Estimating home-insurance cost a job for experts, not novices
Published:Sunday | August 29, 2010 | 12:00 AM
Question: What is the best company from which I can obtain insurance coverage for my two homes in St Ann? I do not currently have any insurance and need to rectify this situation as soon as possible. I have looked into a few companies, but have not found one that will deal with me professionally and fairly.
When I ask for quotations, I've found that they tend to ask the value of the houses, and then they give me quotations based on values higher than the amounts that I gave. Those values appear very arbitrary. I need to find an agency that will be fair and whose employees are professional and polite. I reside abroad.
Answer: I contacted you over three weeks ago after I received your mail. I gave you the website addresses of two insurance companies where you could get information about the type of coverage available for your houses.
I did not recommend that you buy from those companies. I am not in that line of business. I offer advice and information to consumers to guide decision-making.
If I made suggestions about which insurers you should use or not use, my motives would be subject to many questions. It is your job to decide whether the employees of the insurance companies are competent, treat you fairly, and will handle any legitimate claim that you submit quickly and professionally.
You have not replied to my request for details about the specific location, construction, and the new replacement values of your houses. I am, therefore, unable to obtain cost estimates for insuring them and to analyse the data on your behalf.
Because of this, I will use the rest of this article to discuss how the insurance values of houses should be calculated, which, I believe, is at the root of the problem you wrote about. This is a topic that many persons choose to ignore when they discuss the much- hated average clause.
There is a big difference between the market value of a house — the price of the land that the house occupies plus the price of the house, if it were sold today — and the replacement cost of the house — the costs to repair or replace the building if the house was badly damaged, or had to be rebuilt.
Many persons, most of them with no experience in the building industry, think that the replacement cost should be the amount they tell the insurance company.
The failure of many insurance company/broker employees to properly explain the differences between the two sets of values, or the failure of the part-time construction industry 'experts' to recognise the error of their ways, or the combination of the two, leads to false expectations and many problems when claims arise.
House-insurance contracts are written in such a way claims are settled on the basis of what experts in building industry say about replacement costs — and not on the opinions of novices.
While the market prices for many local houses may have suffered declines during the past several months because of what is happening in the economy, construction costs have, in all probability, gone in the opposite direction.
Many things contribute to the increase in construction cost. These include:
- Price rises in building materials such as cement, steel, sand, gravel and lumber;
- Increases in local and overseas transportation costs;
- Increased labour costs;
- Depreciation in the rate of exchange between the local currency and the US dollar;
- Imbalances between the demand and the supply of building materials.
Much in the same way that motor-vehicle repairers tend to charge more to repair a vehicle where an insurance company is involved, building contractors tend to do the same thing when they repair or rebuild a single house.
In the event of a major catastrophe - as happened with Hurricane Gilbert in 1988 - labour supply/demand imbalances can also cause labour costs to rise sharply. Calculating the replacement or rebuilding costs is a full-time job for professionals.
Many of the consumer-insurer disputes can be avoided by getting a replacement cost valuation from an accredited professional before buying insurance. The valuation should be revised at regular intervals. The relatively small investment that is required to get a proper valuation will be worth many times more than the hassles that you will encounter, and the damaging effects of the average clause.
Major risks
Many persons ignore the major risks to which their houses are exposed.
Here are two facts. There were 34 earthquakes of magnitude 5.0 or greater in the Caribbean region during the first six months of this year, according to US Geological Survey. A study that was published two weeks ago indicated that in the case of hurricanes, climate change could significantly increase Caribbean hurricane risk and raise annual expected losses by another one-three per cent of GDP for some Caribbean countries by 2030.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance.aegis@cwjamaica.comSMS/text message to 812-7233
- Consider this!
Acquiring insurance or retaining the services of a lawyer may never top one's list of things to do when starting a business.
The two are generally conceived as expenses you would rather incur only in the time of dire need -like a hurdle you cannot get around, as in the case of motor insurance where it is required by law, or when being sued or hauled before the courts by say, the Government for taxes.
But that mindset is wrong, according to Elizabeth Chung, marketing manager of Jamaica International Insurance Company (JIIC), and Graceann Cameron, a Kingston-based attorney, speaking at a seminar on risk management, held in Mandeville.
"People generally don't think about risk management or the extent to which they are legally exposed until after the fact," said Cameron.
"The fact is that you can get an attorney to reduce the way you are legally exposed. We are moving in a new paradigm where people are more litigious-minded, and you can never take the threat of being sued lightly."
Legal exposure
Merelyputting up signs explaining likely risk scenarios for the public does not insulate the business against legal exposure, Cameron said.
Her law firm, which has now branded its offerings as "The Corporate lawyer", is working with the JIIC to inform small businesses about legal-exposure assessment, incorporation, and company law matters, general legal advice, preparation and review of legal documents, civil litigation, criminal proceedings, and labour relations.
All businesses, she believes, must do a risk assessment, and know the extent to which they are legally exposed.
Chung, whose company was hosting its third insurance-related seminar since the start of the year in Mandeville, made her case for insurance given the vulnerabilities of both the physical and economic climate in Jamaica.
Nothing, she says, is guaranteed. But: "When you have insurance, you don't have to start from scratch," Chung said.
- Richard Bryan