Tuesday, June 20, 2017

To Conferences I Go...

Regular readers will remember that in March I went to Washington D.C. for a big flood insurance conference. Recently I signed up for another in Kalispell, Montana in August, which will be right before the National Flood Insurance Program (NFIP) is renewed by Congress. The content of the legislation should be known by then if they keep working at the pace they are now.

Apparently there is a lot of agreement on both sides as to what they want the bill to accomplish. Basically they are opening the system up to private insurance carriers, while still maintaining affordability standards that are part of the goal of the whole system. As you might expect, it is difficult to balance affordability with charging the correct rate for coverage. It’s a goal that really only a government can have, based on the societal goal of helping people stay in their homes in spite of the fact that sea levels are rising and the claims on flood insurance are rising each year.
Private insurance carriers have to make a profit. So they need to charge rates that will allow claims to be paid. That’s the conflict. But congress is looking at some innovative ways, like tax credits for lower income people, to help them pay for coverage.

But the news for the consumer is mostly good. The private flood insurers are able to use much more data than the government, to figure out the right rates. And frankly, many people are paying too much, based on current flood ‘zones’ that are very coarse, as opposed to the new data that is available, which will be able to tell the insurance carriers which homes that are ‘in a flood zone’ can be written at a lower rate.

Anyway, these conferences are great. They give me a chance to talk to people in other parts of the catastrophe insurance industry such as claims adjusters and the actuaries who figure the rates. I also get to hear interpretations and analyses from people very high on the ladder of such things. So I come back not only having read the rules, but also with some information on the intent, and how they will be enforced. Finally, I am able to develop great contacts at our insurance companies, which enable us to get quick, definitive answers we might not get by calling ‘customer service’. We all know from experience with phone, cable, banks, etc. that dealing with first line customer service can be frustrating. Not that the people don’t want to help, but often they don’t have the knowledge to answer any but the most basic questions, and we already know the answer to most of those!

Tuesday, June 06, 2017

All Flood Insurance is NOT the same...

We just had someone come in on their flood insurance. She is paying $3374 a year. She had gotten an elevation certificate but her agent said it would not help. Fortunately, the surveyor who did the certificate knows our office and told her to check with us. It turns out the correct rate for her insurance is $690!
Flood insurance isn't as simple as it used to be, and it's all about knowing the rules. Every house is now different. For many years, FEMA was the only game in town, and coverage was written based on very coarse 'zones'. But over the past 10 years, so many variables have been added to the calculation of rates, that it's much more individualized now.
Those factors include things like basement vs. crawlspace vs. slab, including HOW DEEP the crawlspace is. Another is where your utilities and furnace are located and if they are elevated. The year the home was built, it's elevation, whether it's for someone's primary home or seasonal or rental. How much venting is in the basement. And so on.
Now add to that the multiple markets that are now available for Private Market Flood insurance, meaning flood insurance NOT written through FEMA. This is a growing area and is quite likely to explode this September when the FEMA program is renewed by congress. In a show of bi-partisanship, there is already a lot of agreement on both sides as to what needs to change in the program, and both houses of congress realize that flood insurance is very important.
It's a challenge even keeping up on all the changes, but for an insurance geek, it's also fun. Watch this space for ongoing info. Or visit our web page at www.floodinsuranceny.com

Monday, October 24, 2016

What is Private Flood Insurance?

Up until very recently, the only game in town for most homeowners for flood insurance was the National Flood Insurance Program (NFIP), underwritten by FEMA and backed by the government for claims payments. This system came in to existence in the 1960’s when it was decided that although private companies are well able to SELL and SERVICE flood insurance, the potential for giant losses when whole areas are hit by a flood could only be taken on with the taxing power of the U.S. Government to back it up.

Meanwhile, last time I checked, FEMA was IN DEBT to the federal treasury for over $23 billion. This is primarily because, when the program was put into effect, everybody whose home had been built before the program started was ‘grandfathered’ into rates that were subsidized, by almost 75%! So as storms have increased, FEMA keeps having to pay out claims that will end once the houses are replaced and properly lifted. A lot of this started with Sandy but will continue as each storm destroys a few more.

Fast forward to 2016. Now, rather than the government being the only one with the capital to support the claims, instead there is a capital glut because the wealthy around the world have so much money that they need places they can invest it for more than the typical returns on bonds and interest bearing savings. So there is plenty around to finance insurance reserves.

The other thing that happened is ‘Big Data’. The insurance companies who are starting to write private flood insurance policies use much more advanced mapping and data to pick out those houses that can be insured for a lower rate. They also get to eliminate about 16% in charges and fees that FEMA requires.  As I found out at the National Flood Services products and services conference in August, (when I attended as one of 5 agents from across the country) the new data includes things like trees and shrubs that may block municipal drainage systems, actual elevation down to the specific house, and much more.

Not only are the private carriers writing certain homes for lower prices, they also are including some coverages (like basement contents in preferred zones, and the the expense of living away from your home while your home is repaired) are not offered at all by FEMA. So far we have found about 10 of these different coverages among the five private flood carriers we now represent, and the choice of which you go with may depend on your specific situation.

For instance, if you have nearby relatives with a big enough house, you might say that coverage for renting another place or bringing in a trailer is not as important. But you if you also know that your house is not built to current building codes and would cost a lot more to rebuild after a major storm, some companies offer higher limits of ‘Increased Cost of Construction’ (ICC) which might benefit you more.

As always, for more info, contact our office at www.nortonandsiegel.com or www.floodinsuranceny.com

Thursday, October 20, 2016

Is My Insurance Company 'A-Rated'?

I just got a question from a prospective client about what the financial rating is for the companies we have used to quote coverage for the home they are buying. The answer is not so simple, so I thought this would be another good subject for a post.
A lot goes into a carrier’s financial rating, but mostly it’s about analyzing their ability to pay claims, and the biggest issue there for us on Long Island, and particularly on the South Shore, is catastrophic windstorm. This can be a hurricane or just high winds. But the problem is that it affects MANY homes rather than just one or two. Virtually all insurance companies can easily pay for one or two homes that, for instance, burn completely to the ground. But the idea that a windstorm could damage THOUSANDS of homes in the same area at the same time could bankrupt an insurance carrier who is not that stable.
Since the financial meltdown of 2008, AM Best (www.ambest.com ), the oldest and most respected rating company, has gotten much more conservative in their ratings. This is due to a number of factors. For one, the accounting mumbo jumbo that led to a lot of losses in the meltdown, was hidden even from the rating companies. For another, global climate change is drastically changing the exposures near the coast. So companies who write homes near the water have a much tougher time getting that coveted A rating.
In the meantime, most of the biggest traditional insurance companies (Travelers, Allstate, Hartford, State Farm, etc) have pulled back 2-3 miles from water in what they write. So the negative impact of waterfront and coastal property on their financial rating gets greatly reduced, as opposed to other, mostly smaller, companies who are finding ways to take on this risk.
Another ratings agency has sprouted up called DEMOTECH. (www.demotech.com) also gives financial ratings. One thing you will hear from insurance reps is that there are a couple of companies out there who are rated A by Demotech. But in many cases THESE COMPANIES ARE NOT EVEN RATED BY AM BEST! Others have an A rating from Demotech but B or B+ from AM Best.
The reason is fairly straightforward. A lot of the investment capital, and reserve funding that the Demotech A rated companies use to back up claims payments comes from promissory notes from private investors such as billionaire George Soros and others. These investors have been chasing returns that are higher than the 1 or 2 % you can get on bank accounts and bonds these days, and have turned to complex insurance investments. Demotech counts these ‘promissory notes’ as if the insurance company already has the money. AM Best does NOT count these and so may assign a lower rating to a particular company. But again, many of the companies rated A by Demotech are not rated AT ALL by AM Best, and are not even eligible to be looked at by them.
The final point to make is that if the insurance carrier is admitted in the state of New York, coverage is also backed by the New York State Insurance Guarantee Fund. This is comforting, but after seeing what happened with NY Rising, relying on the state government could be frustrating. You might get paid by them eventually but it would probably take several years, which could be a big problem.
Bottom line? Deal with someone you trust, and ask questions and research a little yourself so you know what questions to ask.
Visit us at www.nortonandsiegel.com for more info.

Tuesday, October 18, 2016

Was This House Ever Flooded??

One of the questions we get the most from real estate agents and prospective home buyers is ‘How do we find out if a house has had flood damage?’ This is a great question, especially here on Long Island and other coastal towns in the Tri-State area after Sandy, when a lot of homes were flooded that never had water in them before.
The answer is both simple and hard at the same time. Most insurance companies report losses to a company called C.L.U.E. which stands for Comprehensive Loss Underwriting Exchange. It’s a service most insurance companies subscribe to which lets them share information on losses based on address, name, and more.
After Sandy, one of the things FEMA did was have some meetings with agents and brokers about how things were being handled. One of the questions brought up there was how the next generation of buyers would know if a home had flooded in Sandy. We specifically asked if this information was going to be made available via the C.L.U.E. or other system.
Their answer was that they consider this private information and will make it available ONLY to the property owner. Why they think this is an issue for them and not for every other insurance company doing business out there, is beyond me. As usual, they are the government and they are here to help…
So what’s the simple answer? It’s that on all flood insurance renewal policies sent to the property owner, there is a page that includes any flood insurance losses that the home has had! So you just need to ask the current property owner to show that page. It will either have the claims listed, or indicate that there have been no claims. If the property owner has already given you the correct information, this will confirm it. If they have said there have been no losses but are reluctant to provide the proof, it’s probably time to worry. And if they say they don’t have it, that can easily be solved by asking the agent/broker on the policy.
Conclusion – don’t buy a house or other property without getting the right information. Flooding is going to get worse, not better.