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 or

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 ( ), 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. ( 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 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. 

Friday, September 23, 2016

What you and your agent don't know can hurt you

Our office always spends a lot of time educating ourselves about flood insurance because we deal with it on a daily basis. In fact, when this call that I am about to describe came in, I was in the process of actually reading the FEMA Standard Dwelling form, which I haven’t done in a year or so, just to keep it fresh.

I just had a phone call from a potential client. He lives in the next town over and is distressed because his flood insurance renewal went up by $1,000, to $4500. He contacted his long time agent, who represents one of the big direct writing companies. His agent has been a great help for many years on many things, but when asked about this, just shrugged his shoulders and said ‘it’s FEMA, it’s the same for everybody, and I wouldn’t know how to help’.

This agent is, I’m sure, a nice guy and very good with traditional auto and home products. But he is like many others in that they have been trained that flood insurance is just FEMA and there are ‘no differences’. In some ways, I can be selfish and say I like the idea because it means our office will look that much better, but I’m not that kind of person, and what it means to me is that people are paying more than they should be.

Unfortunately for clients, this scenario plays out daily all across the country. Not only is all flood insurance NOT the same with a new crop of private flood insurance policies available now and new ones coming out all the time, but knowledge of FEMA’s rules often allows us to find errors and choices that can reduce the rates.

From the price this person told me they were paying, I can almost guarantee that they are carrying a very low deductible, and quite possibly also getting the $250 non-primary residence surcharge if they or their agent did not follow up on the requests sent by FEMA in the past 2 years.
I was able to give him three suggestions, one or more of which I am quite confident will save them money, and if not, they will know they have a correct policy which is still better than ‘I Don’t Know’.

The person told me that they only got a couple of inches of water in their basement in the Sandy storm. So that is an indication that the house may be high enough to qualify as ‘elevated’ by FEMA’s definitions. So I referred them to an engineering firm (Gayron-deBruin) that has a unique way of handling elevation certificates. They charge a $75 fee to look at public records and maps and see if the house is likely to qualify. Then if that checks out, and you want to go on to the next step, it’s $225 to have them come and look and then IF at that time it is determined that you will benefit from an elevation certificate or LOMA (Letter of Map Amendment) they charge an additional $300. That brings their charges to the same as most firms, but ONLY if you proceed through all the steps. If they determine that the certificate will not help, the charges stop. So instead of being at risk for the whole $650 or so right from the start, many people are able to stop after the initial $75 or $225.

After it is determined whether an elevation certificate would help, our next step will be to review their current policy and suggest possible changes or corrections to lower the rate.
The final step will be to check with the various private flood insurance carriers to see if they offer a lower rate. However with the rules currently in effect, we also have to be VERY careful about moving anybody OUT of FEMA because until congress passes an expected new regulation, if a client leaves FEMA for more than 60 days, they will lose ALL their pre-Firm subsidies and have to pay the actuarial rates. This is yet another way that agents who do not keep up with all the changes might damage their client rather than helping.

This is a little long, but it’s important and it’s happening right now. For more info please contact me or our office at or

Thursday, September 01, 2016

Flood Insurance - It's not just for Hurricanes Any More

It's storm season, folks. And in addition, increasing numbers of floods are happening in non-flood hazard areas. Two thirds of the people in the recent Louisiana floods did not have flood insurance because they were 'told they didn't need it' because they are not in a high-hazard zone. AND there was only a rainstorm, not a hurricane or even a named tropical storm.

In the rainstorm that affected us here in Babylon and surrounding areas in August of 2014, I lost a 6 month old SUV on Park Ave in the Village to the floods, nowhere near 'the water' (Great South Bay or Ocean). In this case, over the years, increased covering of the land by buildings and parking lots to the north of us, in North Babylon, Deer Park, and Dix Hills, has messed up drainage and runoff, has caused water to stream down from towns north of us. Where years ago it was absorbed by open land, now gravity still causes the water to run south towards the bay, but it has no place to go except in the roads and streams.

FEMA bases it's flood zones mostly on STORM SURGE from bodies of water. but even if you are not near a river, lake, bay or whatever, if you get 25 inches of rain in a day, like they did in Louisiana, drains will be overrun, and there WILL be local flooding. I was speaking with the local building inspector the other day, and he was explaining that our drainage systems are designed to handle up to 5 inches of rain in a day. The rate they were getting hit in Louisiana was 4 inches PER HOUR!

New data by AON/Benfield that we were introduced to a couple of weeks ago at the National Flood Services annual conference, is gathering lots of information on things like how much rain our municipal drainage systems can handle, where trees are likely to come down and cause a natural dam that can bring on a flood, and even where rubble from damaged buildings and trees is likely to accumulate and block waters.

They are able to do this thanks to new military-grade satellite photos and info, Google Earth, and more. As with many business models, they will be using the information to try to be sure they are charging the correct rates, which are in some cases higher and in some cases lower than what FEMA does by drawing general 'flood hazard zones'.

It's going to be an interesting few years as storms continue to intensify, sea levels continue to rise, and more products and options come to the flood insurance marketplace on Long Island and all over. And it will become more and more important to buy your flood insurance from someone who knows the ropes because it also is not just FEMA anymore, and pretty soon the rates will NOT all be the same.

For another interesting article from a trusted source, see this article from Consumer Reports: