INSURING TINY HOUSES. Risk Management Considerations and Insurance Availability. American Agricultural Insurance Company

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1 INSURING TINY HOUSES Risk Management Considerations and Insurance Availability American Agricultural Insurance Company

2 2016 American Agricultural Insurance Company, Schaumburg, IL The contents of this publication are intended only to provide a general understanding regarding the topic provided and not intended to provide legal advice. It is imperative that each reader conduct a thorough, specific analysis of the law as it applies to the subject before taking any action. The information provided and law, as set forth in statutes and court rulings, change over time. Please consult with your attorney about these summaries before relying on them in any way. The information compiled in this material is the valuable work product of American Agricultural Insurance Company (AAIC) and was prepared by AAIC for the internal use of its client customers only. AAIC grants its client customers the limited right to use this information for their internal purposes only. Other reproduction or dissemination of this material or the information that it contains is strictly prohibited. By accessing this material, AAIC's client customers agree to be bound by the terms of this disclaimer. July 2016 American Agricultural Insurance Company Page 2 of 10

3 The Tiny House Movement Tiny houses are receiving increased media awareness and capturing the attention of the public. In this movement, owners choose to downsize their home to live more simply, efficiently, and sustainably. People who are driving the tiny house movement claim to have found happiness in having less and letting go of worldly burdens, like a large mortgage. There are many reasons why people are considering tiny houses. Tiny houses utilize fewer resources, reducing the carbon footprint. Most Americans spend somewhere between 30-50% of their income on housing. Although a tiny house may cost more per square foot than a traditional home, the overall cost is much less. Maintaining a larger home takes time and energy. A tiny house promises to provide the homeowner with more time and freedom, allowing owners to pursue more adventures. Tiny houses can be completely self-sufficient allowing owners to live off the grid. What Is a Tiny House? Generally these tiny houses are less than 400 square feet. Some are built on permanent foundations while others are built on trailers for portability. Tiny Home Building Costs Typical tiny home ranges from $35,000 to $80,000. However, depending on finishes and features, they can exceed $100,000. There are many unique considerations when evaluating the value of a tiny house. The cost of smaller appliances can be higher than standard appliances. Many of these houses are unique with custom designs and built with high-end materials. Following are a few unique items to consider when evaluating the value of a tiny house: 1. Trailer on which the home is built 2. Wood stoves or alternative heating systems 3. Skylights 4. Solar systems 5. Tankless water heaters 6. Composting toilets 7. Tanks and water pumps 8. Custom finishes 9. Propane system July 2016 American Agricultural Insurance Company Page 3 of 10

4 Risk Management Safety of Tiny Houses In response to the tiny house movement, there has been a rapid increase in both amateur and professional builders. There are fewer official standards for tiny house construction which could result in safety and structural issues. Following are a few items to consider: 1. Susceptibility to high wind and severe weather 2. Tiny Houses on Wheels (THOWs) are often placed in rural settings where they are exposed to wildfire 3. Speed at which a fire loss becomes a total loss 4. Ability for occupants to evacuate (multiple egress access, loft escape) 5. Theft (for homes on trailers, the entire house can be stolen) 6. Lofts and stairs are often built with no railings 7. Stairs to the loft are steep and may not have appropriate clearance 8. Zoning requirements can deem the house uninhabitable 9. Electrical and plumbing may not be appropriate for tiny house 10. Existence and proper installation of heat and wood stoves 11. Durability of structure for towing Zoning and Building Codes Zoning divides privately-owned urban areas into different zones to regulate land use. Zoning laws in residential areas limit: The types of structures that can be built Access for emergency equipment The number of structures allowed on a certain property Business activities And more Building codes exist to ensure the safety and welfare of building occupants. These codes address the design, construction, alteration, and maintenance of structures. Tiny houses are either permanent or mobile, but they cannot be both. Permanent Structures In most jurisdictions, architectural plans are required and the owner must already own the land that the dwelling will be built on. Architectural plans should be in compliance with local code. Plans are reviewed by the local jurisdiction to assess items such as materials, ventilation, electrical systems, structural adequacy, and more. Building permits should be obtained. July 2016 American Agricultural Insurance Company Page 4 of 10

5 The size of a tiny house poses a challenge for owners. The International Residential Code (IRC) provides minimum regulations for one- and two- family dwellings. These rules have been adopted and amended by states and local jurisdictions. Section R304 addresses habitable spaces. It requires every dwelling to have at least one habitable room with at least 120 square feet of gross floor area, with a minimum dimension of not less than seven feet in any horizontal direction. There are also minimum ceiling heights. Because tiny houses may not meet the minimum requirements of zoning and codes, they can be built under the radar. Often tiny houses are located on private rural land to avoid enforcement. Another option is to build the tiny house on a lot that has an existing home. If the existing home qualifies as the main dwelling, the tiny house may be allowed as an accessory dwelling unit (ADU) if the zoning allows. Mobile Structures When constructed on wheels, the tiny house is more like a recreational vehicle than a traditional home structure. There is quite a bit of controversy about what regulations apply to THOWs. The National Fire protection Agency (NFPA) has issued NFPA 1192 which establishes fire and life safety standards for recreational vehicles. This standard includes general requirements for fuel and plumbing systems. Considerations include finishes, means of escape, fire detection, and vehicular requirements. The Recreational Vehicle Industry Association (RVIA) provides an inspection program based on the construction of recreational vehicles and park model RVs. However, the RVIA will not provide inspections for tiny houses. The RVIA standards consider electrical requirements, fuel systems, ventilation, fire and life safety, and plumbing systems. These standards also incorporate Federal Motor Vehicle Safety Standard 49 CFR Part 571. The American Tiny House Association (ATHA) has issued guidelines that address the unique demands that are placed on tiny houses on wheels. These guidelines consider the trailer that the home is built upon. It incorporates NFPA 1192 standards with exceptions and design elements such as framing and loads, weight, materials, water, sewer, gas, electrical, heating, and fire safety. Independent inspections can be obtained from the National Organization of Alternative Housing (NOAH). NOAH is a trade association for manufacturers, contractors, and do-it-yourselfers building tiny houses. The NOAH standard considers fire protection, electrical and vehicle standards, and recognizes the ATHA guidelines. July 2016 American Agricultural Insurance Company Page 5 of 10

6 But the question remains, Is a THOW an RV? If it is not built by a certified RV or mobile home manufacturer, it s probably not. Just because a tiny house is on wheels, doesn t mean that local zoning and building codes will not apply. If a tiny house is rejected by a zoning board, the homeowner may be required to vacate the home. As a result, owners must move the home to an area where zoning does not prohibit the tiny house. This can be a costly venture, causing the owner to live under the radar. Do-It-Yourself (DIY) Tiny House Builders The desire to save money motivates many tiny house enthusiasts to do-it-themselves. These DIY enthusiasts may not be realistic about their skills. Building a tiny house will involve specialized expertise. While the cost of a tiny house may be less, the risk may be higher. The Disenchanted Tiny House Owner Even the most passionate enthusiast can become disappointed with tiny house living. This lifestyle is much harder than many expect. Growing families, limited storage, cramped quarters, lack of privacy, zoning issues, and isolation are just a few of the concerns shared by previous tiny house dwellers online. Sometimes these homes are abandoned or left vacant, which is not an ideal scenario for the insurer. Insurance Marketplace Tiny house owners struggle to find insurance. Very few carriers specifically cite offering insurance for tiny houses. Here s what was found: American Modern Under the Dwelling Basic program, American Modern will accept tiny houses if they contain at least 100 square feet of living space and are permanently located. Tiny houses that are mobile on a trailer or have wheels are not eligible. Tiny houses are not eligible under the Dwelling Special program. July 2016 American Agricultural Insurance Company Page 6 of 10

7 Tiny Home Insurance Program No property coverage terms are provided on the website. Coverage is written in 48 states. Liability limits of $100,000, $200,000, and $250,000 are available. Carrier is not identified. There are several eligibility questions related directly to tiny house concerns: 1. Assembled by: a. Owner/self-built b. Licensed contractor 2. Electrical inspection required if built by owner 3. Occupancy a. Owner occupied b. Tenant occupied c. Seasonal/vacation d. Vacant 4. Heating a. None b. Space heater c. Wood/pellet stove d. Fireplace e. Other 5. Smoker? 6. Is the dwelling vacant? 7. Is the dwelling s primary source of heat a wood, coal, or pellet burning stove? 8. Is the dwelling next to an abandoned building? 9. Do you plan on moving your tiny home more than twice a year? To see all eligibility questions, click here: July 2016 American Agricultural Insurance Company Page 7 of 10

8 Lloyds of London Offered by Darrel Grenz Insurance Agency, Portland, Oregon Policy provides coverage on an HO3 Special Form and is customized for tiny dwellings that are built on trailers. Exclusions include earth movement and theft of the dwelling. The policy is rated on the protection class in which it is located. As the location of the home changes, the premium is adjusted for the new location. Coverage is available in Oregon, Washington, California, Utah, Arizona, Idaho, Montana, Colorado, and Idaho. Minimum annual premium is around $500. Electrical inspection is required. Shelter Insurance Shelter indicates that they will insure a tiny house and has published an article titled Tiny Homes: Trendy Abodes about the topic. We found no evidence in insurance department filings that Shelter provides special treatment of the tiny home. Foremost According to several tiny house owners Foremost offers solutions for insuring tiny houses. If the unit is on a permanent foundation and attached to permanent facilities, it is eligible for a Dwelling Fire or Specialty Homeowners policy. If the unit is RVIA approved with the wheels still intact, it is eligible for a Travel Trailer policy. We found no evidence in insurance department filings or on Foremost s website that coverage is available for the tiny house. Conclusion Are tiny houses a passing fad? The 2013 Census revealed that the median house in America is 2,384 square feet. In the past 10 years, the median house size has increased an average of 25% per year. Yet supporters of the tiny house movement argue that with a growing population and limited land and resources, tiny houses are the way of the future. If tiny houses are here to stay, solutions will need to be developed for zoning, financing, construction standards, and insurance. Currently, demand for insurance exceeds availability. Those companies that offer coverage are not highlighting their appetite for such structures. Lack of construction standards, zoning issues, safety concerns, and the unique characteristics of a tiny house pose many questions for insurers. July 2016 American Agricultural Insurance Company Page 8 of 10

9 Existing insurance products may be considered for insuring tiny houses. For permanent structures on a foundation, homeowners policies can be used. Tiny houses on wheels can be insured on mobile home or RV policies. Pricing, perils, and underwriting for existing products may need to be adjusted to reflect increased exposures. July 2016 American Agricultural Insurance Company Page 9 of 10

10 References American Tiny House Association. (2016, July 20). Construction Guidelines. Retrieved from American Tiny House Association : Cornell University Law School. (2016, July 20). 49 CFR Part Federal Motor Vehicles Safety Standards. Retrieved from Legal Information Institute: Federal Emergency Management Agency. (2016, July 20). Building Codes. Retrieved from FEMA: Insure My Tiny Home. (2016, July 20). Insurance. Retrieved from Insure My Tiny Home: National Fire Protection Association. (2016, July 20). Codes and Standards. Retrieved from NFPA Codes and Stanadards: National Organization of Alternative Housing. (2016, July 20). Nationwide Inspection and Certification for Tiny Houses on Wheels. Retrieved from NOAH: Recreational Vehicle Industry Association. (2016, July 20). RVIA Facts. Retrieved from RVIA: Recreational Vehicle Industry Association. (2016, July 20). Standards. Retrieved from RVIA : Shelter Insurance. (2016, July 20). Tiny Homes Trendy Abodes. Retrieved from Shelter Insurance: Shelter Insurance. (2016, July 20). Cvoerage That Hits Home. Retrieved from Shelter Insurance: United States Census. (2016, July 20). Median and Average Square Feet of Floor Area in New Single- Family Houses Completed by Location. Retrieved from United States Census: Willett, M. (2016, July 20). Living in Tiny Homes Was Much Harder Than These People Realized. Retrieved from Tech Insider: Cover Photo Sources: July 2016 American Agricultural Insurance Company Page 10 of 10

FARMERS MUTUAL INSURANCE CO. OF NOBLE COUNTY HOMEOWNERS/FARMOWNERS UNDERWRITING GUIDELINES

FARMERS MUTUAL INSURANCE CO. OF NOBLE COUNTY HOMEOWNERS/FARMOWNERS UNDERWRITING GUIDELINES APPLICATIONS The application needs to be filled out completely. All questions are to be answered to the best of