Compulsory home insurance – a solution to major crisis situations and the sustainability of the building.

Compulsory home insurance – a solution to major crisis situations and the sustainability of the building.

Andrius Bakštonas, CEO of Civinity Latvia

Water supply has bursted, an electrical device has gone out of order, a tree has fallen on the roof during a storm – every owner of a private house knows that various technical troubles can occur suddenly and expects that repairs will not be cheap. However, a different situation is developing in apartment buildings. Its residents often think that their property ends at the door of the apartment, so they are unpleasantly surprised by the additional expenses to prevent the consequences of various accidents. What to do?

It should be reminded that the walls of the house, roof, facade, stairs, risers, as well as “stuff” such as windows and doors in the staircase is a common property, which belongs proportionally to all apartment owners. And owners have to pay for its’ repair.

However, the financial resources required can be quite large. A particularly tragic situation can arise if an accident of such a large scale occurs as the recent gas explosion in a building at Melnsila Street in Riga. Of course, such a big accidents as fire,  exploding gas, storm-torn roofs are very rare. Most often you have to face elevator damage in case of water leakage or electricity fluctuations, cosmetic damage to the staircase, mechanical damage to the entrance door, car gate.

For example, in a nine-storey house, eliminating the consequences of a fire in a staircase, costs about 7,000 euros, or an average of 200 euros for each apartment owner. This amount must be found either in the savings of the house or in the wallets of the apartment owners.

However, the amount of money that residents are able to save for possible repairs is usually not large. The calculations of Civinity shows that the average savings of a house is 0.07-0.15 euros per square meter. Calculations of the financial sector show that only about half of the Latvian population wants and is able to save some money. It should be noted that the cost of construction work has risen significantly in recent years and will certainly continue to do so, so any major repairs, especially as the situation of house at Melnsila Street, means huge costs.

With regard to the proper maintenance of houses, it cannot be ignored that more than 90% of apartment buildings were built before 1990. Serial houses built in Soviet times are rapidly becoming obsolete, especially in Riga, where their renovation has been slow. The technical condition of houses built in the pre-war years is often critical. It is clear that in many situations, residents will not be able to solve all their home problems. And the need to find a few hundred euros for the repair of a staircase in your home can only cause another headache, nothing more.

For the reasons mentioned above, in my opinion, insurance should be used more actively in Latvia. It is not for nothing that it is also called – elimination of the consequences of prepaid accidents. Indeed, it is possible to insure not only an individual apartment, but also the entire apartment building. In the houses managed by Civinity in Jūrmala, many residents have already chosen to insure their home. We see that it has already paid off for the people. For example, in the apartment on the top floor of one of Jurmala apartment building, a hot water filter broke, the leaked water damaged the ceiling and walls up to the basement and underground parking. Because the building was insured, residents did not have to think how to raise funds for the repair of the staircase, and the operator was able to quickly repair the damage.

Insurance of the whole apartment house means that both the apartments and the building itself and its structural elements are financially protected. The second important aspect – the insurance of the whole house costs one person less than the insurance of an individual apartment, because the expenses for the policy are shared jointly and severally with all the residents of the building.

Calculations show that in the case of building insurance, additional costs for residents could be small, for example, for a 50-square-meter apartment in a Lithuanian project houses, home insurance could cost 80 cents a month. You will agree, an incomplete euro per month is not a large amount compared to the need to suddenly deduct several tens or even hundreds of euros from the family budget.

Of course, about a third part of homeowners use home insurance, also because it is required in the case of bank mortgages. However, individual home insurance only covers the financial risks related to the apartment, it does not reduce the headaches in case of need to rebuild, for example, a broken elevator or to repair the damage caused by strong winds.

I believe that in Latvia there should be a compulsory insurance for apartment buildings, similar as insurance for cars. This would mean not only a lower financial burden for the residents, but also better maintained buildings and, consequently, security for apartment owners. At a time when there are occasional public debates about the future of Soviet-era houses, and given that those apartments are still being bought and sold in such buildings with long-term financial commitments, this is very important.