimited coverage.”
And while it may seem that your options are limited because there are only a few property/casualty insurance companies from which to choose in Canada—after all, you only ever hear about a few in the news or from advertising—IBC data shows that there are more than 200. Although some are relatively unknown in the public domain, that’s a pretty big selection pool. (If you aren’t familiar with a company, you should always check out its financial stability and track record before sending it your money. The federal Office of the Superintendent of Financial Institutions (OSFI—osfi-bsif.gc.ca) regulates the solvency and financial soundness of most property insurance companies, while provincial Superintendents of Insurance license the companies and regulate their products and market practices (underwriting, rating, claims, and marketing). Their information is publicly available, and additional information can be gleaned from Google searches.)
Another way to shop around is by using a broker dealing with many companies’ products (such as surex.com, compareinsurancesonline.ca, and squareoneinsurance.com in British Columbia, and brokerlink.ca in Ontario and Alberta, to name a few online alternatives; bricks-and-mortar brokers also have offices in most jurisdictions). Because they are in regular contact with a variety of insurers, these brokers will often provide more detailed insight into available products and services, and how they compare to their peers.
Types of Policies
As for the policies themselves, while there can be virtually unlimited variations, all policies can initially be viewed as either “comprehensive” or “named perils.”
Comprehensive policies (sometimes called special or all-perils policies) are designed to cover any loss that is not specifically excluded. Limitations may apply to certain perils, though, and exclusions can vary from policy to policy, as well as from insurer to insurer. These are the top-of-the-line models and can provide the greatest peace of mind, albeit at a cost.
Conversely, as the name suggests, named peril policies (which may be called broad, standard, basic, or no-frills) are designed to cover only those perils that are specifically included. If it isn’t listed in the policy, then it isn’t insured. These types of policies actually represent a wide spectrum, ranging from broad policies that cover almost as much as comprehensive plans, to no-frills plans that cover only the bare essentials (and may be the only option if your home doesn’t meet certain construction or safety standards normally required by insurers).
So if you currently have a comprehensive plan and are looking for savings, the first option to consider may be a switch to a named-perils plan. You’ll need to work with your representative agent or broker to ensure that you aren’t giving up any coverages that you consider essential, but even if you opt for a broad policy, the savings can be substantial.
“I would say that a broad, non-comprehensive policy would run anywhere from five to 15 per cent cheaper than a comprehensive one,” Surex’s Ryan Kirk says.
The same principle applies if you have a named-perils policy: by reducing your coverage in certain ways, you may be able to reduce your costs and still be able to acquire satisfactory protection. Make a list of exactly what you need and work with your broker to see if there is any fat that might be trimmed without jeopardizing what’s important.
Generally, named-peril policies cover damage or loss of your home and possibly outbuildings such as sheds and stand-alone garages, as well as damage, theft, and loss of personal property, and personal property stolen from your car. A liability component will include damage and injury to visitors to your home, and accidental damage that you cause to someone else’s property. But if you don’t have a car, for example, then you may be able to save a bit by deleting that portion of your coverage.
Another cost-saving policy adjust-ment worth considering is an increased deductible. After all, the primary purpose of home insurance is to protect you from catastrophic losses, rather than to provide compensation for minor ones.
“It would depend on the deductible amounts, but if, for example, you choose a $2,000 deductible rather than $500, you would save a significant amount,” Kirk says. “It also depends on the company and the province, but the savings [from a higher deductible] could be anywhere from $100 to $500 a year.”
Your Home and Its Features
The bigger and more expensive your home, the higher your premiums will be. So, for example, the compareinsurancesonline.ca website notes that home insurance premiums are the most expensive in British Columbia at an average of $1,000 a year, slightly less expensive in Ontario at an average of around $900, and in Quebec, they’re a little under $850. Not coincidentally, the Canadian Real Estate Association July 2019 price survey found that average home prices were the highest in British Columbia ($682,807), slightly lower in Ontario ($596,545), and lower still in other provinces including Quebec. Insurance provider Square One, which is based in BC, also notes that home insurance is more expensive in that province due to the higher earthquake risk.
In addition, certain features—such as wood stoves and swimming pools—may add to the cost of insurance due to the potential hazards they present, often without adding much if anything to a property’s market value. Insurers may also consider factors such as the distance between the home and a fire hydrant or fire station, as well as the crime rate in your neighbourhood.
While you can’t do much about provincial house price variations or fire-hydrant placements, and you probably wouldn’t want to fill in your pool just to save a few premium dollars, there are plenty of other things you can do with your home to help keep insurance costs as low as possible. In particular, you should think about safety: if something makes your home safer or more secure, then it is likely to lower your insurance premiums.
So, for example, Patricia Sagl, the director of personal lines at Intact Insurance, suggests that you implement fire, theft, and water damage preventive measures wherever possible. “These can include but are not limited to installing alarm systems, water sensors, backwater valves, alarmed sump pumps, and tankless water heaters,” she says. “You should also be performing regular maintenance to your electrical, plumbing, and heating systems and your roof.
“The materials used for roofing and the exterior finishing of a home help to determine how it will stand up to severe weather, especially when it comes to wind- and hailstorms,” Sagl adds. “These materials are an effective way to mitigate damage from windstorms and hail, as well as to reduce your premiums.”
If you do make any home improvements, regardless of how seemingly minor they may appear, make sure to notify your broker or insurer. In some cases, changes can result in premium reductions or discounts; in other cases, your home’s value may go up, which can also impact your coverage.
Maximizing Your Discounts
On top of reductions or discounts stemming from improvements to your property—such as those for installing burglar alarms or sewer back-up protection devices—most insurers offer a variety of other discounts. The following is a list provided by Surex of those that may be available to you:
• Bundle discount (if you buy home insurance as well as auto insurance, for example, from the same insurer);
• Credit discount (insurers may now consider your credit rating in calculating premiums);
• Mortgage-free discount (some insurers offer a reduction if your mortgage is paid off, although ironically, credit-rating agencies may lower your rating if you aren’t carrying a mortgage);
• Age discount (as a retiree, you probably qualify);
• Loyalty and renewal discounts (it can pay to stick with the same company);
• New business discount (some insurers offer this incentive);
• Smoke-free discount (lower risk for fires);
• Gated community discount (lower risk for burglary or vandalism).
There are others, as well. All insurers offer claims-free discounts: the longer you go without making claims on your insurance, the better your premiums will be. Conversely, making a claim can result in a premium increase of as much as 20 per cent, although some insurers will provide forgiveness on a first claim.
“These discounts can vary based on the company and province,” Kirk says. “And they are cumulative, although there’s often a maximum total discount. And some discounts are available only on certain types of coverage.”
A Few Final Tips and Suggestions
While the foregoing are all possibilities for reducing your home insurance costs, there are certain instances in which you should definitely avoid cutting corners.
If, for example, you’re planning to rent out some or all of your home, either on a long-term basis with an apartment in the basement or temporarily through an agency such as Airbnb, make sure you let your broker know—the additional premium costs should be relatively small, and there are plenty of examples online illustrating the potential cost to homeowners of not doing so: the tenants caused extensive damage, leaving the homeowners with tens of thousands of dollars in out-of-pocket repair bills.
You should also review your policy every year and make sure the description of your home and the amounts of coverage are up-to-date. “Your homeowner’s insurance coverage should accurately reflect your home’s current value and condition, including any major improvements or purchases,” Sagl advises.
In addition, if you are con-templating a switch to another insurer, don’t do it before the end of your policy term. “If you wait until your policy is renewing, you may be able to avoid a cancellation penalty,” Sagl says.
Finally, Kirk suggests that you look at whether there are some savings to be had by paying the annual premium in full rather than stretching it out with monthly instalments. In some cases, insurers will charge you for the added bookkeeping, as well as interest costs.