What’s Insurance Got To Do with It?

Even as the financial crisis of the past 5 years fades into the history books, real estate strategies and lending practices remain a significant challenge when buying (yes, and selling) real estate.

Along with changing market conditions, legislation, government assistance and incentive programs, loan modifications, short sales, REO’s and ever tightening mortgage underwriting and appraisal guidelines, another concern about which real estate professionals and their clients must remain increasingly informed is insurance.

Less widely discussed than mortgage and lending, property and casualty underwriting guidelines are also tightening becoming increasingly concerning to those who wish to buy and sell real estate.

Until recently, when buying or selling real estate one could look to the Comprehensive Loss Underwriting Exchange, or C.L.U.E. report to determine the insurability of a dwelling.  This report provides “a claims history database created by Choice Point that enables insurance companies to access consumer claims information when they are underwriting or rating an insurance policy.”

But today underwriting appears not only to be looking at the claims history but also to the potential future risk associated with the current status of the property.

Budgets are tight and insurance companies are looking to mitigate risk as best they can.  Accordingly, they are paying stricter attention to the long list of natural hazards including FEMA Flood Zones, Storm Surge, Distance-to-Fault Lines, Distance to Coast and Rating Territories as reasons to decline issuing policies.  And now information about natural hazards and risk is more accessible than ever – available to all insurance underwriters at RiskMeter.com, a website that allows underwriters and [insurance] detailed access to abundant information and risk analysis for any property in the United States.

Real estate professionals representing clients in areas such as the Santa Cruz Mountains where property can be subject to seismic activity, wildfire, flooding and/or liquefaction must understand the importance of insurability – regardless of lender requirements.  If a property is essentially uninsurable, buyers and sellers must have access to the information early enough to understand available options and plan accordingly.

The scope of this concern is not limited to “rural” areas.  There are also growing concerns about mitigating risk even in seemingly docile suburban areas.  Carbon Monoxide detectors are now required in California and showing up as requirements on appraisal reports.  The condition and expected lifespan of roofs are now being more closely scrutinized.  A home recently purchased here in Silicon Valley was, in fact, completely uninsurable due to the material used, age and deferred maintenance.  Ultimately the buyers were able to purchase the home but had only one insurance company from which to choose due to the fact that they offered a 90 day grace period to have the roof replaced immediately after the purchase.

The cost and accessibility of insurance has become a critical issue in buying and selling real estate and must now be integrated into all strategic plans.