British Columbia

'A tangled web': insurance rules near wildfires complicate home sales

A day before Kristine Newell’s latest sale was supposed to close, the Prince George real estate agent was tossed a giant curveball — the buyers were being denied home insurance because the property was within 50 kilometres of a wildfire.

Many underwriters won't issue new policies on B.C. real estate located near active blazes

A wildfire burns on a mountain near Ashcroft, B.C., late Friday July 7, 2017. (Darryl Dyck/Canadian Press)

A day before Kristine Newell's latest sale was supposed to close, the Prince George real estate agent was tossed a giant curveball — the buyers were being denied home insurance, because the property was within 50 kilometres of a wildfire.

Insurance companies say it's common for underwriters to restrict new policies in areas where fires are burning, but when Newell's sellers heard the news this Thursday, it set off a cascade of potential consequences.

"When that happens, the lender won't issue the funds, because they won't release funds on a home that's uninsured," Newell said.

"That put my sellers in a position of possibly not having insurance themselves, because they had arranged to have the policy cancelled as of [Friday.]"

Luckily, the sellers managed to postpone their insurance cancellation, and the buyers found someone at the very last minute who would underwrite their new home, after spending a panicked day shopping around.

The remains of mobile homes destroyed by wildfire are seen in Boston Flats as a fire burns on a mountain near Ashcroft, B.C., on Sunday, July 9, 2017. (Darryl Dyck/Canadian Press)

But Newell is cautioning all of her clients to double and triple check with their insurance providers to make sure their deals won't be affected — even if Prince George seems to be a safe distance from the large out-of-control blazes burning to the south.

"If the fire were any closer to somebody, they couldn't get somebody to insure it. That could leave some buyers homeless and some sellers without any funds to complete on their next sale," Newell said.

"It's quite a tangled web."

Determining the risk factor

It's not impossible to start a new insurance policy when your home is on the edge of a wildfire emergency, but it can be difficult, according to Steve Kee, spokesperson for the Insurance Bureau of Canada.

"They're going to look at how far away are you from a fire department or a hydrant ... they're going to look at how your property was built ... the location, that kind of thing. This will all go into how they determine the risk factor for your property," Kee said.

But many underwriters issue blanket restrictions on new policies, based on the proximity to active fires.

Firefighters put out smoldering hot spots from a wildfire in Kaleden on July 5, 2017. (Brady Strachan/CBC)

Integris Credit Union, which has its headquarters in Prince George, has warned customers in a blog post: "Each Insurance company that we deal with has their own defined restrictions about whether we can arrange insurance in certain zones, but generally if your property is in imminent threat, we will likely be prevented from arranging any new coverage."

Langley's Mutual Fire Insurance, for example, prohibits its brokers from issuing any new policies if a home is within about 50 kilometres of an active wildfire — much like the insurers in Newell's nearly aborted sale.

"It's similar to, say, a medical insurance policy, if there is a pre-existing condition," said Denise Yeng, Mutual Fire's director of business development.

"It would be tough for an insurance company to say for sure whether someone's residence is affected by the fires and to what degree."

Usually, those restrictions will only be lifted once a fire has been 100-per-cent contained, Yeng added.

But as Kee pointed out, insurance rates may not be as low as they were before the wildfire started.

"If there's a ton of claims for a specific area, that might impact the risk factor considerably," he said.