Approximately 12.9 percent of residences, more than 17 million housing units, were vacant in 20151—many of which sit unprotected today. The window of opportunity for retail brokers and agents to speak to clients about Vacant Dwelling insurance is wide open. However, some brokers may think this coverage is difficult to sell for varying reasons, including a client’s lack of knowledge on what constitutes a vacancy, or even the temporary nature of the vacancy. Insurance Market Source identifies how to transition Vacant Dwelling coverage challenges into opportunities.
Defining the concept of “Vacant Dwelling”
Matthew Brady, Vice President and Regional Product Director, Personal Insurance, Burns & Wilcox, and Lisa Stout, Underwriting Manager, Personal Insurance, Burns & Wilcox, say a broker’s first step to providing sound guidance to a client is to help them understand when their property is considered vacant.
When considering vacant dwellings, typically, abandoned or unsold property is top of mind. In the eyes of the insurance industry, a vacant dwelling is defined as a home that does not contain enough furniture or appliances to provide comfortable living quarters to its inhabitant—plainly stated, it is a home that is unoccupied, but not necessarily completely empty.
The most common example of a vacant dwelling is a home from which a client has moved or a property that is between lessees for an extended time.
“If a client is moving, brokers should work with them to change their Homeowners policy over to a Vacant Dwelling policy if the house sits vacant past 60 days,” said Brady.
“A more delicate situation that calls for Vacant Dwelling coverage is if a loved one has taken ill or passed away,” said Stout. “If this person will not return to the dwelling, and the family wants to maintain – yet not occupy – the home, the property would require Vacant Dwelling insurance.”
Common challenges brokers face and risk mitigation tips
An estimated 28,000 vacant residential building fires result in approximately $900 million in property losses per year.2 Brady urges brokers to instruct their clients to install fire, water, or temperature alarms to help mitigate exposures.
Location plays an important role in Vacant Dwelling as specific risks need to be taken into account depending on where it is situated, such as northern communities or coastal areas.
“As temperatures plunge, the vacant home needs to be weatherized to avoid frozen pipes that may result in water damage in colder climates,” advises Donna Dodd, Vice President of Personal Insurance, Burns & Wilcox.
“For coastal exposures, it is important to check the property for wind damage mitigation, such as shutters, in the event of a hurricane,” continued Dodd. Not only will this aid in potentially reducing the amount of damage resulting from a loss, but it also could reduce the cost of the Vacant Dwelling policy premiums.
Certain locations, such as urban areas, are more prone to homeless individuals taking up residence in the dwelling. Vacant residential buildings are often damaged by squatters and thieves seeking copper and other materials to sell. Stout advises brokers to insist on burglar alarms to not only protect against vandalism but to also protect against squatters.
“Once a squatter moves into a home, the process to remove them is not much different than evicting a tenant,” said Stout. “And while the Vacant Dwelling policy may assist with any damage a squatter may have caused while in the home, it does not aid a home owner with any costs or responsibilities related to the eviction process.”
Stout cautions that this circumstance is why it is important to secure the home properly up front.
“It is prudent for a broker to know which perils are covered and those that are excluded,” said Dodd. “The excluded perils need to be thoroughly explained to the applicant, if there is not an alternative for adding coverage by endorsement.”
An uncommon, and often confusing circumstance, is one surrounding a dwelling that requires renovations before anyone can safely or legally take up occupancy in the home. Brady advises to purchase a Vacant Dwelling policy with a renovation endorsement on it.
“This will cover a client’s mortgage cost plus the renovation costs,” said Stout. “Without the renovation clause, in the event of a loss, renovation expenses would not be covered regardless of whether it is included in the total loan amount.”
“Another way this might be addressed is the broker could write the policy on a Homeowners form and only give coverage for the dwelling and renovations. Once occupied, the broker would add policy endorsements for the contents and other coverage applicable to an occupied dwelling,” said Brady. “This method assists brokers in retaining the client because they will not need to fill out another application.”
“Looking at the overall risk portfolio of a client is important and may lead to varying opportunities for brokers and agents to sell additional coverage,” said Stout. “A key indicator for a broker to explore would be if a client requests a new Homeowner’s policy for a home they just purchased. This may indicate that they have a home that is currently vacant or may soon end up that way.”
Some clients seek to avoid purchasing Vacant Dwelling coverage as it is more expensive than traditional Homeowner’s policies. In the case of a recently deceased loved one’s home, the family may not want to sell it right away. As a result, they may try to keep the home covered under a Homeowners policy. However, should any loss occur, carriers will not cover the damage costs upon learning it was vacant—thereby costing a client more than an increased premium.
Vacant Dwelling policies are available in three-, six-, nine- and, 12-month increments. If a client requests an extension, those are available depending on the circumstances.
“It is key for a broker or agent to be sure they are staying in touch with their client throughout the year to keep abreast of any changes in exposures,” said Brady.
Brokers and agents should make sure that every client understands what constitutes vacancy first and foremost. Many homes today sit unprotected as this coverage is less widely understood by clients.