Why is Material Change in Risk important?

Change is a constant in life. However, as it pertains to insurance, change can compromise coverage when it is not promptly reported and accounted for.

When an insurer underwrites an insurance policy, they agree to provide coverage, terms, and conditions for a specified premium, based on certain conditions and risk information provided by you to the insurer at the time you purchase or renew your policy. If at some point during the policy term circumstances change, a material change in risk may have occurred and should be promptly reported to your broker. A material change can be described as “any change material to the risk and within the control and knowledge of the Insured.” Failure to report a material change can have serious implications on your coverage such as a restricting or reducing coverage or voiding coverage altogether. 

Those who report a material change in risk will ensure that they are abiding by the conditions of their contract of insurance and are assured that their policy coverage is adjusted to reflect their current situation. This provides confidence that the protection they’ve purchased will be sufficient when they need it the most. Please take the time to review your policy coverage regularly and report any material change in risk to your insurance broker. A policy that accurately reflects your risk profile and coverage requirements should be the goal of every insured individual.

Examples of Material Change in Risk

Change can happen almost routinely during a policy term — and sometimes without notice. However, reporting material change in risk should be a common practice to help ensure you have coverage when the need arises. Some examples of material change in risk can include:

• Home renovations – Undertaking significant changes to your home will likely increase its value and therefore necessitate raising the coverage limits of your insurance. Upgrades such as new  kitchens and bathrooms, finishing basements or additions such as decks, sheds, and swimming pools can impact your property’s value.
• Changes in home usage – Contact your broker if your home will be unoccupied or vacant for any period of time or if the occupancy has increased by adding an additional family.
• Modifying your vehicle – Whether you are updating the appearance of your vehicle or upgrading its performance, changes to your vehicle should be reported to your insurance broker.
• Changes to your vehicle’s use – Notify your broker of any new drivers residing in your household, or if your vehicle usage has changed and you are now using it to commute to work or if your commute distance has increased.
• Commercial activities – If you are using your home or automobile for business purposes, this constitutes a material change in risk. Commercial activities could include operating a home based business, renting your home or cottage, or using your vehicle for delivery or to work for a rideshare company.
• Valuable articles – If you have purchased any items of significant value such as jewellery, artwork, collectibles, all-terrain vehicles, etc., remember to contact your insurance broker to discuss if additional coverage is necessary to insure them under your policy.

Remember that not all material change in risk increase your insurance premiums. Some can have a beneficial effect by reducing risk and ensuring you are properly insured.

How Material Change in Risk Can Help Reduce Premiums

• Home renovations – Undertaking certain changes to your home can improve its risk profile and therefore help reduce your premiums. The addition of a sump pump, backwater valve, security system, tankless water heating system, or the conversion of wood-burning fireplace to gas can all qualify you for home coverage discounts. Some renovations, such as upgrading heating, wiring, or roofing can have a positive impact on your home’s risk profile and may also reduce premiums.
• Changes in home usage – Remember to report if your home is being occupied by fewer people. This may change your risk rating and make you eligible for a lower rate.
• Modifying your vehicle – If you have added a security system or use winter tires on your vehicle, these changes should be reported to your insurance broker.
• Changes to your vehicle’s use – Remember to report if your vehicle usage has changed and you are now using it for a shorter commute or you are no longer using your vehicle to commute to work.
• Commercial activities – If you stop using your home or automobile for business purposes, this constitutes a material change in risk and should be reported to your insurance broker to make the appropriate changes to your policy.
• Valuable articles – If you have sold or disposed of any items of significant value such as jewellery, artwork, collectibles, all-terrain vehicles, etc., remember to notify your insurance broker so they can be removed from your insurance policy, if necessary.

Marsh’s Private Client Services (PCS) specializes in the design, placement, and servicing of Group Home and Auto Insurance Programs and other voluntary benefits for over 250 employer groups and associations across the country. The PCS High Net Worth Practice is a leader in servicing the personal insurance needs of affluent individuals and families.

Personalized and knowledgeable service has made PCS one of Canada's leading personal lines insurance brokerage businesses for more than 50 years. Through more than 100 Canadian colleagues, we've assisted thousands of clients in selecting insurance coverage to protect their personal assets and guard against liability risks.

^{This article is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.}