Shepard on Insurance Current events and feedback on insurance

On the heels of Irene and then Sandy it is clear that insurance companies are a bit "clueless" on the future regarding pricing of homeowner insurance coverage in the Northeast. If you could predict the weather you would have a better chance of understanding the future of homeowner insurance premiums.  But the #1 underwriter of home insurance in Fairfield County is giving it a stab:

Here is how it's going to look!

Nineteen different pricing tiers based on 3 primary factors:
 1) Your insurance score - (more later)
 2) Your claim history - not including major storms typically referred to as cat (catastrophe) claims
 3) The size of the home

What is an Insurance Score ?

 Every company has their own model on scoring, but it’s a variation on a credit score. It could include:
  - your current level of debt
  - your credit history/performance
  - any recent new credit
  - type of credit used
  - how often and timely you pay your insurance premiums

Here are some points to consider in making the decision:

 - try to stay with same company and earn loyalty discounts
 - where it makes sense bundle coverage and get discounts
 - policies are becoming more flexible, so find an agent who invests in seeing the property and knowing your needs & wants
 -  credits increase due to protection devices so alarms, generators, etc are beneficial
 -  take a larger deductible to avoid using your policy for small claims and you will be rewarded with long term lower rates

It's complicated, but a good agent who invests the time can sort it out and find the right place for you.

The key number for domestic employees is 26

It is relatively common place these days for a homeowner to have a cleaning lady, a yard helper, or even a handy man they employ to help keep up with those homeowner duties. But who is responsible if that part time labor is suddenly injured?

Here is what you need to know to be prepared for that unfortunate event!

All home insurance policies exclude coverage for domestic employees, where there is a legal requirement to provide Workers Compensation insurance.

So, when is a homeowner legally required to provide coverage? That requirement would come when your domestic employee surpasses 26 hours of labor per week.

But, many of these domestics are paid in cash! So how does that work?

Unfortunately the first concern is when your domestic employee is injured, even if they are not a US citizen, they can always find a lawyer!

What is the best thing to do?

First, determine the number of hours each employee works. If it is more than 26 you need to stop paying cash, and start running your employment like a business. Most domestics will not like this because it will force them to pay taxes. Once you have your records set you can buy a Workers Compensation policy that gives you full protection. If you continue to pay cash you will be unable to buy this coverage.

Second, if your domestic works less than 26 hours per week your homeowner's policy may provide coverage between "medical payments" for the medical costs, and bodily injury liability for the loss of time. One large caveat, at Shepard Insurance we predominantly underwrite with premium home insurance companies who have demonstrated the effort to defend and pay these claims. We have not reviewed the language on a basic home policy written by most insurers, but we have been advised the coverage restrictions are enforced.

And finally, even if your domestic employee works less than 26 hours a week, keep payment records of money and hours worked. If the employee contends that they work 30 hours to qualify for Workers Compensation, and you have no records, you may have a problem.

*Please note that these rules apply to insured's in the state of Connecticut. Rules and regulations vary from state to state; it is best to check with your agent to see how coverage is determined. *

 

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.

FLOOD is an excluded coverage on all home insurance policies. If you need, or want coverage for water damage from outside your property, you will need to purchase it separately on a flood policy. But while a flood policy provides insurance for water exposed property, it is not at all like your Home Insurance Policy.

Here is what you need to know:

 COVERAGE

1. Flood Insurance is issued primarily through the National Flood Insurance Program (NFIP) that is governed by the  Federal Emergency Management Association (FEMA).

 NFIP provides for very limited coverage:

$250,000 for Building 

 $100,000 for Contents

At no time during a claim is more than $250,000 for the dwelling or $100,000 for contents paid regardless of special NFIP language. If you need more coverage many times you can buy Excess Flood coverage, but not through the NFIP.

2. If you have a mortgage and you are in a designated Special Flood Hazard Area (SFHA), you are required to have flood insurance. NO EXCEPTIONS

3. You do not need to be in a Special Flood Hazard Area to purchase flood insurance; it is available for all properties. 

4. The premiums for basic flood coverage are determined by your Flood Zone, which is identified by FEMA, and generally confirmed by an elevation certificate. The important number is the elevation of the lowest floor of your house in relation to the Base Flood Elevation.

5. Here is the first critical difference in Flood Coverage. The dwelling has replacement cost coverage and the contents are limited to Actual Cash Value, but it is not a replacement cost contract. If your property is damaged by flood, your recovery is reduced by depreciation; in other words, the value is reduced by how long you have owned the items. Items of unique or special value such as antiques or art are not recognized for their real value. YOU WILL NEVER BE MADE WHOLE FOR YOUR FLOOD LOSS!

6. If any part of your dwelling is located in a higher Special Flood Hazard Area, the zone and rate determination for your property defers to the higher zone.

7. If your garage is used to only house your vehicles, 10% of the building limit can be applied to garage damage. If you use it for an office, or there is an apartment above, it is not covered under the home flood policy. You have to write a separate policy to insure it or other detached structures like a pool house.

8. Most property below the residence primary living area of a home is not covered, so other than your mechanicals in the basement or lower level (below grade) there is no coverage. There is no building coverage for a finished basement.

9. A building needs to be 51% above ground to be eligible for flood coverage.

10. Residential flood coverage can insure a 1-4 family house, but only the owner can buy building coverage. Renters may buy coverage for their contents.

CLAIMS

11. If you suffer flood damage, claims have to be reported within sixty days (for Superstorm Sandy they extended that limit to one year).

12. Your selected deductible will apply separately to your building damage claim and then also to your contents claim.

13. VERY IMPORTANT - For a NFIP flood claim to apply, the water damage must have occurred to at least two adjacent properties or affect an area of more than two acres.

14. There is NO consequential coverage on a flood policy, such as Additional Living Expense (ALE) that is found on a regular home insurance policy. If you are forced out of your home due to flood, the cost of alternate housing is not covered.

16. There is no debris removal coverage, unless the debris is in the house or leaning on it.

17. Flood insurance will pay $1,000 for sand bag reimbursement and $1,000 to safeguard property but this is part of the total policy limit.

18. If you suffer damage that incurs an increase cost of construction due to building code the community must issue a substantial damage designation, and then there is up to $30,000 of additional coverage applicable (but never more than the policy limit). 

19. Building claims for repairs are limited to two feet above the high water mark of the flood.

 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"

After reading an article recently about ideas on how to protect wealthy families from a personal security CEO, I thought it was informative enought to forward along. The suggestions ran from extreme (like creating a panic room) to very informative (taking stock of your staff). The following detail I found to be very helpful. 

1.) Take stock of your staff - often times people don't know who their gardner, landscaper, etc. are they come based on referral from a friend. Just knowing the referral is from a friend is not good enough. Gathering as much information about who is doing the work on your house is critical. Knowing who your workers are and making sure they know you know is beneficial. In some cases picture IDs are helpful and if it makes you more comfortable fingerprint them too.

2.) Build physical barriers - a fence around the property is ideal, or even difficult to penetrate shrubbery. Replace the delicate glass in french doors with laminate or polycarbonate glass, which is alot more difficult to break.

3.) Lockdown - use a safe that sends you a text, email, or phone call if it has been open for longer then 10 minutes.

4.) Secure your collections - there is a system that uses a frequency based on the EZPASS that will inform you if your painting has moved from the 2nd to the 1st floor.

All of these as well as checking your alarm system for upgrading capabilities are handy suggestions when you have alot to protect.

http://usnews.msnbc.msn.com/_news/2012/02/29/10536654-13-killed-as-tornadoes-rake-midwest-states

As we continue to see nicer weather everyday in February and into March, we must not forget that conditions can change instantly. The article linked above shows that severe weather is just around the corner. Tornadoes ripped trough the Midwest at an alarming rate last night and caused serious damage.

Hundreds of homes were destroyed, a mounting number of injuries, and a confirmed 13 people were killed overnight. States such as Tennesee and Missouri were hit the worst, but winter weather is headed our way.

http://www.greenwichtime.com/news/article/Snow-headed-this-way-3369815.php

Just a reminder to all that necessary precuations are important and can mean saving lives and quicker response from authorities. Be consciensious of emergency numbers when bad weather is upon us. Again, please don't hesitate to contact us with any questions, concerns, or claims that may happen as a result of the weather.

 

Did you ever wonder why home values and construction costs are not directly correlated? If so, you are not alone. While housing prices continue to fall in the wake of the sub prime mortgage crisis, construction costs due to a number of contributing factors continue to escalate.

Residential construction costs are driven by commodity prices, which in turn are influenced by global supply and demand, as well as the strength of the dollar. Iron and steel alone both increased roughly 15% over the last 12 months, while copper (7%) and diesel (37%) jumped as well. These increases are essential in understanding the difference between the housing market drop off, and the increase in construction costs.

Is weather affecting construction? That’s right, you may not have ever have guessed it but the increase in catastrophic events like tornadoes, earthquakes, and hurricanes place an increased demand on: softwood lumber, plumbing fixtures and fittings, and siding. “Overall construction material prices have risen 5.6% in the last 12 months” (Engineering News Record).  If most home losses are paid during major catastrophes, both labor and material cost are exacerbated due to a lack of supply and high demand.  Materials are the primary component to the construction cost increase and with emerging countries continuing to develop there may be no relief insight.

Local factors affecting construction cost include time of loss, time constraints, and limited availability of contractors.  When you have a major claim you want your house rebuilt quickly, and as good, if not better then when it was destroyed. Construction and building codes interestingly enough can be just as influential in construction costs with contractors required to comply with current codes not before needed in older homes.

Insurance companies recognize that while it may not necessarily agree with the market value of your home, construction costs continue to grow annually. All of the factors mentioned create a need for the industry to increase costs; just be conscientious of why and how this is happening and you won’t be surprised to see the rebuilding costs increased from year to year.

We all held our breath when Hurricane Irene rolled thru Connecticut and the tri-state area as Tropical Storm Irene, with much lower winds than anticipated.   Wind aside Irene proved to be a problem with flooding and power outages that knocked out sump pumps leading to more water damage.  Insult to injury when Lee dropped 10 inches of rain just a few days later.

The real drama of the storms was the insurance companies response.  I am aware of only one company that identified the storm as a Tropical Storm, not a Hurricane, waived any wind deductibles and stepped up to cover

claims appropriately.   The rest of the property insurers in Connecticut got a serious arm twisting from the Insurance Department and slowly agreed to cover losses without applying the much larger wind deductibles.  Some of those made payments with the caveat that their decision to waive the wind deductible should not be construed as a posture that they would apply with the same logic in the future.  Really…

And to date, nearly 3 weeks later out of the 40+ property insurers, one is still holding out, applying the larger wind deductibles to several hundred insured who suffered damage during the storms.  Their comment is, " we are aware of the Insurance Department’s concern, we continue to talk with them". 

I would call this poor judgment,

Very unfortunate but true.

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.