Habitational properties get closer to home

While catastrophe scenarios like earthquakes, mudslides or hurricanes capture most of the headlines, social, economic and investment trends continue to impact habitation, offering excellent opportunities for alert, knowledgeable agents.

The first area to consider is vacant property (dwelling-fire). Long relegated to the personal lines “back burner,” the residential vacant property class is now more front-and-center on the radar screens of both admitted and non-admitted carriers. The reason is obvious. Besides considering the traditional excellent loss experience in this class of business, look around many neighborhoods — due to overbuilding, sales slumps and continuing mortgage issues, foreclosures and qualifications — even the most well-heeled of communities will have more unoccupied homes than usual.

This category includes homes for sale past the unoccupied time limits of conventional homeowners (HO) and dwelling policy (DP) homes that simply don’t sell or can’t be rented, homes in probate, and newly constructed builder’s inventory that languishes on the new home market. The overall trend: more higher-value properties requiring dwelling-fire coverage, as opposed to the more regular lineup of older, less fit properties in mature urban areas, including those awaiting gentrification. The better quality homes, including those just hammered and nailed, are generally excellent fire risks due to quality of construction, attention to fire retardant materials, in-home alarm and sprinkler systems, etc. Underwriters may also start looking at writing new or expanded types of coverages for vacant properties (including through DP3 Form), more like the replacement cost-like features available with conventional HO, as opposed to straight actual cash value (DP1 Form).

There is a season

This discussion of vacant properties naturally leads to a discussion of rental and seasonal properties. In addition to the unique situations that many of these properties have always presented to the agent, several trends are driving this class.

At one end, until housing and mortgage marketplaces stabilize, we can expect more people renting homes for longer terms. This is not the case only in those areas where home rentals have generally been more prevalent, whether due to stellar home prices or a more transient, corporate-driven population in general (i.e., the southwest).

On the other hand, second (and more) home ownership as a vacation retreat or for investment purposes continues, with even higher-net-worth individuals these days looking to drive some income through part-time rental of the home. The competition to secure the services of the best property management to rent and oversee these homes is stiffer than one might imagine. As a result, leading property managers are imposing stiff conditions on insureds. Lately, we have seen property management companies asking to be listed as an additional insured on the home’s policy.

The non-admitted market is responding with appropriate coverages, as it has for homes with deeds under a corporate entity (LLC ownership is more popular than ever for tax-saving-conscious individuals), or where the admitted market excludes business-related (i.e., seasonal rental) activity.

Finally, new flavors of property types keep emerging, one of the latest being what’s known as “condotels”: condominiums located within traditional hotels. Once the province of luxury hotels in touristy areas or city centers like a New York or Chicago, the concept is expanding. Examples include university towns where visiting parents enjoy the convenience, comfort and investment potential, or areas where there are clusters of corporate headquarters. It may be more efficient and less expensive for a company to own a condo for the purpose of housing those who are on short-term assignments at headquarters than paying nightly room charges.

Underwriters respond

The non-admitted market is answering the challenge of this new personal lines property environment, where residential habitation has, in essence, become more commercial-like, whether due to its rental status or the entity structure under which ownership is held. In addition to the coverage conditions already cited, another example is the introduction in several states of a homeowners product that includes liability coverage for short-term rentals. Coverage can include personal ownership, LLCs or corporations. The product can be written with actual HO3 in a secondary home and includes liability at a named location. It covers the short-term rental exposure and is an excellent product for those who own a secondary home that is rented to others during seasonal vacation times, but in which the client otherwise resides as a secondary residence.

The non-admitted personal lines market is also stepping up to the plate in select catastrophe-prone areas with expanded capacity for exposures like earthquake, fire or DIC, even where the risk is high (e.g., Hawaii and California).

By staying knowledgeable in ownership and use trends, as well as the full range of products available in both admitted and non-admitted markets, the individual agent can offer an invaluable service to his or her clients.

Home sweet home isn’t as simple as it used to be, but with proper coverages in place, it can be as well protected as ever.

Topics Property