Massive California Wildfire Losses

This is a HUGE number for a fire loss. Fortunately the reinsurance system for fire has been well in place for a long time and this is well within their ability to pay. but the trend is concerning, especially since there is another 50,000 acres burning right now. overall this is part of the ever-increasing catastrophe losses world wide that in the long run will cause insurance costs to rise and there is no getting away from it, no matter how many people think they can make climate change go away by denying it.

http://www.apnewsarchive.com/2017/Officials-say-the-wildfires-that-ravaged-Northern-California-wine-country-two-months-ago-have-generated-9-billion-in-insurance-claims/id-d7bf0d1e5e0d47ea885a872ccaa8d7f5

Tidewater, the film. The Navy believes…

Last week at the Future of Flood Summit 2017 in Miami, they showed this film, called Tidewater, about the rising water level in and around the US’ largest military installation, Hampton Road, Virginia. The Navy believes…

 

https://www.amresproject.org/tidewater-film/

 

Future of Flood Insurance Summit 2017, Miami, Florida+

I attened the Future of Flood Insurance Summit in Miami this week. With the whole FEMA program being re-authorized and private carriers anxious to get in the market, it’s an exciting time for an insurance geek.

One fascinating situation we heard about from an attorney involved in the case is happening in Houston. There are now two defined parties in a class action suit for Inverse Comdemnation, where there properties were effectively destroyed due to government action. The two different parties are the ones who lived ABOVE the flood control equipment, who flooded because the authorities held back on opening the controls to let water through, because that would flood the communities BELOW the equipment. The second group is the group BELOW the equipment, who ‘only’ flooded because the water was released!

A no-win if there ever was one.

Great analysis of major long term problems with the National Flood Insurance Program

I did not write this article and in fact credit Kelly of our office for finding it. We both do a lot of reading to keep up, and of course we are following the events in Houston with great interest.

Anyway, this article describes how government subsidized flood insurance is only a band-aid and in the long run is making matters much worse:

http://theweek.com/articles/721185/perverse-incentives-national-flood-insurance-program

 

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!

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 whodid 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

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.

Continue reading “What is Private Flood Insurance?”

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.

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.