How Home Improvement Projects Impact Homeowners Policies
Over the past year, the COVID-19 pandemic had us spending more time inside our homes than normal. Staring at the same four walls served as an impetus for many homeowners to take it upon themselves to make upgrades. Additionally, discretionary funds that, in the past, went toward traveling or dining out, found a new purpose in redefining the living space.
Reports show that more than 75% of U.S. homeowners have done at least one home improvement project since the start of the pandemic and the median spending on home improvements since March of 2020 was $17,140.
Most homeowners are unaware that home renovations often warrant an update to their homeowners policies. It’s vital that agents have a heart-to-heart with their clients and stay up to date on their most recent home improvement projects in the hopes of providing the best risk management advice and remaining competitive.
Many home improvement projects greatly increase the value of a home and demand more coverage. Upgrades can signal lower premiums and can lead to savings that will make your insureds very happy. All in all, communication is key when it comes to staying up to date with your clients’ home improvement projects. Here are some important considerations to be aware of when navigating this conversation with your clients.
Renovations that Increase Homeowners Rates
When an upgrade is made that changes the value of a home by more than 5%-10%, agents should be made aware of those alterations as they often result in a necessary update to the homeowners policy.
Examples of this may include building an addition, adding a pool, renovating a kitchen or finishing a basement.
A square footage addition, like adding a second story or expanding a garage, almost always increases the value of a home and therefore warrants increased coverage. As an agent, it’s important to inform your clients of their dwelling coverage limit and ensure it is adjusted properly following renovations so that enough coverage is in place.
Adding a pool could increase the resale value of a home, but it may also increase the liability risk. It’s imperative that clients are made aware of the risk associated with a pool-related accident and the responsibility they hold for paying damages if that were to occur. This is also a good time to talk to customers about the need for a personal umbrella policy.
Renovating a kitchen or finishing a basement may also increase the value of a home. The amount varies depending on what specifically is being done. For example, when adding granite countertops or new stainless-steel appliances in the kitchen, it is important that homeowners understand the need to increase their insurance coverage in case of loss to that addition. Additionally, if old plumbing or electrical wiring is upgraded as part of the renovation, homeowners may qualify for a discount as these modifications often reduce the chance of flooding, water damage or fire.
A good rule of thumb: If the cost to rebuild the home would increase after damage because of this renovation, then the agent needs to be informed.
Additions that Lead to Insurance Discounts
Home improvements don’t just increase premiums. Certain renovations may qualify a homeowner for discounts on their premium.
If a client makes improvements that add protection to their home — such as purchasing a generator, adding a home security system, putting in a smart thermostat or setting up water sensors in their basement — they could be eligible to receive a discount or credit on their homeowners policy.
These risk management behaviors are often rewarded through reductions in home insurance premiums. Agents should employ their expertise to ensure their clients get the most out of their discounts while making sure their home is insured appropriately.
Agents should make it a habit to send renewal questionnaires to clients that ask questions about recent remodeling. This way, agents are kept in the loop with changes that they might otherwise be unaware of.
Whenever agents have their clients on the phone, we also recommend they make sure to ask if there have been any recent changes or additions to their home. By checking in, it reminds the homeowners of the importance of keeping their agent updated.
Furthermore, agents can utilize email newsletters and social media to reach out around topics of home remodeling. We find that agents can answer questions such as, “How do I pick a contractor? What should I be concerned about with my insurance?” In addition, agents are welcome to repurpose content that Arbella provides on social media and share it directly with their clients as resources.
Lastly, it is also important to speak with your insureds during the right time of the year. In New England, renovations typically happen in the spring, summer and early fall, so it’s smart to check in specifically during those seasons. Homeowners greatly appreciate discussions around minimizing risk, as that is the value of hiring an agent.
These communication practices continually reinforce goodwill with your clients and bolster loyal relationships.
Ultimately, staying up to date with your clients’ purchases and home renovations is an essential routine. The end goal is to prevent your clients from not having enough coverage in the event of an unforeseen loss. In addition, if there are discounts you can offer your clients through certain upgrades, you’ll want to stay on top of that in order to remain competitive.
Homeowners buy insurance from an agent because they seek risk management advice. Therefore, it’s crucial for agents to cultivate meaningful relationships and provide the most relevant suggestions around home improvements and their impact on a homeowners policy.
Hyatt is senior vice president of Personal Lines of the Arbella Insurance Group.