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Underwriting Guidelines and Their Impact on Being Eligible for Homeowners Insurance A Homeowners Insurance Policy is unlike other consumer products in one very important way. If you walk into a TV & Stereo Store, for example, all the products on the shelves are available to anyone who wants them and will pay for them. The salesperson is more than eager to sell you the product as well. In contrast, insurance companies do not automatically offer a homeowners insurance policy to anybody who is willing to buy a policy from that company. Your ability to obtain a homeowners insurance policy from an insurance company is based upon your ability to qualify for that product based upon the insurance company’s “Underwriting Guidelines” for selling that product. Insurance Companies offering homeowners insurance typically have a business plan that targets a particular type of account. Each company has its own set of “Underwriting Guidelines”. Those guidelines are probably on file at the California Department of Insurance. It is unlikely you will find them posted at any website. Agents as well have a copy of those guidelines in their office. They must learn them and know when they are talking to a potential client whether or not the homeowner fits those guidelines. When someone calls my office for a homeowners insurance quote, the first step I take is to ask questions pertaining to the various underwriting guidelines that I have to work with. It does not make sense to spend time giving someone a quote, have it accepted and find out that for underwriting reasons, I can't offer the policy afterall! “Underwriting Guidelines” basically refer to not only the individuals who may wish to purchase the policy, but characterists of the property to be insured as well. Now that you may have a better understanding of the variations in coverges offered under the homeowners policy, you may say to yourself, I want to make a change and find a better homeowners policy to protect my home, contents and personal liability. However, in order to switch to another company, for example, to one of the quality carriers my agency represents, you will need to qualify for that policy. There are many issues that determine whether or not you may qualify. Below is a list of some, but not all, of the “Underwriting Guidelines” that may be used to determine if you are eligible for a policy from a particular insurance company: 1. Age of home; 2. Location of home; 3. Type of Roof; 4. Loss History: 5. Applicants Credit Score; 6. Type of Foundation; 7. Dwellings under course of construction or major renovation; 8. Type of Pets; 9. Alarm Systems; 10. Protection Class 11. Willingness to Insure for Full Replacement Value as Determined by the Company Age of Home Some companies require that if a home is over a certain number of years old, the roof, plumbing, electrical and heating systems have to be updated within the last 15 years. In addition to updating to these items, the home may need to have met minimum earthquake retrofitting guidelines. Location of Home There are locations all around the state of California that present a high fire danger. For example, certain portions of Los Angeles, Orange, San Bernadino, Santa Barbara, and Ventura Counties have been designated as “brush hazard areas”. Some companies will simply not offer to you a homeowners policy if you are in one of these designated brush areas. After the Oakland Firestorm in 1991, although there are no designated brush hazard areas in Northern California, some companies have driven through the Oakland-Berkeley Hills, parts of Marin County, Contra Costa County, and some areas of the Peninsula and have determined there are locations that present unacceptable fire risks and will not offer homeowners insurance in that area. For example, just recently I received a referral to a homeowner in the Oakland Hills. The insurance company I was hoping to write a policy with declined to offer coverage because it is in a location considered by the particular insurance company to present an unacceptable fire hazard. Some companies even utilize criteria related to the soil type and ground shaking intensity as a means to decline business. I had to recently decline offering coverage to another homeowner who lived in a high-rise condominium in Emeryville, CA that was located on a soil type that had a very poor rating. Type of Roof Based upon the location of the home, if everything else seems to look O.K., but the home has a wood shake roof, that may make the home ineligible. I have one client with a wood shake roof where I strongly recommended that when it was time for a new roof, it not be replaced with an new wood shake roof so I would have the ability to offer better coverage from other carriers. However, when the roof was finally replaced the client told me he decided to put on a new wood shake roof! This client lives in a high risk fire area. When I asked him why he did that, the response was it would have been out of character of the home to replace the roof with anything else! Some companies will decline to write your house insurance if you have a wood shake roof in what they consider a high risk fire area. Loss History Insurance companies, although in business to pay claims, want to overall have a clientele that presents a low probability of making claims. An insurance company can’t stay in business if over time its policyholders generate more claims than it collects in insurance premiums. Most companies have specific criteria on accepting new business where the policyholder has a “claims history” going back for anywhere from 1 to 5 years. In such instances, the applicant will simply be turned down for new coverage. My agency now has access to an insurance company that will consider applicants with prior losses, but surcharges the premium based upon prior claims experience. Credit Scoring For years, lenders have been using what is called “Credit Scoring” to determine the eligibility of obtaining a home mortgage. How one’s score is determined is usually considered proprietary information. The applicant is simply told based upon their score, their loan request has been denied. In the last few years, a major credit scoring company has come up with Credit Scoring for Homeowners Insurance eligibility. The applicant may have had no claims, not live in a high fire risk area, not live on unacceptable soil, but may score unacceptable on their Credit Score and be turned down for homeowners insurance. The theory behind the credit score I believe is that it allows the insurance company to determine the likelihood of the applicant being a profitable or unprofitable account. Type of foundation Some carriers will not insure a home if any part of the structure rests on piers or pilings Under Construction or Major Renovation If a home is under construction or major renovation, an insurance company may not offer coverage until all the work is finished and the house is ready to be occupied. Household Pets Some companies will not accept applicants who may have certain types of pets that are considered vicious or temperamental animals. Alarm Systems Based upon the value of the home, some companies will not offer a homeowners policy unless the homeowner has installed an approved central station fire and burglar alarm system. Protection Class Cities have been given protection class ratings of anywhere between 1 to 10 based upon the quality of the fire protection in that city or location. A protection class 1 is considered the best rating and 10 the poorest. I have talked to some homeowners whose primary residence is in a protection class 9 or 10. Their homes are miles from the nearest fire department. The nearest fire department may also be a volunteer fire department. There may not be any fire hydrants located near or on the premises. There may be a locked gate at entrance of the road leading to the residence. A home in such a location may find very few companies willing to offer a homeowners insurance policy. Insurance to Value Insurance Companies typically want a home to be insured for its full replacement value. If the homeowner is not willing to accept a value as determined by the company, the company may refuse to offer coverage. The above are just some examples, but not all of the many possible “Underwriting Guidelines” that can be used to determine if you qualify for a homeowners policy from a particular insurance company. David Shaffer Insurance Services © 2000 |
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David Shaffer Mortgage and Insurance Services
