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.

Recent Changes in New York Insurance

It’s been a while but the insurance marketplace has been quiet. Still, there are a couple of new items to report.

Across New York state, a law was passed a while back making it illegal to be using anything other than a hands-free phone while driving. I don’t know how it is in the rest of N.Y. but here on Long Island it seems that almost half of the drivers going by my office every day are on a hand-held phone. But now the law has been given more teeth. As of yesterday, a cel phone violation will now add two points to your NY driver’s license and motor vehicle record. That means that if you get a couple of other tickets, a cel phone violation could be the difference that causes your license to be suspended (for accumulating more than 11 points in an 18 month period). Insurance companies will also be more likely to charge for cel phone violations now, although New York car insurance companies use a different point system.

Research has shown that driving while talking on a hand held phone gives you about the same chance of having an accident as driving while under the influence of alcohol. So this is a real issue. Of course, so are other distractions such as applying makeup, texting (possibly the worst) or reading the paper while drinking coffee. The bottom line is that when you get behind the wheel you are now in a potentially deadly weapon, and we all need to be more careful.

Meanwhile in the Long Island homeowners insurance market, if anything it has eased up a little, though the larger carriers continue to cancel and non-renew some homeowners policies, especially along the south shore in Suffolk County. But some new, smaller insurance carriers have come into the market, and competition has caused some pricing to drop. So if you had to buy expensive homeowners insurance because you were canceled or you bought your waterfront home in the past couple of years, you might want to contact your agent to see if he or she can shop around for you a little.

‘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