New ISO Homeowners Policy Form Update

The Insurance Services Office (ISO) has unveiled an update to its homeowners’ program. It’s the first update in 11 years, which is a good thing. It begs asking why it took so long, but that’s a question for another day.

In that update, a new policy form is introduced, the HO 00 14 – Homeowners 14 – Contents Comprehensive Form, which is an alternative for the HO 00 04 – Homeowners 4 – Contents Broad Form. This appears to be a good thing, but let’s dive into some details about this form and see if it truly is (or maybe more correctly, could be) a good thing.

Before we get into what this form does, we need to deal with where this form came from. According to IRMI, “the new HO 14 form grew out of a 2016 survey ISO conducted among millennials to understand their lifestyles, coverage needs, purchases of goods and services, and understanding of personal lines insurance.”

On the surface, we see that and think that at least ISO is looking to the consumer and asking the question, “How can we best serve you?” This is a question that more insurance companies need to be asking, rather than telling us that they know a thing or two because they’ve seen a thing or two. This kind of customer-centric approach to policy writing should lend itself to a policy form that speaks to a consumer that expects to have that kind of input into the world around them.

The problem comes in when we realize that it’s taken five years to come up with this form, which isn’t a major rewrite of a current form. It’s an adaptation of the HO 4. It’s not even an adaptation of the old edition of the form. It’s an adaptation of the new edition of the HO 4, which is another part of the homeowners’ program update.

Enough of that. How is the HO 14 different from the HO 4? That’s a good question. There are several changes, but we will key in on a few changes of particular importance.

First, we note a change in the Special Limits of Liability.

If you’re familiar with the HO 4, you know that the special limits of liability include some specific dollar amounts for certain types of property, including:

• $300 on money, etc.;
• $2,000 on securities, etc.;
• $2,000 on watercraft;
• $2,000 on trailers;
• $2,000 for loss by theft of jewelry, etc.;
• See the HO 4 for the rest.

On the HO 14, things are simplified, but could potentially be an issue for the insured. Here’s how the HO 14 reads.

A special limit of 10% of the limit of liability that applies to Coverage C is the total limit for each loss for all property in the categories shown below. This special limit does not increase the Coverage C limit of liability.

Without digging into the individual categories of property, we find that this is potentially a change in coverage for the insured. Rather than having a set amount of money for each type of property listed, these special limits are based on the total limit of insurance. Now the insured can keep more than $300 cash, gold, silver, platinum, coins, medals, script, stored value cards, and smart cards on hand. At first, you consider that many in the younger generations don’t carry cash like they used to, and this may be true, but this special limit isn’t restricted to only cash. It includes some of the gift cards that people give out today.

This might be a good change for the insured if they are aware of how much their personal property is worth. Rather than being a set limit, the insured needs to know the value of their personal property. This value will come into play again, but it is important for this.

Since this form is designed for people who are “more likely to live with their parents” and “more likely to reside in nontraditional households”, we conclude that several of these special limits of liability mean even less to them than they might to prior generations, which tells us that maybe this change isn’t going to be as important to them.

For example, the 10% of Coverage C limit for securities, accounts, deeds, etc. includes the cost to research, replace or restore information. Those costs might just be minimal since this generation is also adept with digital technology and may not have physical copies of those accounts, deeds, securities, etc. They might only have digital, cloud-based copies of them.

Another change has to do with how this generation uses their home. Because ISO learned that they are more open to the idea of sharing space with someone else if they’re not using it (for example, renting it via VRBO or Airbnb), this policy provides some coverage for the insured that has space available through home-sharing services.

Lost Rental Value of Home-sharing Host Activities

If an “insured” has entered into a contract or agreement with another person through the use of a “home-sharing network platform” for “home-sharing host activities’ for a specified period of time, and either:

a. A loss covered under Section I makes that part of the “residence premises” used for such “home-sharing host activities” not fit to live in during the period of time specified in such contract or agreement; or…

Read the policy for the rest, but it speaks of cancellation due to a hurricane. This is providing some coverage for loss of use of the residence as a listing on Airbnb. If a loss happens such that the spare room that the insured had already rented out can’t be used, or the reservation is canceled because a hurricane watch or warning is in effect.

This would seem to be a great additional coverage for those who use Airbnb to supplement their income. Given that there are over 300+ listings on both Airbnb and VRBO in the state of Florida (likely many more), that’s a coverage that could be well worth the premium. Keep in mind that this is included in the HO 14, an adaptation of the HO 4.

There’s one more change that needs to be brought up in the HO 14. I’ll quote the first sentence from the perils insured against in the HO 14 first, then the HO 4 so that you can see the differences.

SECTION I – PERILS INSURED AGAINST

HO 14 – We insure against direct physical loss to property described in Coverage C.

HO 4 – We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions.

The HO 14 is an open perils (special form) policy, while the HO 4 is a named perils (broad form) policy. You already know that a special perils endorsement has been available for the HO 4, but now it’s included in the HO 14. It’s one less thing to worry about checking the quote before presenting to an insured and it just better serves the needs of an insured.

How many insureds would wonder why there is one set of covered causes of loss for their home and another for their personal property in their home? This is a long overdue change, especially since the commercial property policies tend to use the same covered causes of loss for building and personal property in many cases. Of course, that’s a generalization, but you understood that.

There’s one more item that we should look at before we decide that the new HO 14 might be an improvement over the HO 4, the Loss Settlement condition. Again, we will quote the HO 14 and the HO 4.

HO 14 – Covered losses to the following property are settled at replacement cost at the time of the loss:

a. Coverage C…

HO 4 – Covered property losses are settled at actual cash value at the time of loss but not more than the amount required to repair or replace.

You might be getting ready to tell us that there’s an endorsement to fix that, and you would be right. But this new policy doesn’t need to be endorsed. Like the change in the perils insured against, this is a partial recognition that this is how the customer expects their policy to respond after a loss.

So, is this policy better than the HO 4?

It’s not so different that it should have taken so long to draft, approve, and file, but it’s certainly worth looking at and using. Of course, we haven’t begun to talk about the process that carriers will have to undertake to get approval to use the form (you’re going to remind me that ISO subscribers can simply file a “me too” filing with many states). In the end, yes it appears that this form may serve certain customers better than the HO 4.

Maybe.