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Response To Tiny House Listings’ Tiny House Insurance Post

A while ago I did a post on the topic of Tiny House insurance, which you can read here. I have not forgot about that article and have been doing a lot of thinking around it as of late.  Then I saw the wonderful post done by Laura Moreland over at Tiny House Listings and in the end she said that she hoped to start the conversation.  So I thought it would be fun to do a response to her post!

Like Laura, I am not an insurance expert, so there is a lot to learn about the field, but I’ve done a good bit of research on this and I certainly know tiny houses, so take it for what it is worth.

One thing that Laura pointed out, as I did in my last post, was that there isn’t a real viable option for insuring tiny houses.  I have had a rare few tell me they were able to get insurance through a traditional insurance company by doing this or that.  Regardless of how the did it or arranged it, I’ll be honest, I don’t trust it.  I think if those few folks had to make a major claim they’d never see a dime; I say that not to be ugly, but to make the point that insurance companies will take one look at the tiny house, realize that they should have never said yes to it in the first place and then find a way out of paying.

The one point of contention I will take up with Laura’s post is her logic on how much a tiny house should cost to insure.  She stated

In terms of my home [900 square feet], I pay roughly $800 for insurance a year for the house and contents. It stands to reason then that I would expect to pay $200 a year to insure THO because as it stands, it is roughly ¼ of the value.

The point is a fair one in some respects, but I thought I’d propose an alternative line of thought:Insurance companies work on the premise of risk management, to be viable you must take in more money than you would expect to pay out.   They operate on the assumption that if they can have a pool of people, that only a certain percentage of them will make a claim.  In an ideal world you’d have a large pool of people who are very unlikely to submit a claim.

So essentially when you have a person you want to insure you must be able to determine the risk that insuring that person brings, meaning the likely hood they will submit a claim, how often and for how much.  The higher the risk, the higher the cost of the insurance.  Insurance companies determine this risk by developing actuarial tables that will predict the likelihood that someone will make a claim.  It’s a pretty complex process and based off of really big data sets.  The complexity and level of detail that goes into this means that insurance costs vary wildly from location to location, as well as on a ton of other variables.

So the line of thought I’d propose on price is that the cost of insurance for a tiny house should not be based off of value solely, but that of the assumed risk and that you should be collecting more money than you pay out.  I think many insurance professionals would agree with this statement.  So the question now is, how much risk does a tiny house bring?  I think if we were honest about it, the answer is a lot.  It is after all why traditional insurance companies won’t insure us, because we are too risky of a proposition.

So while the cost of a tiny house is much less, the risk is much higher.  So the costs to insure it will still be pretty high.

This isn’t what a lot of people want to here, but I have a few solutions to this that could help make swallowing this pill a bit easier, but also help keep tiny house insurance premiums lower.  The two things we’d want to achieve is to minimize risks so that the group as a whole can cover their members appropriately while being able to ensure stability for the future; second we want to weed out potential bad apples that will abuse, extort or try to game the good intentions of insuring tiny houses.

Be Transparent

I am a true believer that you need to be honest in your dealings with people and when it comes to someone’s home, there is few 44262008807272831LfIY43STcthings in this world that we care about more (of course the people matter more).  So the mantra trust, but verify is key here.  We need to build a system that is very transparent because we need to earn the trust of our members.

However we choose to structure this, we need to be crystal clear about it.  Even though I propose a non profit model, even though it should be transparent, even though this project would have the best intentions, there are some realities and decisions about those realities that will need to be made.  Things like the points I propose below are good examples.  So we need to be practical, but we also need to be really clear up front and make sure people can easily understand the minimal fine print.  If we can do that, then people can make informed decisions about if they want to join or not.  If I have learned anything from blogging it is, be honest about who you are and what you stand for and own it.

Enact standards

In order ensure that the tiny houses that are insured aren’t poorly built, we need to develop some sort of standard.  The idea being that since tiny houses are often DIY affairs, you need to be sure people aren’t making honest mistakes that could have dangerous consequences.  I don’t think this would have to be a huge set of standards, but there are some key areas of focus that we could advise on which would address safety and structural issues.

Now many people will not like to hear me proposing what amounts to building codes, but I think that if we don’t do it ourselves, someone else will at some point; I think we’d rather help determine the direction than a profiteer or politician.  Next is that these should be accessible, meaning free and easy to understand.  The should also be community driven and reviewed, meaning that people from our community help steer this process, then open it up for feedback from the rest of the community.  It should also be used a teaching tool, not as a way to penalize people; the goal should be to empower first time builders and ensure safety.

High deductible policy and diminishing rates

To help reduce the cost of plan, I think we should have it designed in a way that people only make claims on major damage and total loss.  If you break a $80 window, it shouldn’t be a claim, because small claims will lead to the insurance fund getting nickled and dimed out of existence; we need to balance being their for people in times of needs and being sure that we can stick around as that protection for tiny house people for the long term.

So to achieve this I propose a high deductible, a level TBD and one that could be lowered as the co-op grows to have more members, which will have people in the insurance co-op will handle small things on their own, but sleep well at night knowing that if their house burns down, we are there for you.  The other thing we can do is to encourage people who don’t have any claims by reducing their monthly rate after a certain period of time.  So if you have been with the insurance co-op for a few years, your monthly bill will be negligible; this will encourage people to stick with the co-op long term, but also only make a claim when it is really needed.  I will also propose an unpopular point here, if you make a claim, your rates will return to normal rates for a pre-determined period; this too will help people make claims on only big things.

Trust, But Verify

With dealing with new members to the co-op I think you should always be trusting, but being that this would be a non profit (meaning for the public good) and that existing members are entrusting you to make decisions for the group to ensure that their tiny houses are protected, you need to do your due diligence  on vetting new members and ensuring claims are legitimate.  Again, this won’t be a popular point, but if I am going to say to someone, I got your back if things take a turn for the worst, If I’m going to say I am here for you, I mean it.  So again, I think if I am transparent about the process, that it will include checks and what those checks are, then you can make an informed decision to join or not.

Okay this turned out to be a lengthy post, I had to gloss over a lot, but here are some of the ideas I wanted to put out there for the conversation.

 

Tiny House Living: Security and Simplicity?

After Ryan’s post earlier this week, I got to thinking about sense of security. Living in a tiny house definitely decreases dependence on money but living the tiny life does not necessarily mean a life free of worries.

happinessBefore jumping in, I have to say that the completion of La Casita came at a time of great upheaval in the lives of my fiancee and I. Our rental had been foreclosed on, the bank had kicked us out, the tiny house was 3/4 done and we were essentially homeless. Luckily I had family in the greater Charleston area that took us in but it was a harsh reality for a couple of months. Since moving in to our house, life has been easier in terms of money but in terms of legal shelter there have been distinct challenges.

I guess my first question for someone thinking about a tiny house would be:zoning do you mind living in an illegal situation according to most zoning codes? If this doesn’t bother you then my second question would be: does possibly not having a home address, which can make acquiring a driver’s license, a post office box or your citizenship difficult, concern you?

These are some of the realities we’ve faced living in a tiny house. Without a home address, it is very difficult to get our driver’s licenses in Vermont. Without a home address my fiance can’t start his citizenship application and in Charleston I couldn’t get a po box without a street address. Not everyone has this issue when it comes to tiny living but it has been a constant for us since moving in to La Casita and I never considered this would be one of the issues I would face.

Having just moved to a new community in Vermont, we’re slowly meeting folks and people are incredibly nice and open to what we are doing but we’ve already had a town official contact us about living in the house and its questionable legality. In a town of 3800 people, it’s not going to take long for us to be noticed. In a city of 100,000 it was much easier to hide from zone enforcement although they would roll by in their truck about once a month. They never stopped and asked questions but the possibility was there and we knew it. La Casita was a “temporary studio space”  to anyone official who asked but it was fairly obvious we were living in it. Luckily, we planted it in the ghetto where cops and officials were more worried about busting drug dealing than some illegal zoning issue. Don’t get me wrong, I loved that neighborhood and living there was wonderful. We had great neighbors and no one ever messed with us but if we had parked anywhere else in the historic district of downtown Charleston, I’m certain we would have been forced to move.

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Taking Tiny Houses To The Next Level

There has been some discussion on our site about Tiny Houses whether or not Tiny House have “arrived”.  I personally think we are there or close enough, but certainly we will keep on growing.  It got me thinking, if there were a few things that I’d like to see in the coming years, what would they be?  Here are the top five things I think would take Tiny Houses to the next level.

1. Tiny House Lending

I think this is pretty self-explanatory; Tiny Houses face many barriers to getting capital to build their Tiny House.  While I am generally against having debt, Tiny Houses often are about the cost of rent for 3 years if you build it yourself, but most don’t have the money all at once.  I’d love to see a 3 and 5 year mortgage option for Tiny Houses.  I wrote more on this here

2. Tiny House insurance Co-Op

I firmly believe that there is a need for a nonprofit insurance company, that doesn’t have shareholders.  The idea that profits should be generated above paying staff and direct costs to the provider is something I take issue with.  So let’s have a nonprofit cooperative insurance group that specifically ties into the tiny house community.  I think much of the success of this will hinge on getting enough people involved and the establishment of plain language building code.  More here

3. Accessible Tiny House Building Code

What if building codes were written in plain English?  What if building codes made special provisions for Tiny Houses?  I have struggled with this one; do we want to bring in a formal building code?  It is a tough call.  I think in order to establish safety standards and open a dialogue with municipalities this is something that will inevitably come, so it might be better if we write the code instead of someone else calling the shots for us.

4. Tiny House Land & Communities

I would that getting land might be one of the largest barriers to Tiny Houses, to put it simply, land is really expensive unless you want to live in rural areas.  I’d love to see some land open up that is near a city and is opened up to Tiny House folks for a small yearly fee.  I have kicked around the idea of purchasing land and opening it to those who want to bring their Tiny House.  I’d charge a reasonable fee; I just need to figure out how to arrange it legally so I can protect myself from liability and squatters.

5. Tiny House Convergence

I would love to see a mass gathering of Tiny Houses and Tiny House people.  I often refer to our community of Tiny Houses people and I think an event like this would bring our close knit community even closer, generate a lot of discussion and make strides in progressing the Tiny House cause.  I would love to see it held where we could make a big splash media wise; just imagine a swarm of Tiny Houses converging on the National Mall in Washington DC one weekend!  The trouble is that we are spread out over a good distance so everyone would have to travel a good distance.

Your Turn!

What things do think need to happen next for Tiny Houses?

 

 

Tiny House Insurance

In the wake of the recent Kim’s Tiny House fire I found myself thinking about insurance options for Tiny Houses.  Now I have heard many people speak about their efforts to get insured by traditional companies through various approaches.  Many were not able to and the one who did are few and far between.  Where I get hung up at is even if you were able to get insured from an insurance company and had a claim, I see it going only one way.  Call me a pessimist, but I don’t think it is stretch that once that claims adjuster comes to your property, takes one look at your Tiny House, they will be on the phone working out a way to get out of paying.  They will come up with some way out of paying, leaving you high and dry after being a dutiful customer.

Inherently a business makes money by increasing it’s income and decreasing it’s expenditures;  the gap equals profit.  So a for profit insurance companies ensures it profit by being efficient internally and minimizing the money paid to it’s customers.  In a perfect world they could do this while maintaining ethical standards, but we have seen that is far too often, that is not the case.  So what is the solution?

The old adage, if you want something done right, you’ll need to do it yourself.  So what if we were to create our own insurance company, a non profit entity, maybe even a Co-Operative?  A entity that was dedicated to Tiny Houses, that protected it’s people in a fair and just way.

Members would pay a monthly fee, which would be gathered into a non profit bank account, we could position the funds (or part of them) to earn a certain interest rate to ensure that we keep ahead of inflation, but it would be a extremely low risk option.  I think it would be prudent to have a $500 (maybe $1000) deductible to minimize very small claims.  By doing this, it would mean that who ever is running it isn’t spending hours processing dozens of claims for a $50 claims.  So it saves the insurance funds from being whittled down in little chunks and save on a lot of costs of staff time.

What would be interesting is after a member has been with the insurance company for more than 3 or 5 years without a large claim, their rates could drop to half the original rate.  The idea being that you have paid enough into the system that it has amassed to enough to cover a big claim.  We would have to decide if their rate would rise if they were to submit a large claim.

The real trick is to get enough people involved so we could get some economy of scale, the large number of people we have, the quicker the fund could grow to a point where it could take several total loss claims.  So that is some of my thoughts on how to approach this issue, protect our tiny houses and build a stronger community.

What your thoughts? Let us know in the comments!

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