Shepard on Insurance Current events and feedback on insurance

The worst time to figure out if you have chosen the best home insurance policy to meet your needs is when you have suffered a large loss. So, here are some pointers to help you be certain you have made the right choice for you and your family.

Critical Points

With the recent storms we have experienced in the Northeast the first point to consider is to view your insurance as a vehicle to address large claims. Figure out how much you can personally handle as a small loss, and use this as your deductible, keeping your premiums and claims to a minimum.

1. A traditional home insurance policy has two key values that drive your coverage.

Dwelling Replacement Cost - the amount it would take to rebuild your home in the event of a fire.

Contents Replacement Cost - most policies provide 70% or 50% of your dwelling replacement cost as automatic coverage and this may be more that you need. Lowering contents will save money on each year's premium.

2. Premium or Basic Coverage - a basic policy has strict limits on coverage in comparison to a premium contract, where the guarantee to rebuild is without a cap.

3. Deductibles - with all the storms the deductible is becoming a more important issue. Deductible credits used to be capped (limited), but to encourage insured's to accept the responsibility for small claims, caps are being removed. Start with a deductible of 2% of the dwelling and consider moving it to 5% to save on premium long term, but make sure you look at all deductible options.

4. Insurance Company - buying a home in Fairfield County is unique. You can not use a company that specializes in insuring homes that rebuild for $250,000 and expect they are a long term option for a $5 million dollar home. Secondly, many insurers seem to only stay in a line of business if they can make a profit. In our region, home insurers have had 3 straight years of losing money, so make sure you find a stable partner with financial depth.

5. Ask for credits - below is a list of credits that will help discount your cost:

• security and fire detection system
• generator
• new home
• renovation
• leak detection
• gated community
• sprinklers

6. Limits and Exclusions - are found in all home policies, such as: $5,000 coverage limit for jewelry, or flooding and earthquake coverage being excluded. Ask your agent for a list of your policy limitations and exclusions to know where you do not have coverage.

7. Meet with your Agent- it is very important for you to know your agent. Meet with them so that he or she has a full understanding of your circumstance. At the same time you can judge their capacity in protecting what is your most significant asset.

Or Why You Might Want an Umbrella

Last year we had a client pull out of a driveway, across traffic colliding with another vehicle while trying to merge. Our client thought the other vehicle had stopped to let him in. It was dark out, I guess not.

This seemed like a pretty straight forward accident. There was about $10,000 of damage to our client's sports car, and $5,000 to the other vehicle, a small economy car. But NO- there's more.

The other driver went to the medical clinic complaining of back pain. The next call was to a lawyer, after which, the other driver immediately started therapy with a chiropractor.

Our client’s insurance company reached out to the claimant’s attorney 90 days after the accident for an update, and was advised the claimant had herniated (bulges) 5 discs in the cervical lumbar area. Based on a discussion with the attorney, our insurance company set up a $30,000 reserve for the claim. Further investigation of claim history showed 2 previous auto injury claims in 2000 and 2004 both head/neck/back related; with different insurers.

Working into the five month gap since the accident, our client’s insurance company spoke by phone with the claimant's attorney and was advised the injured party had already spent more than $200,000 on medication and therapy.

 

After seven months, the claimant’s attorney submitted documents requesting payment of the full policy limits of $500,000. They claimed: past meds and pain & suffering of $450,000, and future expectations of additional meds and pain & suffering of $650,000, for a total of $1,100,000.

Eight months after the accident the claim was settled for $400,000.

One critical side note - this car was registered out of state at a vacation property with an underlying policy limit of $500,000. The insured had a $3M umbrella policy in Connecticut that the claimant’s attorney did not source. The claimant's attorney advised that if he knew of the umbrella he would have worked for a larger settlement.

The moral of the story here is don't have a fender bender with a claimant with spinal issues and insurance history. Or realistically, make sure you have a substantial umbrella to protect yourself against these unforeseeable losses.

COMING SOON "ASK SHEPARD"!

 Managing Future Home Insurance Premiums

1) HIGHER DEDUCTIBLES - Consider accepting more personal risk in the form of higher deductibles. At the same time, be more diligent on preparing your property against storm losses. Going forward, claim free credits will become the single largest value in controlling future premium costs.  Take a more catastrophic view for the long haul and you will save. 

2) BUNDLE COVERAGES - Where you can, bundle coverage's such as: auto, valuables, umbrella and even watercraft with your home coverage, to get premium credits and lower your cost.   There will be times where it does not make economic sense to combine coverages, but where you can, give the insurer more incentive by combining personal insurance coverage's. 

3) COMPANY LOYALTY - Beyond the loss free credit, the second largest credit will be loyalty.  The longer you are with the insurance company the better. Your premium credits will be based upon your tenure with the same insurance company. 

In the last 5+ years, with all the storms, reinsurance cost has grown by nearly 400% on coastal properties (within a mile of the shoreline) and as mentioned the wind & water issues are beginning to resemble Florida.  So, as the home insurance industry charts its future path the mantra for homeowners in the Northeast should be “prepare and prevent" to control long term costs.  

 

Coming Soon "Ask Shepard"

While many have an at least a basic understanding of the need for homeowner’s and other property owners, such as landlords, to carry insurance, some may not understand the risks and liability that renters can be subject to. Many renters are, additionally, uninformed about the affordability of renter's insurance. These factors may explain why so few renters (%43 according to the Insurance Information Institute) take advantage of such an important and highly valuable product.

Renters may not have to be concerned about the structural wellbeing of the apartment building but their personal property contained within the apartment is another story. For less than $100 a month, depending on variables such as the value of one's belongings, renter's insurance provides invaluable protection for personal property and from liability in many instances:

    Damage to belongings due to water damage/plumbing leak
    Damage caused by fire or smoke damage
    Damage caused by vandalism or theft
    Damage cause by structural failure or collapse of building
    Damage to electronics due to power surge
    Damage caused by numerous weather events such as wind, snow, and lightning storms

 

Considering the substantial value that many people have invested in their wardrobe, computers and electronics, appliances and furniture, renters insurance is a valuable asset, protecting individuals from serious potential loss.

Another consideration is liability that might be incurred if a guest is injured while visiting ones apartment; renter's insurance could pay for the treatment of their injuries and could, if necessary, finance the legal defense.

Lastly, renters should take into account the financial impact of costs of living if their apartment is destroyed or rendered uninhabitable. A renter’s insurance policy would cover temporary housing, and other unexpected expenses while a new residence is located.

The protection of personal belongings and protection against liability exposure combined in the extraordinary value of renter’s insurance make it a product that no renter should be without.

Managing personal risk is not always a simple straightforward option. The notion that selecting a high level of coverage may not be the answer in arriving at a full coverage solution. Even deluxe insurance providers like Chubb and ACE have policy limits and /or exclusions that can create coverage gaps or inefficiencies.

In an effort to provide proper risk management and coverage, a complete inventory of the assets and values needs to be conducted. Only with this investigation will there be a full understanding of the real exposure.

As an example, it is not unusual for an individual to be a collector, of wines, of stamps or possibly coins. Insuring collectibles such as wine requires an inventory with periodic updates of the values if the true value of the collection is to be insured. This typically requires a “cellar management” program to ease the burden in making sure the collection is insured.

In our effort to provide a solution to the inventory and values of collecting wine, we have identified for our clients an inventory management system that is both comprehensive in organizing and recording values, but more importantly, requires a minimum of effort to stay up-to-date.

With this kind of reporting the ability to provide proper comprehensive insurance protection becomes a simple step. On a periodic basis the values are automatically updated to provide full coverage for the appreciation of the wine.

Providing innovative solutions starts with identifying the exposure and then doing the research to manage the risk and the values in providing full coverage in the event of loss.

With the tragic and devastating events that occurred recently in Japan, it’s expected a homeowner would take this time to reassess their insurance needs. Putting yourself in the shoes of a victim of the tsunami, earthquake, or potentially, nuclear disaster, you would likely ask yourself, “would my coverage protect in events like these?”

For the vast majority of homeowners in the United States, the answer to this question would be an unfortunate, “No.” While not included in most homeowners insurance policies, additional policies are available to protect against Earthquake and flood damage. Nuclear disaster, on the other hand, cannot be insured against.

More...

With the tragic and devastating events that occurred recently in Japan, it’s expected a homeowner would take this time to reassess their insurance needs. Putting yourself in the shoes of a victim of the tsunami, earthquake, or potentially, nuclear disaster, you would likely ask yourself, “would my coverage protect in events like these?”

For the vast majority of homeowners in the United States, the answer to this question would be an unfortunate, “No.” While not included in most homeowners insurance policies, additional policies are available to protect against Earthquake and flood damage. Nuclear disaster, on the other hand, cannot be insured against.

More...

Evidently being in the path of hurricanes and the damages that they deliver is not the only concern with homes in Florida. Insurance companies in Florida report that they are receiving more than 200 “sinkhole” claims per month. Hurricane claims have prompted most insurance companies to reduce their business in or simply getting out of Florida altogether, now they have another significant concern. Florida home insurance policies have a special "Sinkhole" endorsement to provide coverage where most other States would find this event not covered due to the "Earth Movement" exclusion.

Sinkhole claims on average are generating $86,000 of damage with one claim reported in at $1.6M paid.  $97 million paid in Sinkhole claims in a single year. With a 30% increase in claims submitted in just the last year, this is another problem for Florida homeowners.  While it is beyond this blog to explain, in short sinkholes are cause by limestone deposits dissolving underground. There have been some finger pointing at local authorities for allowing development without proper testing.

It won't be long before Florida will have no options for insurance on property!

It is very clear, the communication in the new world is at a minimum rapid and continuous. In our effort to keep insured and consumers informed on exposures and coverages we will be publishing short, easy to read and access videos to educate. We will be posting our first video next week to assist new home buyers to the critical issues they should be aware of in buying a new home. While the information is somewhat specific to our area, the details are appropriate wherever you may buy.

Please let us know if you have a topic that we can address that will help you to get a better handle on your insurance.

The original thought behind the concept of insurance was a sharing of risk with a large group of people or business to avoid being exposed to the full cost of a catastrophe. So at a fraction of the true exposure ,you can contribute to a fund to help you recover ,if that catastrophe ever occurs.

It is sensible and appropriate to be fully insured for a large loss, but fully insured does come at a premium. It is important to customize your coverage to your particular situation,and paying attention to your deductibles can help save on your premiums both today and in the future.

Your deductible should track the value of the property being insured, but never higher than your financial ability in a claim. The higher the property value, the higher the deductible.

There are two specific times when deductibles need special attention. We recommend when you buy a new home that you keep your deductibles lower for the first few years while you are getting accustomed to plumbing, heating and leaky roofs. Alternatively, we suggest that when your children begin driving, that you raise your deductibles and manage smaller claims out of pocket. Keeping your family driving record claim free will help control your premiums for those years the children are driving while still at home.

If you have questions about appropriate deductibles, send us an email! sshepard@shepardinsgrp.com