Insurers reluctant to cover extra-risk properties

Some providers will insure unconventional houses, but at a higher price, writes Laura Slattery

The design speaks of individuality, freshness and eco-friendliness and there aren't rows or ribbons of identikit properties outside the door. But the insurance companies don't want to know. One flash flood, one wayward spark, and it could all be lost. Who could live in a house like this?

Thousands of Irish people do, and many have trouble securing home insurance for their properties. Any feature out of the ordinary that might pose extra risk - a thatched roof, a timber frame, a previous claim, a nearby flood plain - and homeowners can find it difficult to track down an affordable premium.

A home insurance survey published earlier this week by the Irish Financial Services Regulatory Authority (Ifsra) revealed that only three companies were prepared to insure an 80-year-old thatched cottage in Co Leitrim.

Premiums varied dramatically for the thatched cottage owner. Such a person, having been refused cover by Allianz, AXA, Eagle Star, Hibernian and Quinn Direct, would probably be relieved to find Royal & Sun Alliance offering a quote of €2,499. But if they dug a little deeper, they would discover FBD quoting a premium of €793.

Joe Langan of Donegal-based insurance brokers Hickey, Clarke and Langan advises anyone with a property that is out of the ordinary in some way to contact a broker who will often give homeowners access to a range of specialist insurers more willing to take on certain risks.

Langan, for example, insures holiday homes and thatched properties via UK insurance company Lloyds. It has even insured a handful of straw houses.

"There are preconditions for thatched houses," Langan says. "We require them to install two fire extinguishers and a fire blanket and clean the chimney every six months."

A thatched house with a reinstatement value - the cost of rebuilding it in the event it is totally destroyed - of €150,000 will cost €750 for buildings insurance and an additional €140 to cover contents worth €20,000, according to the Lloyds formula. With the 2 per cent Government levy on general insurance policies, this takes the total premium to just over €900.

This is more than twice what someone with a standard detached brick house in an urban area would pay for their annual cover, suggesting that insurance company actuaries are familiar with the story of the three little pigs and the unfortunate fate of the two who opted to build their homes out of straw and sticks rather than wolf-proof bricks.

Thatched properties do catch fire more easily than their concrete counterparts and when they do, it is more likely that they will be gutted, leading to higher value claims. However, owners of timber-frame houses shouldn't have too many problems securing insurance. "We're quite comfortable with those. The ones that have brick on the outside, we don't see them as being any greater risk," says Langan.

But other type of timber homes, all-wood Scandinavian or Canadian constructions, are somewhat less popular with insurers.

"Insurance companies seem to have their heads very loosely screwed on," says Lars Pettersson, who runs Scandinavian Homes, a Galway-based provider of pre-manufactured, low-energy Swedish timber-frame houses.

"We have customers who have got cover without any problems from an insurance company, but then another person who has bought the same type of house will be told no by the same company," says Pettersson. "It's all so irrational."

Some insurers will only cover properties if the builder belongs to the Irish Timber Frame Manufacturers' Association. Pettersson says the company does not want to belong to any federation because it uses Swedish building methods rather than Irish ones.

"We have a brand. Our houses are factory-made and built to the same standard. If they were self-built, then maybe I could understand it," he says.

"You would expect that international insurers could look at statistics from other countries, but they don't seem to be doing that. Timber houses would be the norm in Scandinavia and there are very few accidents."

In Ireland, Scandinavian Homes has constructed 175 homes since it started its operations here in 1990. So far, there have been no claims, Pettersson says. Again, brokers will be able to help owners of more unusual properties, pinpointing where to find insurance and advising on the quality of the cover offered, says Langan.

Home insurance policies are not all the same, he warns, giving the example of specialist insurer Benchmark Underwriting. It sells a policy underwritten by insurer AIG that does not give "new for old" replacement for floor coverings over five years old.

"More and more houses have wooden flooring covering the full house and they're quite expensive," notes Langan. "If there is a burst pipe, the water is going to destroy the floors very quickly."

If the flooring is six years old or more, Benchmark will make a deduction for wear and tear before paying out, while other insurers will pay the full cost of replacing the flooring.

"The customer may opt to take that risk. That's fine as long as they know about it and as long as they realise that the most common household claim is water damage," Langan adds.

The financial regulator's survey also identified another group of people who may be refused cover. Tenants looking for contents-only home insurance were denied quotes by three insurers.

In this case, the tenants were sharing a four-bedroom house. People living in purpose-built apartments shouldn't have the same problem securing contents-only insurance, although some insurers will only offer cover to owner-occupiers.

This growing group of apartment owners pays the bulk of their home insurance through the fees they pay to their management company or agent.

According to the Society of Chartered Surveyors (SCS), apartment owners should confirm with their management companies or agents that their block has recently been valued for insurance purposes.

Buildings or block insurance can be the highest single contributor to the annual fees paid by owners, accounting for anything up to 70 per cent of the total maintenance costs.

But how can apartment owners know if the management agent or company has paid the insurance and if they have insured the building for the correct amount?

Although the SCS's guide to house rebuilding costs does not include apartments, the annual increases in these costs should give apartment owners some indication of how much the value of the cover should increase each year.

"If rebuilding costs are up 2 or 3 per cent in the area, then generally, apartment owners should be looking for the same uplift in the value of the building's insurance," says Gerry O'Sullivan, chairman of the SCS quantity surveying division.

This value, and the corresponding premium paid on behalf of the apartment owners, should be noted in a document outlining the breakdown of its costs, which apartment owners should receive as justification for the rate of management fees that they pay on an annual basis.

Owners who don't trust their management agent or company can try talking to the insurance company directly.

Fittings - anything that can't be moved - are usually included in the building's insurance, but in some cases, apartment owners will have to arrange separate cover for special features they have put in.

"Apartments will all be fitted out to the same standard," notes O'Sullivan. "But if someone decided to put in their own bespoke kitchen units or bathroom fittings - a power shower or a corner jacuzzi - they can't assume that it will be covered by the insurance companies."