A Paragon Property Services Visual Guide: Identifying Homeowners Insurance Problems - A Visual Guide For Home Inspectors and Real Estate Professionals
Missing stairs as seen from interior

Missing stairs or stair rails were one of the problems most often mentioned by insurance agents where they were asked what sort of property defects might make it difficult or impossible for a purchaser to obtain insurance.
Photo courtesy Jon Randolph

"As an insurance agent, I wish more home inspectors were aware of what conditions can lead to insurance  problems. There's nothing more  frustrating than telling a first-time home buyer that their dream house  doesn't qualify for standard insurance. Almost inevitably, the first words out of their mouths are, "But it passed inspection'"

- Joshua Putnam

"But it passed inspection!"

Frustrating words for any buyer, seller or any real estate professional, home inspectors included.

Questions of "insurability" are concern to everyone involved in a real estate transaction. Many home  inspectors will at least comment verbally on conditions they suspect will likely make coverage difficult or expensive, real estate agents would prefer that insurance costs  or availability not crop up as unexpected problems, lenders won't close without insurance, and some insurance agents and attorneys - and most home inspection clients - feel they ought to be alerted by home inspectors if they find such problems.

It turns out, however, that this is not always easy to do. Different insurance companies have different underwriting standards, and when an insurance company does find a problem, they may deal with it differently from another insurer.

This brief guide - prepared with the cooperation of Chicago area insurance agents representing major companies writing homeowners and landlord's insurance in Northern Illinois - is intended to assist interested parties in identifying and understanding some of the problems identified by insurance agents as commonly triggering increased premiums or difficulty in obtaining insurance in our market.

This is not intended as a complete list, not all of these possible issues will be relevant to every property, and not every insurance company will view a given potential issue the same way.

But every one of the problems listed them is likely to be spotted during an insurance company's exterior "field underwriting inspection" or be picked up a on a standard insurance application. By having some ability to spot such problems early-on inspectors and other real estate professionals can help prevent surprises . top

(1) Roof condition

1)  Insurance companies have become very risk adverse with regard to potential water damage (see the section on CLUE reports below). Roofs which are worn, damaged or otherwise obviously near end of their useful lives or are likely to be leaking were the problem most frequently cited by insurance agents as a potential underwriting issue.

Composition shingle roof with extreme weathering

This roof is has passed the end of its service life. At the top (ridge) of the roof there is a improvised patch, likely applied because this area had been leaking. The shingles have been badly eroded by water flowing down the roof to the right of the windows, and the shingles' protective surface “granules” are completely worn off where water is backing up out of the end of the gutter at lower left.

Many insurance companies will decline to write a policy on this property, or will require roof replacement, and some may require an interior inspection for water damage.top

(2) Ivy and other climbing plants

Ivy and similar plant materials covering buildings are a problem not only because plant growth can block gutters, downspouts and drains, but because such plant growth retain can moisture around wood trim surrounding windows and doors. Plant growth can also speed the deterioration of wooden structural members such as ledgers, support posts, decks, stairs and railings, and plant material adds to the difficulty of routine inspection of such areas for water or structural damage.

Ivy damage to siding at corner of house

The ivy on this house is winding its way in and out of the siding. After working its way under the siding as thin tendrils it has gradually increased in diameter to more than an inch, and is starting to lift the siding off the sheathing below

Ivy at cornice return

This is the same house as at left Here, the ivy has reached the roof and is clogging the gutters and downspouts. In addition the ivy is  as holding moisture against the wood trim, where paint is peeling and exposed wood is rotting.

Plant growth can also cause "roofing" problems, for example in the case of a flat roofed buildings by retaining moisture against the parapets (the low walls above the roof) and by encouraging water entry under the cap material protecting the top of the brick walls.

Some insurance companies may require that such growth be cut back, and may require interior inspection for possible water damage. top

(3) Missing or damaged stairs or railings

Insurance company inspections may not note subtle code violations such as stair trend height, but they generally will catch obvious deficiencies.

One problem that was mentioned by several agents we surveyed were stairs built without required rails or guards , or missing stairs that had never been installed or had been removed or not replaced.

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These stairs and porch rails were built  without the required handrails and guards.

This is an indication that the porch may have been built without a permit.

Missing stairs seen from exterior

Inspectors encounter many dramatic examples of "doorways to nowhere".

This example opened onto a play area used by children.

Such stairs - either never constructed or removed and never replaced - are often an indication of possibly unpermitted or uninspected work, and may invite additional investigation of the property by an insurer.
Photo courtesy Jon Randolph  


(4) Frame buildings in close proximity to other structures

Frame buildings in close proximity to other structures Frame buildings closer than 10 feet to other structures can be an underwriting problem, especially in dense urban areas). The concern here is fire spread. One agent writing business in Chicago noted that only two of the companies he represented would currently write such policies.top

(5) Adjacent empty lots or deteriorated or vacant structures

Adjacent empty lots or deteriorated or vacant structures, especially burnt out units on the same block in urban areas. Such concerns are increasing as a result of foreclosures .top

(6) EIFS or Dryvit "synthetic stucco" over frame construction

Non-specialists cannot be expected to identify such material visually, but if you see a "stucco" exterior on a structure built after 1976, and especially after 1990, there is a good chance it is a synthetic stucco product.

If it can be determined from another source - for example and an owner or builder - that it is likely a synthetic stucco product, you need to be aware of possible insurance issues.

If such materials are not properly installed and maintained even small holes or cracks can admit enough water to create extensive water damage behind the exterior surface.

Obtaining insurance for houses with such exteriors can be extremely difficult; many companies simply will not write it, and those that do usually require high deductibles, high premiums, or both.

EIFS and similar materials should be identified by a home inspector, and will be identified by an insurance company's "Field Underwriting" Inspection, and every insurance agent we surveyed identified a  property with synthetic stucco is a "red flag" that there may problems obtaining insurance. top

(7) Older electrical systems, even if in "good" condition"

Older electrical systems were the interior problem most often mentioned by agents.

For many insurance companies any electrical service of less than 100A is suspect, even if it uses circuit breakers rather than fuses.

Two older fuse type electrical panels

An example of older fuse based service and loadside (sub) panel showing both the square and round styles of fuses. The panel covers have been removed for inspection.

On may such panels it is not necessary to remove the panel cover ("deadfront") to determine if fuses are installed - there is a door at the front of the panel that can be opened to expose the fuses or circuit breakers without exposing the user to the risk of touching live wiring.

As insurance companies are suspicions of fuse based systems, it's often worth checking for fuses if you can do so without removing the deadfront. Photo courtesy Electric 007

Modified panel with piece of cardboard as an insulator

Why insurance companies are suspicious of older electrical systems.

Someone has taken an older panel with a access door at the front, closed off the door opening with a piece of sheet metal, and then used a piece of cardboard behind the cover as an "insulator" to prevent live damaged wiring inside the panel from shorting to the panel cover.

In most cases when written information about an upgraded electrical service panel is available to real estate professionals it will indicate that the service is not a problem - if the seller can demonstrate that the service has been recently updated and then inspected by the local building department, it will usually be to a circuit breaker based service of at least the minimum size required by insurance companies for that type of dwelling. top

(8) Knob and Tube wiring

Insurance agents frequently mentioned Knob and Tube (K&T) wiring as a red flag for insurance companies. K&T, found in houses build prior to 1940, consists of black fabric-covered wiring supported by white porcelain insulators. Often portions of the original K&T wiring have  been replaced  with more modern materials.

Close-up image of knob and tube wiring installed in an attic dormer

The likeliest place to observe K&T wiring is in unfinished areas such as basement ceilings or in attics, but  K&T may  also be observed entering to the inside of walls and ceilings. This example at right was found tucked into the corner of a attic dormer.

Image of knob and tube wiring with incorrect splice

Ageing K&T wiring is potentially hazardous because its fabric insulation brittle's and deteriorates as the wiring ages. In addition  the connections of K&T to modern wiring are often performed in haphazard manner. as in this example.  Photo courtesy Jack Feldman

When K&T wiring is present many insurers require inspection by a electrician,  or  partial or
complete replacement of the K&T wiring. top

(9) Recent major upgrades

If an applicant for insurance states that there has been recent updating of items such as electrical, plumbing, HVAC (Heating / Ventilating/ Air Conditioning) systems, new roofs, or basement waterproofing or foundation crack sealing, some companies may request to review receipts for the repairs, and require that the work has been performed by a "licensed contractor". top

(10) Pre-1900 construction

For pre-1900 construction some companies expect to see major updating of all major systems such as electrical, plumbing, HVAC and roofing.

Because insurance companies may require documentation of upgrades, real estate professions can speed the application and underwriting process by encouraging sellers to locate such materials, and request copies of missing invoices from contractors if required, early on in the transaction. It's also useful to  home inspectors if manuals for furnaces, central AC, water heaters and the like are available at the  time of inspection, as these often list the manufacture's requirements for power, venting, and the like. top

Plus - A special case: Previous claims or inquiries discovered during a CLUE search

CLUE (Comprehensive Loss Underwriting Exchange) is the system used by insurance companies to research the past history of a property on policy holder. It contains information from many US insures, goes back five years, and may report conditions that a seller did not realized should have been listed on discloser forms.

The CLUE database may also include information about inquires (for example "Does my policy cover damage caused by a flooded basement?") even if no claim is filed. Claims or inquiries filed by a previous or current owner can affect the insurability of a property; the most frequently mentioned potential problems result from claims for losses due to water damage.

A history of previous claims may trigger an interior inspection of the structure by the insurance company,  and also suggests that it may be more difficult to find a company willing to issue a policy, or that it may be more expensive for a buyer to insure their new home.

When possibly it's a good idea to ask the seller about claims filed or inquires  made over the last five years, this can aid in preparing a disclosure form and as a "heads up" on questions that may be raised by a buyer's insurer. If the seller may have filed claims or made inquiries, or has been in the home less than five years and wishes to be aware of any problems were reported by previous owners, it may be worthwhile to run a CLUE "Home Seller's Disclosure Report" from ChoicePoint Inc.top

This FAQ was written for Paragon Property Services Inc, Evanston, Ill by Michael Thomas. I am always interested in reader's comments on all aspects of property inspection. If you have questions or comments about this article please feel free to contact me by e-mail or at 847-475-5668.