Historic or Brand New -It’s a High-Valued Home Sweet Home

It’s spring home-buying season, and realtors throughout California are reporting that despite interest rate fluctuations and a seesawing stock market, the real estate market is hotter than ever.

From Ventura to Riverside, buyers are paying top dollar for houses and condos, according to figures supplied by Acxiom/Dataquick Information Systems Inc., a real estate research firm based in La Jolla. As a result, the homeowners market for insurers- particularly in the high-value area-is faced with increased competition.

“Surprisingly enough, in this country we only have a few major carriers that are really interested in writing old houses and large, high-priced houses,” said Lois Schapiro, assistant vice president of Hilb, Rogal and Hamilton Company (HRH). “It’s not that the others can’t write them, because anybody can write the policy. The key point is that not everyone knows how to handle the claims.”

The Chubb Group of Insurance Companies and Fireman’s Fund are the two primary carriers for both historic and high-valued homes. Chubb offers its Deluxe Homeowners policy through its Masterpiece product line, while Fireman’s Fund has its Prestige Plus Homeowners product. “Whether it’s old houses or new larger houses, they both offer the guarantee, the extended replacement costs, which actually gives you back your house, not any old house,” Schapiro said.

Standard vs. replacement
One type of standard homeowners policy (HO-8) is designed for older homes with historic value, which will cover the cost for standard repairs, but not the replacement cost. Replacement cost is the amount of money one would have to spend to replace a home with another of like kind and quality on the same site where the original home was destroyed. Actual cash value (ACV) is the replacement cost less depreciation. To determine ACV, the general condition, repair, and character of the home are taken into consideration.

“A homeowners policy is a contract like every other contract, and when it says replacement cost, it’s not a market value policy,” Schapiro said. Many houses today are worth more in replacement than they are in market value, which is why Schapiro stressed the importance of having the agents knowledgeable on these types of policies.

“When they say replacement cost in some incidences, like your Allstates and your State Farms, what they are saying to you is that they will give you back a house-they aren’t going to give you back your house. Instead, for $100,000, they’re going to give you a house, and that’s where the big difference is,” Schapiro said.

Direct writers such as Allstate, State Farm and Nationwide spread their risks by signing up huge segments of the market. The problem, according to Schapiro, is that most companies write a standard homeowners policy for an historic home. “These companies will not write any type of replacement on a home over 60 years old,” Schapiro added.

Building market share
Chubb began offering its Masterpiece program back in the ’80s. “It was an attempt to revolutionize the way personal lines was done,” said Mary Ann Avnet, vice president for the marketing and sales department of Chubb’s personal lines division. “When the Masterpiece program was originally introduced, the concept was that you take the broadest coverages that people would normally add by endorsement and you actually incorporate them into the policy.”

Chubb stuck with its philosophy and created one form-an all-risk deluxe house form-to cover all types of houses, from a primary residence to a secondary residence to a rental property. (Although Avnet noted that the Texas form and the North Carolina form were a little bit different.)

Like its biggest competitor, Fireman’s Fund created Prestige Plus in the early ’80s as a product for the affluent, high-end customer. “Prestige Plus is a Fireman’s Fund form as compared to an industry kind of form,” said Joanne Paben, senior product manager for Fireman’s Fund. “It’s something we are very proud of.”

Since its inception, Paben said that Prestige Plus has undergone several re-writes-mainly in response to the changing economy. “The coverage is broader, we have higher-than-average limits, and there are deductibles and options to choose from,” she said. “So it’s sort of custom-tailored coverage for each individual’s particular needs.”

Historically speaking
The two leading carriers specialize in both high-value and historic homes. “For us, one of the things that I think makes our policy attractive to consumers is the fact that we are willing to write insurance on a replacement cost basis-even for older or historic homes, and definitely for homes that have customer-unique features in them,” Chubb’s Avnet said. “It’s very common for a lot of our customers to have spent a great deal of time with architects and individual designers, and they want to make sure that should something happen to their home that they can put it back exactly the way it was.”

If a house is on an historic register or part of an historic district, organizations such as historic district committees might have extensive control over how repairs are made. “Even if it’s not registered, a person who has a home like that wants to know that they can have the same size floorboards if they need to be replaced,” said Paben (Fireman’s Fund). “Basically, you want to make sure that you can put things back the way they were, and that often means that you not only have to find the right materials, but you have to find the right artisans to work on them.”

The key to insuring homes on an historic register from the customer’s standpoint is to get an accurate replacement cost, according to Paben. In fact, she feels that the task of developing replacement cost on an historic home-particularly those on a local or national registry-is complex, but can be done.

“You just have to bring in an expert to handle it, and he or she has to have knowledge of what the requirements of the registry are,” Paben said. “If you are replacing something that is 100 years old, it’s much different than replacing beautiful Italian marble that was brought in 10 years ago.”

Service with a smile
The cost to reproduce a home is much more significant when it’s an older home-which is why residential consultants are such an important part of the Fireman’s Fund culture. “Our consultants are Fireman’s Fund employees who are trained to go out and take a look at the house,” Paben said. And if the home is a fixer-upper, Fireman’s Fund will have resident consultants out surveying the scene, advising the customer on temporary alarms and/or other safety features that would minimize any kind of loss during the renovation.

“Renovation is a higher risk kind of situation from normal living…we all know the oily rag story,” Paben said. “The customer really should volunteer to increase his or her coverage at the time that they’re increasing the replacement cost of their home.”

In addition to the residential consultants, Fireman’s Fund also has an experienced claims department. “They don’t flinch at the multi-million-dollar painting or home, or the high-end building materials,” Paben said. “It’s part of their experience.”

In order to stay abreast of its competition, the Fireman’s Fund claims department subscribes to Old-House Journal. “This way, when they go into an older home, they can identify areas that may need higher limits than perhaps the homeowner realizes,” said John Kozero, public relations director for Fireman’s Fund.

Chubb, on the other hand, has its own appraisers who work as part of the personal lines division. With the help of these appraisers, the company is more comfortable with its ability to set the right value. “And consequently, we do provide guaranteed replacement cost-even on older homes,” Avnet said. “When you mention historic homes, there are many companies who have introduced various kinds of extended replacement cost or guaranteed replacement cost, but sometimes they’re uncomfortable when a home is more than 50 years old.”

Standard policies may also send an appraiser, but the value they place on the home is based on room count, square footage, type of construction and determined from a database of prices in today’s new construction.

Picture this
In addition to sending out an appraiser to place a value on the unique features of the house, HRH’s Schapiro recommends that homeowners videotape their home, both inside and out.

The residential consultants at Fireman’s Fund furnish every customer with a pictorial record of their home. Within the last year, Paben said, they converted the process from 35mm cameras and film development to digital technology.

“In the past, customers would store the photos in a safe deposit box, so if there was a loss, it would be very easy for the adjuster to work with the homeowner to provide full value,” Kozero said. “That way the homeowner wouldn’t forget certain elements that could be worth an awful lot of money when it comes time for a claim.”

“Now the photos are processed online and stored electronically,” Paben said. “So access to them is much more convenient.”

By photographing each house, residential consultants sometimes find a high-end home, due to its size and/or interior construction materials, that approaches a commercial-type situation. “Maybe the air conditioning system or sprinkler system or some of the construction features are almost of commercial quality,” Paben said. “That goes beyond what a personal residential consultant can do, so we get our commercial loss control people involved, as they are the experts in that area.”

Options for claims handling
Chubb believes that at the time of loss, the customer should have a choice. “They can have exactly what they had before, they can have something different, or they can take the cash and do with it as they choose to,” Avnet said. “So we really support the idea of consumer choice.”

The ultimate goal, Avnet said, is to make sure that the coverage is adequate so that if the customer wants what they had before-particularly if there were unique features-they’ll have enough money to restore the home to its original condition.

According to Paben, water damage from either plumbing leaks or storms are the typical claims that Fireman’s Fund faces. “Interior plumbing, water from the outside, [water] from the condominium above…rarely are those losses hugely damaging, unless perhaps the home is unoccupied and the water heater busts,” she said.

Another example of a possible water threat would be a washing machine located on the second floor. In this type of situation, a Fireman’s Fund resident consultant would carefully evaluate the situation in an effort to prevent a future loss. “In our loss analysis, we’ve found rubber hoses to be a problem,” Paben said. “They carry metal-mesh hoses with them so that if they see that there are rubber hoses that connect the water supply to the washing machine, they suggest that the customer replace them with the metal-mesh hoses.”

Insuring the valuables inside
Both historic and high-value home policies tend to have higher limits for things such as jewelry, cash, fine art and computers. Others include sewer back-up coverage and a replacement-value cash option.

Chubb is in the process of rolling out, state-by-state, a series of coverage enhancements at no extra charge that “liberalize the coverage in the Masterpiece policy to make it even broader.”

In addition, Avnet said that the company has broadened its coverage by introducing identity fraud coverage. “To my knowledge, we are still the only company that automatically includes that in their homeowners form,” she noted.

Chubb is also one of the largest insurers of personal jewelry and art collections. “We’ve built into the form the ability to actually guard against fluctuations in market value right before a loss,” Avnet said.

For example, a particular artist might be extremely popular at an auction or maybe a certain type of jewelry is all the rage. These products are insured for what they were appraised for two or three years ago.

“We have value guard protection that will actually allow us to pay more than what it was insured for,” Avnet explained. “This is a nice feature for a serious collector-or even someone who just values their jewelry. It helps to give people a little bit of additional peace of mind.”

Collectibles are becoming more and more popular these days. “The range of collectibles is kind of astonishing… sports memorabilia, vintage wines, carousel horses…and the values,” Paben said.

Fireman’s Fund recommends that fine arts be covered under its schedule valuable possessions endorsement. “The coverage is on an agreed value basis,” Paben said. “Another feature of that contract is, if at the time of loss the item has increased in value, we’ll pay up to 150 percent of the agreed value to match the market value.”

Home is where the heart is
Companies need to offer exceptional value in order to capture a share of this particular market. “Because there is so much competition in the personal lines area today and there are so many companies that are competing on the basis of a commodity-type pricing, we have chosen to differentiate ourselves by competing upon the value of our products and services,” Avnet said.

There is no doubt that this type of policy costs more than an ordinary homeowner policy. “Yes, it’s a little more expensive, but then again, you’re paying for something that can be invaluable to you and might not be available anywhere else,” Kozero said. “The economic times have been very good to the country and very good to the Fireman’s Fund homeowners policy.”

While the premiums run higher than standard homeowner policies, they can save thousands in the event of a loss and protect that high-valued home sweet home.

Topics Profit Loss Claims Homeowners Construction Chubb