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 www.floodinsuranceny.com or www.NortonAndSiegel.com.http://www.floodinsuranceny.com

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:

Stirring the Pot in Flood Insurance, on Long Island and all over the country.

Nationwide insurance, through their Harlesville division, is pulling out of the FEMA Write Your Own (WYO) flood insurance program. This affects us on Long Island and all over. This is by no means unprecedented even among the large carriers, as Travelers, State Farm, and others have already done this.

HOWEVER, there is a major issue here. When State Farm pulled out of flood insurance coverage, I can understand that the agents did not want to lose their customers. BUT the policies were all transferred to FEMA directly, making them the largest writer of flood insurance policies, which is against their charter.

The reason is simple. In a capitalist ‘free market’ economy, the government is only supposed to do the jobs that can’t be done by the private sector. Hence FEMA is not involved in the sale or processing of most flood policies, including claims handling. These and more are handled by various private carriers and servicing operations.

So when Storm Sandy came, those insured directly with FEMA found out that FEMA is NOT set up to deal with customers or their claims. While there naturally were issues with the unprecedented damage caused by Sandy, by and large most people had decent results. The worst claim problems were those directly with FEMA.

So insurance producers, be on the lookout for FEMA policies, you will be doing a great service to your client by placing them through an active WYO carrier. For more information please visit our web sites www.floodinsuranceny.com or www.nortonandsiegel.com, or call our office at 866-669-0365

Back to the Business of Flood and Home insurance in New York and New Jersey

Welcome back to our Blog. It’s been a good while since I have posted, but I’m back and there will be more good information here on home, flood, and auto insurance for the New York and New Jersey marketplace.

The insurance market is changing very fast these days. Especially when it comes to flood insurance and excess flood. There is now a new kid on the block, known as Private Market Flood insurance. What that means is that the coverage is NOT written and backed by FEMA or the National Flood Insurance Program (NFIP). It is written by private insurance companies, mostly Lloyd’s of London. It generally gives the same exact coverage as FEMA flood policies at a lower rate.

But not everybody qualifies, it’s on a case-by-case basis. Each property has to be checked according to the company’s maps and other qualifications. And the overall problem with flood insurance is that FEMA is paying out about $4 for every $1 it takes in, so they are losing money all the time. It’s hard for a local agent like us to figure out how Lloyd’s will make money when FEMA is losing their proverbial shirts, but they think they have it figured out. It will be interesting to see if these policies are still available if we have a couple of years of bad storms.

Meanwhile, FEMA’s program continues to have rate increases and get more and more complicated. A few years back there changes to the Flood Insurance Rate Maps for a lot of the New York/Long Island/New Jersey coast. At that time, there were some homes moved IN to flood hazard zones, and many who were moved OUT.

But the responsibility for making sure the corrections were made was left to the AGENT! So we have seen many FEMA / NFIP flood insurance policies with huge mistakes in the rating. Plus a lot of people are neglecting to fill out forms for their renewal policies. These forms confirm that this house is your primary residence. If it’s a seasonal, secondary, vacation, or rental property, there is a $250 surcharge. If it’s your primary residence, the surcharge is only $25 so there is a $225 difference, with many people paying too much.

We will be posting more often so keep us in your sights. Next up – IS CAR INSURANCE GOING AWAY?  And as always, for more information or to contact us, visit us at www.nortonandsiegel.com

SCARY NEW HOMEOWNERS INSURANCE RESIDENCE REQUIREMENTS

Hi all. It’s been a while but i have a few items to post about. This is the most important one. No matter where you live in the country, residency requirements are about to change BIG TIME for homeowners insurance. The new language says you MUST be living at the residence premises at the time the policy starts and each year when it renews.

There are many problems with this, but let’s just pick a few. What about snowbirds? What if you go into the hospital and then to a rehab center for 3 months? what if you just bought the house and want to do some work on it for a few weeks before moving in? what if you head for North Carolina and let one of your kids live in the house?

Anyway, this is going to be a HUGE issue so if you think you may have any such risk, be sure to talk with your agent. There is a partial solution in the form of a paper you can file with the insurance company advising them of the dates you won’t be there. But first of all, who thinks of that? and second, THE FIX HAS NOT YET BEEN APPROVED IN NEW YORK. But the basic language that causes the problem HAS been approved and will be taking effect at some point for most insurance carriers.

CHANGES IN THE NFIP FEDERAL FLOOD INSURANCE PROGRAM FROM FEMA

09These days our office is fielding more and more calls from people on Long Island and elsewhere who have gotten big increases in their flood insurance rates. In most cases, the increases are NOT correct, but many insurance agents and brokers who don’t write that much flood insurance are also not sure why the rate went up in each case, and then not sure what to do to correct it.

The short version of the story is that back in 2012, a few months before Sandy hit Long Island, New Jersey, and Connecticut and did a huge amount of flood damage, congress passed a change to the National Flood Insurance Program called the Biggert-Waters Act. The basic problem is that the FEMA flood insurance program is losing large amounts of money, and only collecting about 25% of what they pay out in claims. Biggert-Waters made many changes but most especially called for large rate increases on homes built before the National Flood Insurance Program went into effect. The increases would only take effect when the homes were sold, or if the home was not the primary residence of the owner (in other words, a seasonal or vacation home, or a rental property). There were many other changes as well.

After the dust settled from Sandy and the real estate agents groups found out what the Biggert-Waters Act was doing to the resale values of older homes, they called forth the lobbyists who eventually worked out the Flood Insurance Affordability Act which took effect in May of this year. This basically undid most (though not all) of the changes that were contained in Biggert-Waters.

However, the companies that service the National Flood Insurance Program on behalf of FEMA and the federal government were not able to make all the changes needed to their computer systems to undo the Biggert-Waters changes which had only  taken effect a year or so earlier. So many Long Island flood insurance policies are coming in with much higher rates that WOULD HAVE been correct under Biggert Waters. Theoretically the insurance companies are supposed to make the corrections, but practically speaking, for now it’s up to the insured to question the increase, and his or her agent or broker should be able to help get it corrected.

Making Sense of Flood Insurance in the Current Long Island Housing Market

Welcome back after a long year post Sandy. Our office has been very busy handing wind and flood claims under FEMA flood policies, Lloyd’s of London specialty flood coverage and excess flood policies, and our various homeowner customers. And since we cover a big area, we have been working on losses in New York and New Jersey as well.  We in the office are proud of the work we have done.

Now comes another matter. What is going to happen to coastal and waterfront property values, with everything that has happened? Homes have been destroyed, neighborhoods decimated, and there are still a lot of people who have yet to even get back in! Now the questions come. Should we raise our house? What is flood insurance going to cost going forward? And how about homeowner’s insurance, which is where wind damage is covered?

The large insurers continue to cancel and non-renew properties they consider too close to the water. But the water is not what they are afraid of. It’s those lovely bay and sea breezes everyone talks about as one of the reasons they live by the water. Go a little ways inland, and the buildings and houses start slowing up the winds fairly quickly. In fact, hurricanes generally can’t survive long over land because they need to suck up their water supply from the ocean and their wind power from the strong currents over open waters.

As far as flood insurance, the answer is pretty complicated. And a lot of it is on a house-by-house basis. So you can no longer call us up with an address and get a fast flood insurance quote that is firm. A flood insurance elevation certification will be required with most sales in order to find out what flood insurance will really cost going forward.

The problem is that these certifications, which must be done by a licensed engineer or surveyor, can cost from $400-1000. If you are a buyer, and you want to look at a variety of homes in this market where plenty are available to look at, you would have to ask for a copy of the certificate from the seller, or pay to have one done yourself.

To me it would make much more sense if I were selling, to have a flood insurance elevation certificate done and offer a copy to any prospective buyer. I think right now that would give you a good leg up in making for a smoother sale. Once a prospective buyer has that certification in their hands, they can ask their insurance agent of choice to get them a firm quote or advise if anything needs to be done to get the best rate.

Flood insurance has gotten a lot more complicated. Make sure you get the right information or it could be very costly in the future, and i mean 3-4 years, not decades. There are homes which, if not raised, will find themselves paying almost $10,000 in the next few years for flood insurance. But DON’T PANIC, those are relatively few, and will have had multiple flood losses already, and so the point FEMA is making is, raise it or don’t expect us to keep paying you over and over for it.

Home Insurance – Going to the Dogs?

I read an interesting statistic recently. These days one out of every three homeowners insurance liability claims across the country is coming from the family dog! Those are lawsuits since they fall under liability, not cases where the dog chewed up a piece of furniture. And that is a national statistic, not limited to New York or Long Island.

Anybody who has changed (or been forced to change because you are ‘too close to the water’) home insurance in the last few years knows that you now have to answer a bunch of questions about your dog if you own one. Certain breeds are not wanted by almost any insurance company here on Long Island, where lawsuits are even more common than they are in other areas.

The latest development is that ISO, the Insurance Services Office who comes up with the standardizes policy forms used by many insurance companies all over the country, is including a canine exclusion in their next major revision to the homeowners policy form, due to come out later this year. That does NOT mean that all policies will immediately exclude dogs, but it DOES mean that, if approved by the N.Y. State Insurance Department, the exclusion will be available for insurance carriers to use.

I believe this has become one of the ‘dirty little secrets’ of why there have not been more insurance companies coming in to the Long Island area to write new homeowners coverage after the massive pullout by the ‘big companies’ that has been happening for several years now (think good hands, good neighbors, etc). I am not criticizing those companies for reducing their exposure to major storms in the New York coastal areas, because they definitely had too much financial exposure to large losses from the inevitable big hurricane.

But the companies that HAVE come in to fill the gaps, including Lloyd’s of London, and other ‘non-admitted’ insurers, have all included dog exclusions in their policies. They can do this because as non-admitted or excess lines insurers, they are not subject to New York rules. So while their hurricane exposure is greater, the day-to-day problem of dogs is gone. This also applies to their exclusions for trampolines, another seemingly minor thing that has become a major issue.

One company has even come up with a specific liability insurance policy to cover dogs. Unfortunately it costs $800 PER DOG! But the reason it’s so high is that they feel the only people who will buy the policy are those who feel they have the kind of dog who needs to be covered. So it’s not like most folks with a sort of normal, happy-go-lucky dog will feel they need it, but the ones with the pit bulls, dobermans, and rottweilers might.

We Haven’t Had a Hurricane on Long Island, How Come my Insurance Still Went Up?

Welcome back to me, as I have not posted in a while now. The market for coastal and waterfront homeowners insurance on Long Island and in the New York – New Jersey – Connecticut area in general has, if anything, gotten a little better in the last year or so, with a few more carriers coming in to the market, and some companies at least NOT canceling as many people as they were 3 and 4 years ago. In addition, prices for insurance with the ‘excess lines’ markets such as Lloyds of London, Scottsdale, and many others, have been driven down by competition. This is/was especially true in the past several years where we have not had major storm activity.

But in the most recent six months, there has been a ‘firming’ of prices and some tightening of underwriting coming from these excess insurance carriers who are the ones taking the risk on houses closest to the shore. The question becomes, why? There are several reasons at play.

For one thing, it does not take a rocket scientist to figure out that in ANY type of insurance, but especially a line like home/fire insurance where there is a potential for catastrophic losses, rates can only go down so far before they ‘bounce along the bottom’. That’s the price at which companies start to notice that their profit margin is being squeezed. Insurance companies, if run properly, can make money, but it comes from relatively very small percentage profits on huge dollars. So when you are working on a 5% margin, or even less, it doesn’t take much to turn your results from black ink to red.

The next thing that’s having an effect on all insurance company profitability is the low interest rate environment. When the insurance company is able to get a decent income on their holdings, competition can force them to lower or hold the line on rates they charge to customers. But since most insurance companies invest mostly in interest bearing bonds, and we know what rates are available on those, their investment income has dropped substantially in the past few years.

Finally, the string of catastrophes in other parts of the world has an effect on the reinsurance market, which is where insurance companies buy insurance for themselves against the major catastrophes. That spreads the risk out all over the world, but unfortunately we have seen more and more events like tornadoes, tsunami’s, massive flooding, and other things that, even though they might not happen here, still affect rates for property with a high catastrophe risk.

Problems with the National Flood Insurance Program

The National Flood Insurance Program, run by FEMA, comes up for renewal again in September. There have been several lapses in the program in the past few years because it gets used as a political football. Members of congress who are NOT in flood-prone states hold up their votes to force others to support their particular bills and projects. Congress is trying to start work early on the process, but there are several obstacles.

The biggest obstacle is that the whole FEMA Flood Insurance program, both here in New York and around the country, has been losing money for years, where it is supposed to be self-supporting. Naturally that means higher rates but that is not a very popular idea with members of congress.

Another area they have been looking at is whether catastrophic windstorm (hurricanes) should be added to the flood insurance program. Hurricanes are not so much of an issue in the Midwest where they are experiencing record flooding because of record snows this past winter. But here on Long Island and all along the east coast, hurricanes are a HUGE issue and something that needs to be addressed.

So some politicians want to add wind coverage to the flood insurance policy. But others are against it for several reasons. First, it is available in the private market and our system of government is based on private business wherever possible. But also, if they have been losing money on the flood insurance, chances are they would just lose even more money if you added windstorm coverage.

Today the GAO (General Accounting Office) issued a report that severely criticized the management of the National Flood Insurance Program, and says that if they don’t make significant changes, they will never become profitable. So again, the fear is that if they were to add windstorm coverage, the program would lose even more money.

I just hope they figure it out quickly enough that the basic program is renewed in September.