One of the most common concerns of owners of heritage-listed buildings is getting their property insured. Michael Phillips of the Insurance Council of Australia had some helpful advice for home-owners at a recent Heritage Office seminar. Here is an extract from his talk.
Among the questions I am often asked is, "Why do insurers discriminate against heritage listed homes?" The simple answer to that question is "They don't". Now before you start leaping to your feet in protest, let me explain.
Insurance is mainly concerned with the underwriting of risk, and this exercise requires that the potential for loss be estimated, the likely frequency and severity of that loss, and a rate or premium commensurate with that risk be calculated.
If an insurer is approached to write a property risk which is more than 40 or 50 years old, the major concern will be the current state of repair of the building, its current occupancy, and its physical location. If there seem to be unusual features relating to the property, the insurer may ask if it is a listed property, and indeed some companies' proposals may ask that question. So why do insurers want to know if a property is heritage listed?
The answer to the question lies largely with the cost of repairs following partial damage to the building. To acquire materials to repair a 90-year old building, listed or not, can present peculiar problems - having been through the "sympathetic renovation" exercise myself, I am only too well aware of this. Bricks which were used in 1914 are now not freely available, floor boards are a different width, skirting boards today look nothing like the ornate 10-inch high skirtings of the Federation era, and don't even consider trying to get Australian cedar. As a result, the restoration of properties using original materials, or the nearest modern equivalent, can become a more complex exercise.
To restore an older property to its pre-loss condition involves problems not usually encountered and these problems are the major reason for the insurer's concerns. Of course, it is possible to obtain most of these materials and to faithfully conserve properties which are partially damaged - at a cost.
Most domestic insurance policies today are issued on what is known as reinstatement and replacement terms. If you want to insure on that basis, all that is necessary is to present a case to the insurer that will induce them to do so.
Our surveys have shown that very few insurers charge higher rates for listed properties, however, those same surveys have brought to light instances of higher than usual claim frequency for older homes. As a result of this, valuations which show the true replacement cost of the property and the application of an average clause that ensures property owners contribute to the cost of repairing under-insured properties, are sometimes required for listed homes.
I do not propose to insult your intelligence by asking you to believe that every old building will be accepted for insurance, but the overwhelming requirement is that the insurer is presented with a good reason to cover the property. If the insurer is approached by someone, broker or owner, who simply expects a premium quoted on little more information than a sum for which insurance is required then - particularly if it's a 100-year-old building - the chances of the risk being accepted are not great. If on the other hand, the risk presents as having been carefully restored and maintained (photographs are excellent for this purpose), is regularly occupied and has effective fire protection, then the insurer's reaction will usually be positive, whether it's a wooden pub in outback NSW or the Heritage Office's new headquarters at the former Kings School.
The insurers will consider the building in the same light as any other property. Is the building well maintained? Does the plumbing and electrical wiring meet modern standards? For what purpose is the building used and is it regularly occupied? Is there any sort of fire alarm system and how is it monitored? Finally, if anything happens to the building, how easy is it to get personnel and material to repair it?
If I could proffer one piece of advice to owners of older homes, listed or not, it would be the following: when you approach an insurance company to arrange cover make it quite clear to the insurer that the property has plumbing and electrical wiring which meets modern standards, the property is regularly and well maintained - including its roof - and that the sum for which you wish to insure is adequate to cover the replacement of the property.
Insurers are aware that the Heritage Council does not necessarily seek to have listed buildings replaced in the event of major or total destruction, but as the owner of such a home you may decide, with or without the Heritage Council, that is what you want done. If that is the case, make sure the insured value is appropriate. In fact these same circumstances apply to the underwriting of any property risk, old, new, or otherwise.
Unfortunately, insurance policies are not maintenance contracts, nor are they intended to cover other than fortuitous occurrences. So wear and tear on a property should be attended to before arranging cover, as insurers will not be inclined to accept a battered risk for standard insurance cover.
The best analogy I can think of is that no insurer will cover a motor vehicle that has existing damage, for example hail damage. For the same reason, insurers are not prepared to insure a building, old or otherwise, that has not been adequately maintained. Why? Because should some insured loss occur, the owner of the property, as sure as the sun will rise tomorrow, will demand that the building be restored to pristine condition, at the insurer's cost, regardless of its pre-loss condition. This can involve re-plumbing, rewiring, waterproofing - all of which are really maintenance requirements.
The bottom line to all of this is that if the owner of the property provides the insurer with good reason to accept the risk, then in 99% of cases that will happen. Insurers are usually only too happy to insure property, but they are always wary of poorly maintained risks, old or not, heritage listed or not.
What can you do if insurance is refused?
There has been considerable publicity recently concerning the fact that owners of listed properties have been refused insurance simply because the property is listed. Anyone who may be affected would be interested in section 75 of the Insurance Contracts Act (1984). It states that an insurer is required by law - if requested in writing - to clearly state why insurance is being refused. If then the problem can be readily addressed, the proponent can probably correct the problem.
There is a further protection for all proponents who are unable to complete a contract under the General Insurance Code of Practice, to which all general insurers subscribe. The code states that where a decision is taken by the insurer not to issue a contract, and that decision is based on factors not relevant to the insurer's assessment of the particular risk, then the insurer - whether it is requested or not - should provide the proponent with a written statement to that effect. In such circumstances, the property owner is not required to disclose, when making future proposals, that insurance has been refused.
Finally, when an insurer declines a contract, the consumer should be informed that Insurance Enquiries and Complaints (IEC) maintains a list of insurers writing particular classes of business and the National Insurance Brokers' Association is able to provide a range of information about how and where insurance may be obtained.
Best advice for owners seeking insurance
- Make sure the property is in good repair and all services comply with current standards.
- Take pictures of your property including the interior and record the date. Provide copies to the insurer.
- Keep copies of receipts for any improvements you make and where necessary provide copies.
- Don't think for one moment that under-insuring will save you money. It could easily cause you to be refused cover.