Myth-busting: What you need to explain to your home insurance clients

Brokers, are your home insurance clients frequent filers? Of claims, that is.

That behaviour can be problematic, according to a report from LowestRates.ca. It may actually be worse than filing a single large claim for a hot-button loss related to flood, hail, or wind damage.

In fact, multiple claims filings over a short span of years can more seriously affect your client’s premiums than a single claim for weather-related problems or water damage.

“Frequent claims not only increase the risk of higher rates but can also make it more difficult to renew coverage with certain insurers, particularly in areas already considered high-risk,” the rate aggregator says.  

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To help clients make smarter claims decisions, brokers can address these factors, says Steven Harris, a licensed insurance broker who provides commentary for LowestRates.ca: 

• Claims can change coverage limits – payouts for certain claims types, like overland water or sewer backup, could cause insurers to reduce coverage limits or remove options for those coverages. What’s more, higher deductibles could be required for future policies.
• More claims change risk perceptions – filing claims over a short period can push up premiums or make it harder to obtain coverage. Clients with two are more claims are often viewed as higher risk, which can make renewals more difficult. 
• Location matters – when determining premiums, insurers consider geographic risk, including a home’s location in a wildfire or flood-prone area.  
• Sometimes, it’s best to pay for smaller losses – if repair costs are around the same price as the deductible, it may not make financial sense to file a claim. Paying out of pocket may keep long-term premium costs down.
• Consider coverage options – Certain insurers write ‘claims protector coverage,’ allowing clients to file a single claim without facing a rate increase. 

“Frequency matters just as much as the type of claim. Having two or more claims on record can label a homeowner as high risk, and that makes it much harder to find affordable coverage at renewal. Unlike auto insurance, which is heavily regulated, home insurers can decline to take on customers with too many claims, leaving some homeowners with very few options,” says Harris. 

Expensive misunderstandings

Meanwhile, Canadian homeowners continue to misunderstand what is or isn’t covered under their home insurance policies, says another aggregator, Rates.ca.

This failure to grasp policy details can lead to denied claims or out-of-pocket expenses clients don’t expect, says Daniel Ivans, a manager at Scoop Insurance Brokers who provides expert commentary for Rates.ca.

“Many homeowners do not discover the limits of their coverage until something goes wrong,” says Ivans. “Insurance is meant to provide peace of mind, but that protection only works when the details of a policy are clearly understood. Taking time to review coverage can help prevent costly surprises and make the claims process far less stressful.” 

He says he frequently hears a few incorrect beliefs during conversations with insureds.

First, he has heard insureds say everything inside the home is covered, whereas standard policies place limits — sometimes as low as a few thousand dollars — on fine art, jewelry and other high-cost items.

“To fully protect these items, homeowners may need an add-on or endorsement that lists them individually and increases their coverage limit,” the report says. “Without it, a loss or theft could leave valuable possessions underinsured, forcing homeowners to cover the difference out of pocket.”

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Second, clients may assume water damage coverage is broad and included in the standard policy, not realizing that coverage for overland water, long-term leaks, and sewer backup requires additional endorsements that must be added and paid for separately. Also, they may assume mould is covered, even though it’s often excluded.

Third, policyholders may assume routine deterioration like roof replacements are covered. “Claims linked to aging materials or poor maintenance are often denied because they’re deemed preventable,” Rates.ca says. 

Finally, fourth, many clients don’t understand that leaving their home vacant for 30 or more days can lead to insurance coverage being reduced or voided. “That means damage from fire, theft, or burst pipes could go uncovered,” the rate aggregator notes of the risks of absence. Plus, empty homes face increased risk of vandalism, undetected leaks, or other damage. So precautions like a vacancy permit may be required. 

“Home insurance needs can evolve over time, especially after renovations or major purchases,” adds Ivans. “Reviewing coverage regularly helps ensure protection keeps pace with changing needs and property values.” 

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.