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Home Renovations: Over Time, Over Budget, and Underinsured; New ACE Private Risk Services’ Report Helps High Net Worth Families Mitigate Risks

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An increasing number of families in recent years have been investing in the renovation of their homes, but too many do not fully appreciate the range of risks involved – from unreliable contractors and worksite injuries to property loss, lawsuits, and family safety threats. Owners of high-value, custom-built homes can be especially at risk, and while many consult with their financial advisors to evaluate affordability and financing options, far too few turn to their insurance agent to properly assess the risks. As a result, these families may unwittingly be vulnerable to significant financial loss and hardship.

These are among the key findings of a new white paper released today by ACE Private Risk Services, the high net worth personal insurance business of ACE Group. “Managing Home Renovation Risks for High Net Worth Homeowners” addresses the three phases of a major home renovation project – before, during and after construction – from the standpoint of the respective risks and action steps to mitigate the process. Please click here for the full white paper.

“Owners of large, custom-built homes are especially at risk because the cost of rebuilding the home has a better chance of exceeding the amount of insurance carried by the contractor,” said Bob Courtemanche, Division Chairman, ACE Private Risk Services. “In one case, a contractor was at fault for leaving flammable rags on the job site that spontaneously ignited and caused the home to burn down. The amount of insurance carried by the contractor was only one fifth of the cost of rebuilding the home. That’s why it’s so important to have an agent verify that the contractor has sufficient liability insurance.”

The increased pace of remodeling activity adds urgency to the task of educating families and their advisors about the risks. According to BuildFax, a leading building permit data source, the number of residential renovations has been rising in recent years, reaching historical levels similar to those in 2006, the height of the real estate market. Remodels categorized as “substantial” increased 9.3 percent in 2012 and 10.2 percent in 2013. The number of substantial remodels in 2014 appears to be on a similar trajectory.

To help homeowners address risk exposures during a major home renovation project, the ACE Private Risk Services white paper includes a comprehensive set of recommendations. These best practices include:

Before Construction: The biggest mistake a homeowner can make in undertaking a major renovation or home addition is to select an inferior general contractor. So many risks and liabilities emanate from the general contractor that this decision alone can prove the costliest error. To sufficiently find and vet a contractor, homeowners should refer to a trusted network of family advisors, check with state licensing agencies and the Better Business Bureau, carefully inspect past job histories, and perform professional background screening. Furthermore, a homeowner should never act as the general contractor. By consulting with their insurance agent during the planning stages of the home renovation, families may also find this is the perfect time to install new safety systems in their home to guard against theft and property damage and earn valuable insurance premium discounts.

During Construction: During the home remodeling, assuring worksite safety for the family, crew and home is the key consideration. In situations where family members continue to live at the residence during construction, the risk of theft and other crimes is present, so families should store their valuables and restrict conversations with the construction team to the general contractor and project superintendent. Ensure that all flammable liquids and rags are stored in approved facilities at a safe distance from the premises, strategically place ABC-rated fire extinguishers throughout the home, activate the sprinkler system at all times and protect the home’s contents from the elements by wrapping the home’s exterior at the end of each day.

After Construction: After a major renovation is completed, the risk of not having appropriate or enough insurance coverage to address improvements to the home and new contents exists. The homeowner should notify the insurance agent to appropriately adjust the amount of homeowners insurance coverage, which is not as simple as adding the cost of the project to the previous amount of coverage for the home. While mass-market insurance companies may offer little guidance in how much to increase coverage, high net worth market carriers will often send an expert to the newly improved home to produce a customized estimate of what it would now take to rebuild it.

The white paper also draws on the insights of industry experts, including representatives from Cozen O’Connor, The Guidry Group, Hobbs Inc., J.S. Held, Inc., and an independent architect.

“A major home remodeling project invites complex financial and personal dangers that require careful examination at all stages of the process before, during, and after construction,” said Mary Boyd, Division President, ACE Private Risk Services. “For these reasons, high net worth homeowners and their financial advisors must collaborate with an independent insurance agent on the associated risks and mitigating solutions well before hiring the contractor. The best agents recognize the myriad of threats and proper insurance coverages needed during the different phases of the project, and can provide introductions to specialized insurers with vital services that reduce the prospect of devastating financial loss and compromised safety.”

About ACE Private Risk Services

ACE Private Risk Services is ACE Group’s high net worth personal insurance business, which provides specialty coverage for homeowners, automobile, recreational marine, umbrella liability and collections insurance for financially successful individuals and families. Policies are issued by Bankers Standard Insurance Co., ACE Insurance Co. of the Midwest, and Atlantic Employers Insurance Co. Additional information can be found at: www.aceprs.com. ACE Group is one of the world’s largest multiline property and casualty insurers. With operations in 54 countries, ACE provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance, and life insurance to a diverse group of clients. ACE Limited, the parent company of ACE Group, is listed on the New York Stock Exchange (NYSE:ACE) and is a component of the S&P 500 index. Additional information can be found at www.acegroup.com.

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