Our local community just passed a new ordinance that will require all new homes constructed to have a sprinkler system. There is quite a bit of controversy over this new ordinance, but my goal of this post is not to argue for or against this new regulation, but rather to discuss the impact I may have on property insurance.
I currently insure several clients that have sprinkler systems in place. Almost all of them all commercial clients. This is not surprising as higher value properties such as large offices will often have sprinkler systems in place.
For these commercial clients having a sprinkler system results in a credit applied to their property insurance premium. This makes sense as obviously a building issues much better protected if there is a sprinkler system. The savings on the insurance in no way offset the price of installing an maintaining a sprinkler system, but that is usually not a commercial building owners primary concern. Commercial buildings also have life safety issues in many cases as there may be hundreds or even thousands of people occupying the building.
What about residential properties?
They certainly have life safety concerns, but on a much more important, yet smaller scale. Do insurance companies offer enough of a discount to offset some of the cost, or at least enough to help justify a home owner’s concerns? The simple answer is that it varies from company to company.
One of the great things about being an independent agent is that we have choices. I discussed this sprinkler issue with several of our top personal lines carriers to see how they would respond. Some of the carriers have a flat 5 or 10% discount depending on if the home was partially or fully sprinkler protected. Other companies said they don’t even offer a sprinkler credit, while others said that there is no exact amount of credit, but that it is factored into the final rating.
What does all of this mean? Basically, most companies will offer some basic discounts for having sprinkler protection, which is great, but a what cost? A local builder told me that most new homes with a sprinkler system will cost an additional $6,000-$8,000 to build. Let’s say a typical homeowners premium is $1,000. Even with a 10% credit, a $100 premium savings would take 10 years just to get back a sixth of the sprinkler system installation cost. That doesn’t even include maintenance.
This doesn’t mean sprinkler systems in home aren’t worth it as there are other concerns such as peace of mind and life safety. What it does mean is that the potential insurance savings resulting from having a sprinkler system will not be one of those reasons to have one installed.
I will be very curious to see how other communities move forward with building ordinances. I can definitely see this being a great debate from both proponents and opponents.
What are your thoughts on sprinkler systems or how insurance companies may respond moving forward? I would love to hear your thoughts.