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.

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.

‘Tis the Season (Hurricane Season, that is)

We will all be watching carefully as Hurricane Earl chugs up the coast this week towards Long Island and the rest of the eastern seaboard. If you want a little more info on hurricane preparedness, here are some handy links:

Here are some handy links on hurricane preparedness:www.ready.gov is fema’s site. www.southamptontownny.gov has a cool book you can download. Suffolk has info athttp://www.co.suffolk.ny.us/departments/firerescue/ and the Town of Babylon info can be found athttp://www.townofbabylon.com/emergencyinfo.cfm

Suffolk to hold Meetings about Hurricane Preparedness and Home and Flood Insurance

Starting tonight and for the next several weeks, the Suffolk County Department of Fire, Rescue, and Emergency Services is holding a series of meetings around the County where the topics will be Hurricane Preparedness, as well as how to understand your homeowners and flood insurance and make sure you have the protection that you think you have.

Each meeting will have a presentation from the County, as well as a representative from the Board of Directors of the Independent Insurance Agents and Brokers of Suffolk County. I will be at the one tonight (May 26) at the Tanner Park Senior Center in Copiague, as well as the one in West Islip next Thursday at the American Legion Hall on Union Blvd. Times are 7-9. Other members of our Agent’s Association Board will represent the insurance industry at the various other meetings. 

For more information please visit www.suffolkcountyny.gov/MEND

FEMA Flood Insurance Program Allowed to Expire

Greetings all, and sorry it’s been a while since I have posted. But there has not been a whole lot of news to report until now.

The Federal Government, in its infinite wisdom, has allowed the FEMA National Flood Insurance Program (NFIP) to expire as of yesterday, March 1 2010. This is due to the fact that one senator from Kentucky is currently blocking ALL legislation. The Flood Insurance Program has often been used as a political ‘football’, with senators and congresspeople in non-flood prone areas using renewal as leverage to get things they want.

The good news is that if you currently HAVE flood insurance, it will stay in force until your renewal date. We expect that Congress will take action very soon. The bad news is that if you were getting ready to buy a house, you can’t currently buy FEMA flood insurance here on Long Island or anywhere else.

This will probably be taken care of within a few days, but if it’s not, there are alternatives to the FEMA program that would enable you to go through with the purchase of your home. Contact us for more information.

Quick Update on Long Island Flood Insurance

Summer is the season where everybody on Long Island has much better things to do than think about their insurance (as opposed to the rest of the year, when it’s everybody’s favorite pastime). But there is one item I wanted to post about since it may affect some of the readers.

FEMA, the government agency that oversees the National Flood Insurance Program, has been in the process of re-mapping Nassau and Suffolk counties, which is done about every 10 years. This is the first one for our area since Katrina so expect some changes.The new maps take effect next summer.

But in the meantime FEMA is hosting two meetings in Nassau County for anyone who might be interested in more information. The meetings will run from 4 to 8 p.m. and will be on September 9 at Valley Stream High School on Fletcher Blvd and September 10 at Long Beach Middle School on Lido Blvd.According to the Newsday article, 28,000 more buildings will be brought into flood hazard areas next year when the new maps take effect, and of those, the people who have mortgages insured by FNMA and other government backed plans will get a letter advising that they are now required to buy flood insurance where they did not have to before.

In the meantime, people have an opportunity to be ‘grandfathered’ into the maps and plans that are in effect now. If you buy flood insurance before the change next summer, and your flood zone changes under the new maps to a higher rate, you will still be able to keep the previous zone. So if you think you might be on the border of a flood zone, and may be in a higher rate class next year, you might think of buying coverage now to lock in your current zone.

Insurance Issues as we head into Hurricane Season 2008

Greetings all. have not posted in a while about the Long Island homeowners insurance market because it has been ‘more of the same’ for a while now. That’s not to say the situation has gotten better, but change is what makes news, and there have not been many changes making their way to the public for a while.

It seems a little strange to be blogging about hurricane and flood catastrophes as I sit in my office and look out on to one of the most beautiful days we have had. Still, the 2008 hurricane season is underway, with Bertha chugging around the Atlantic as a reminder. Of course once again you can find experts who are saying that this season will be more active than normal, but those same experts have been saying that for several years and so far they have been wrong. I only wish I had a job like the weatherman, where I could be wrong half the time and still get paid.

There has been one interesting development recently that could make it easier to get homeowners or similar insurance down near the water. The New York Property Insurance Underwriting Association has been permanently authorized by the state legislature. This may not seem like much to the average person, but for years now, this New York State-backed insurer of last resort has had to be re-authorized every year, and has been held hostage by various groups within the legislature. They would only authorize the renewal if downstate legislators, who had to make sure this coverage was available to their constituents, would in turn vote for other things that they did not necessarily want. Ain’t politics wonderful?

In any event, they have now been made permanent. In addition, they have been authorized to offer broader coverages, and incentives to partner with regular insurance companies who would then be able to write supplemental coverage known as ‘wraparound’ so that the two policies together will provide something closer to a homeowners policy. Naturally it will take some time to put this in place, but kudos to the state legislature for getting this done.

Meanwhile, on the flood insurance side, the re-mapping of Nassau and Suffolk Counties continues. Newsday had a big article this week on the changes that are being revealed now in Nassau. A lot of folks who were previously right on the edge of a ‘special flood hazard area’ as defined by FEMA and the National Flood Insurance Program may now find themselves drawn into the hazard area by the new maps, which use more accurate mapping techniques as well as information drawn from the government’s experiences with Katrina and other flooding situations.

If you think you are close to a flood hazard area but not in one, you might want to think about buying flood insurance soon. If you are outside the zone, in what’s called a ‘preferred zone’ and buy coverage at those low rates, then it changes, you are grandfathered in to the low rates for as long as you keep your home. The difference can be thousands of dollars. And if it turns out that you were NOT one of those now lumped in to the higher hazard area, you can always stop carrying the flood coverage in a year or two when we know more about the new maps.

As always, for more information you can contact us through our web site at www.NYInsuranceWithSerivice.com.