By Derek Kartchner |Gila Insurance
Sometimes I feel like I say, “No, no, no” all the time, and not just due to having a slew of toddlers in my home over the years (I have a lot of kids). It is because the insurance market is a mess right now, and rates are up like crazy across all companies in the state of Arizona.
As a broker, we represent multiple companies. Our goal is to find value for you. We define value as the coverage you need at the lowest possible price. We can talk about the coverage you need later, but prices right now are a mess! For many investors, the thin margins on their investments make cash flow rough. As a company that adds to the expense line of your business, we understand this and know that many people think the quickest way to save is by simply switching companies. In the past that has been true. But, in the immortal words of Lee Corso of ESPN’s College GameDay, “Not So Fast, My Friend!”
In addition to rising rates, insurance companies are making it hard to switch companies. One of the main things they are doing is increasing underwriting. This includes more questions upfront, tightened eligibility guidelines, limited coverage options, and more stringent inspections. From a practical standpoint, it means that if your insurance agent is doing it right, they will ask more questions, explain more coverage, and warn you of how to prepare for the inspection. If everything is in order, switching will still be relatively easy. However, what we are seeing is a lot of people moving their policy, and then getting in a pickle once the home is inspected. This is because even though you have paid for your policy and signed the contract, the policy could still be canceled. The reason this can occur is by law, insurance companies have roughly a 30-day window to determine if they are going to keep you or cancel you. If they cancel you, well, you might have a hard time finding another company to take you. So, while switching might sound like a good idea, here are 5 Things to Know Before You Switch Your Insurance Company:
- Plumbing and Electrical – If you have galvanized pipe for plumbing or fuses as a part of your electrical system, most companies at this point are going to pass. This has to do with the fact that the most common type of claim in Arizona right now is water-related claims – mostly busted pipes. The source of the water? Galvanized pipes that have rusted through or polybutylene pipes whose connectors have grown old. The result? Thousands of dollars of losses. On the electrical side, fuses indicate that you haven’t likely updated your electrical system in 40+ years, as circuit breakers have been the standard for quite some time.
- Peeling Paint and Dry Rot – Yes, peeling paint. If you aren’t willing to take care of the outside, then what does the inside look like? If you have a corner that hasn’t been painted in a while, then the sun has probably beaten down and dried out the wood then the monsoons came, and the result is that you have split facia. Might seem minor, but plenty of companies are walking away from peeling paint.
- Trees – Do you have overgrown trees or shrubbery? What happens in the next monsoon storm? Does a branch go through the roof? This is how insurance companies think. Trees and bushes that are overgrown don’t look nice, make the carrier wonder how the rest of the property is being taken care of (you may see a theme here), and will make a carrier reject the policy.
- Clutter – Wood piles, branches, cars, tools, and stuff. We all have it, but if it’s strewn across the yard, it’s a no-go for the companies. While you may never have this at your house, your tenants might be a different story. What does your lease say about this?
- Roof – It’s an epidemic. It is almost standard that carriers require that your shingle roof be replaced in the last 15 years. In some cases, the carriers will reject you if they think the roof is older than 15 years. In other cases, they will limit the payout in the event of a claim. Companies look for missing shingles, shingles that are warped or “curled,” and more and more we are hearing about “Granular Loss.” What does that even mean? I don’t know, I get pictures and they look like shingles to me. You might say that’s crazy. I’ve also heard, “I have a 30-year roof, I’m not going to replace the shingles at year 16 years,” more than once. Frankly, I would agree with you, but I am just the messenger of bad news.
Of course, we want to help you, us, and every other insurance agent. We are in business to write insurance policies! That being said, we also want to make sure that we are working in your best interest. Moving you to another company, only to have them cancel your policy – leaving you high and dry makes no sense.
Before you go down that road, make sure that your property is in good order, as deferred maintenance is starting to bite investors hard. Once you leave your current company and try to return, they will treat you just like the new company and will find the same problems. Therefore, if your plumbing and electrical are in order, you’ve painted the trim, trimmed back the trees, removed the clutter, and the roof is in good shape, then maybe, just maybe switching insurance companies is the right move. If not, consider staying until they are.