Larenzo Ratteray, group head of consumer solutions for BF&M details the importance of properly insuring your home ahead of the hurricane season
With expert weather advisory services predicting between 13 and 15 potential names storms for the 2023 hurricane season, now is a good time to consider whether your property is adequately covered by your home insurance policy. As Larenzo Ratteray, group head of consumer solutions at BF&M, explains, it is not uncommon to encounter customers with homes and buildings not insured to value. Not insuring homes and buildings to value, often referred to as being “underinsured”, will often lead to financial consequences should a policyholder look to claim under their respective policy and finds that their property isn’t insured to value. As an example: if you are insured for just 60 percent of the house’s value, then for every dollar spent on rebuilding you would receive just sixty cents.
So, what should you think about when taking out a home insurance policy or reassessing existing policy coverage? A good start is understanding that the market value of your home is not the same as the cost of replacing it. The market value refers to what you are likely to receive for the sale of your property and includes the acreage on which it is built as well as consideration for its location. A property in favourable location on Harrington Sound, for example, is likely to be more expensive than a similarly sized one in a neighbouring parish but in general terms real estate value doesn’t have a direct correlation to rebuilding cost. The insured value of your home or building should be based on the necessary cost required to rebuild your house and any other physical structures around it, such as a pool or garage or shed. It’s important to note that the replacement cost includes the cost to comply with current building codes, as well as professional fees. It does not include your land or garden, however beautiful they might be. Location can be an issue for practical reasons rather than for the desirability factor. If your house is on an island, for instance, costs will be affected by the necessity of accessing it by barge rather than by truck. Some locations may require considerably more scaffolding which would again significantly increase building/rebuilding costs.
While the real-estate market and property values can fluctuate, with properties sometimes going down in value, building costs continue to rise with the cost of living. As Ratteray points out, “I’ve never seen building costs go backwards.” This is particularly true now. Post-COVID we have all seen a sharp rise in the cost of goods and services, which will inevitably affect building prices.
How is the replacement value calculated? Ratteray explains that knowing the current square footage of your property is crucial since the costs are based on that calculation. He also stresses that some owners are underinsured because they forget the improvements they have made over time to their properties. Extensions, docks, permanent sheds, garages, added pools and pool houses all add to square footage. Costs can range between $300 and $375 per square foot, but this will always vary based on the size of the contractor completing the project and the desired finishes. For example, some floor materials, such as marble, are considerably more expensive than others.
It’s wise, then, to have your replacement value regularly reassessed. Ratteray recommends doing this at least every three years. Your insurance company may, like BF&M, offer a service to measure your property, thus giving you a window into what costs you could expect. You can also take advice from a registered surveyor.
In advance of hurricane season customers are encouraged to engage with their insurers regarding coverage. Some property owners take out insurance only when a hurricane has been named and predicted. It’s extremely important to check whether your insurance company will accept your request for hurricane coverage in that instance. There may be a cut-off point days before the storm makes close approach. If they do accept the risk, coverage may come with significant restrictions.
Traditionally, Bermuda has always been known for its well-built stone (more recently concrete block) houses and for sound building codes. We have tended to do better in hurricanes than other areas in the hurricane belt. But it’s always better to err on safety’s side. To sum up, have your property assessed for rebuilding costs before taking out or renewing your insurance policy.
For information regarding how to prepare for an impending storm, contact BF&M.
Read more from our Hurricane Season 2023 series, HERE!