Vacant property crime causes insurance cost surge

Fire is one of many risks commonly associated with vacant buildings. The leading causes of vacant residential building fires include intentional actions, open flames and electrical malfunctions, according to the U.S. Fire Administration.

“Squatters in vacant properties have been an absolutely terrible problem,” says Ryan Short, senior underwriter in the commercial insurance division of Burns & Wilcox in Atlanta. “We had one property where there was no heat. A fire was lit, which jumped to a neighboring house. Now the owner is looking at just millions upon millions of dollars in property damage and bodily injury claims.”

Similar to what was seen during the pandemic, economic challenges could be contributing to a rise in vacant buildings, Short says. “With the economy, we are starting to see more foreclosures and businesses shutting down. When individuals are forced out of their living conditions, they may turn to these vacant properties,” he says.

If a property has been vacant for too long, coverage may not even be available, says Paul Van Overbeke, a personal insurance underwriter at Burns & Wilcox in Minneapolis.

“It can be tough to explain to owners why the coverage is more expensive, but the news headlines illustrate the risks,” Van Overbeke says. “The majority of the time, owners have great intentions with these properties, but they do not always follow through. The concern for insurance is whether the owner is really taking care of this property or not.”

Dispatch from the Dominion

In Canada, more mortgages have gone into possession in recent months amid economic challenges, says Atef Shah, associate manager of commercial and personal insurance at Burns & Wilcox in Toronto.

“A lot of Canadians have over-leveraged themselves, and the mortgagee has repossessed the home,” he says, adding that properties that appear abandoned are at the greatest risk of incidents. “If it looks vacant — the landscaping is overgrown, the windows are boarded — that is when you might see issues,” he says.

Vacant properties are vulnerable to vandalism and fire.

“Vandalism and fire threats have always been the biggest concerns on vacant properties,” Shah says. “We are getting individuals walking into vacant houses and stealing copper pipes and wiring.”

Owners of vacant property — particularly commercial properties — also are at risk for break-ins.

Water damage is another concern.

“If nobody goes into a house for 30 days and during that time there is a small pinhole leak in the plumbing, by the time someone discovers it, the whole house could be full of water,” Van Overbeke says. “When you do not have somebody coming in and out of the house, something bad could be happening inside and nobody would be aware of it.”

When a home or commercial building is left vacant, the owner may not realize that they are still generally responsible for any injuries that may take place on the property — whether or not anyone was permitted to be there, Short points out. Squatters, for example, “not only damage the property but also create liability issues,” as someone occupying the home without permission could still sue the owner over injuries they sustain in a slip-and-fall or other accident, he says. “The property owner is 100% liable,” he says.

Insurance is an important way that owners of vacant property can help mitigate their risks, but they must ensure that their insurance broker is aware of the property’s vacant status.

How insurance can help

Homeowners insurance and commercial property insurance are available for vacant properties but may differ from standard policies when the building is unoccupied. Deductibles are often higher, Short says, and coverages may vary.

Commercial property insurance, which can cover the replacement of stolen items and the cost of repairing physical damage to the building, may include separate sub-limits or exclusions for theft and vandalism.

“Owners really need to pay attention to their vandalism exclusions or sub-limits on a Commercial Property Insurance policy,” Short says. “If you have a fire loss or something is stolen, it could all be related to vandalism or even arson — and these are not covered losses on many policies if that vandalism exclusion exists.”

Vandalism “is a huge concern for a vacant home,” Van Overbeke agrees, and coverage should be discussed with an insurance broker. “Many property owners do not know whether or not they have vandalism coverage built into their policy,” he says.

Homeowners insurance for a vacant house may be referred to as dwelling fire insurance and is specifically designed to address vacant home perils. Standard homeowners insurance policies may include a vacancy clause stating that a home unoccupied for more than 30 days will not be covered for perils such as water damage or vandalism.

“There should be language in everyone’s homeowners insurance policy about the amount of time a home can be vacant,” Van Overbeke explains. “The policy language is often much more limited for a vacant home. It is somewhat of a downgraded policy, and it will usually only be available for up to three years.”

These policies are typically more expensive than standard coverage, and homeowners “almost always have to go to the [wholesales insurance] market” to access it, he adds.

Homeowners insurance and commercial property insurance policies in Canada may be worded differently for vacant properties, Shah says.

“If you have a homeowners insurance policy, you may get a grace period of 30 to 60 days in a lot of policy wordings,” he says. “Once you hit that threshold, coverage is usually going to be restricted. The exposure is higher, and the company is going to rate accordingly for that.”

A property’s Homeowners Insurance policy would generally extend to liability risks as well as property risks, and owners of vacant commercial property would need to carry Commercial General Liability (CGL) Insurance to obtain coverage for third-party bodily injuries and property damage.

“Property owners should double-check and make sure they see that word 'liability' and know the limit on their policy,” Van Overbeke says. “It is important.”

How to protect vacant properties

In addition to obtaining insurance to help mitigate financial losses, owners of vacant property should take proactive measures to help reduce the risk of costly incidents. The U.S. Fire Administration urges property owners to monitor vacant properties closely to prevent fires and other criminal activity, and municipalities may have varying regulations on how vacant property should be maintained to limit risks.

Heat should be left on in vacant properties and should generally be kept above 55 degrees — which may be required by the insurance carrier — and vacant properties should be checked at least once a week. “If a pipe bursts and this is not noticed for two or three weeks at a time, that can lead to incredible damage,” Short says.

According to Van Overbeke, exterior cameras, monitoring systems, central station alarms and water flow meters may also be recommended for vacant properties. Water may need to be turned off, Shah added, and landscaping should be well-maintained, including removing overgrown weeds and shoveling as needed. “Having someone check in on the house regularly is a good idea. If no one can do that, consider a property management company or a real estate agent,” Shah says.

Property owners should be open with their insurance broker about their home’s occupancy status, Van Overbeke notes. For example, if a vacant home will be used as a vacation rental seasonally, insurance rates may be lower because the home would be occupied more frequently. “If you tell them, they can just add the correct language,” he says. “Having an honest conversation with your broker is so important.”

Although there is a trend toward self-insurance as insurance rates for vacant property increase, this can present a substantial risk. “There are huge inherent exposures now with vacant properties, especially the opportunities they allow for homeless individuals or squatters,” Short says. “You do not want to go without insurance.”

Beyond insurance coverage and risk mitigation, property owners should think carefully about their plans for their vacant property.

“They should try to come up with a plan of what they want to do with it,” Van Overbeke suggests. “That gives them an incentive internally to protect that property. Now they see it as an investment instead of a hassle. You want to protect your investments.”

The original version of this article first published on the Burns & Wilcox website and is republished here with permission.

Burns & Wilcox, a member of the H.W. Kaufman Group, is a leading wholesale insurance broker and underwriting manager internationally recognized for its expertise in commercial and professional liability, property, environmental, marine and personal insurance.

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