No clouds in the forecast on home insurance

Cedric Stephens, Contributor

I changed the roof on my house during last year from wooden shingles to alu-steel. Would you recommend that I revalue the house before I renew the policy?

- N.W., Mandeville, Manchester.

HELPLINE: Roofs play very important roles in the protection of buildings. Once a roof is broken, or weakened, the building faces even more risks.

Tim Reinhold, chief engineer at the Insurance Institute for Business and Home Safety, an independent, non-profit research organisation based in Tampa, Florida, says the roof is the first layer of defence that wind (meaning storms and hurricane), hail (yes, we have hailstorms In Jamaica), and other hazards "really begin to act on" and that "in more than 90 per cent of hail or high-wind claims, there is a pay-out relative to the roof cover."

The cost of insurance for all buildings in Jamaica is partly based on the types of roofing materials that are used.

Some persons only think about insurance when it is time to pay the premium or to make a claim. They fail to link the various risks they face as car owners, parents, house owners, tenants, employers, employees, professionals, etc, and the risk assumption activities that insurers perform.

As a result, when it comes to making a decision about re-roofing a house, for example, issues relating to insurance are often overlooked. Is this oversight due to short-sightedness of consumers, insurers, the regulator or a combination of all three - or, is it a symptom of under-development?

I am saying, in a very roundabout way, that given our exposure to tropical storms, hurricanes and earthquakes, the subject of re-roofing of your house should have been raised with your insurance company (or me) much earlier.

The good news is that the unit cost of insuring your house, that is, the price for each $1,000 of value, should reduce by at least 6.25 per cent as a result of the new roof. One company with whom I spoke, indicated a rate of $7.50 for the new roof as compared to $8 for an old roof. Timber shingle roofs are more prone to fire damage than metal roofs.

REVALUE YOUR HOUSE

There are good reasons to revalue your house. The first is that the existing valuation will reflect the cost of the old roof. Also, the cost of building materials increased during 2013. Labour costs also went up. Data from the Bank of Jamaica says the average rate of exchange of the local currency when compared to the US dollar, declined by 14.4 per cent in 2013. All of these factors certainly would have affected the cost of rebuilding your house.

Valuations help insurance buyers to get accurate estimates of their insured values. Accurate estimates of rebuilding costs help consumers to avoid the penalties which are imposed under the average clause. These sanctions are imposed when the insured values are too low.

Since most property insurance policies are subject to the average clause, valuations help policyholders to collect more from insurers in the event of claims. The downside to this is that consumers end up spending more since higher insured values result in higher premiums.

If the roof of your house was damaged by a hurricane or windstorm, which was covered by your policy, and, assuming that your sum insured was accurate, 98 per cent of the claim would be paid by your insurers. Losses from natural catastrophes, defined as earthquakes, hurricanes and floods, are subject to deductibles (or excesses) of two per cent of the insured values.

The 2013 Hurricane Season was, according to The Washington Post, "the least active season" in 30 years.

Insurers and reinsurers breathed big sighs of relief when the season ended last November. This is likely to result in more stability in these markets and, possibly, price reductions for consumers.

Chances are that if you shop around, you may be able to get coverage at prices lower than those I have indicated. Happy hunting.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com