Tips for Buying Flood Insurance
Tips for Buying Flood Insurance
Get a Clue: Don't Be a Victim of "Use It and Lose It"
Check If Your Credit Record Is Inflating Your Premiums
FEMA Pitch to Residents is Wasteful, Critics Say
When your insurer plays hardball—CNN's 5 Tips
Tips for Buying Flood Insurance
1. Make an informed decision on the risk of a flood damaging your property. Check locally available flood zone maps (real estate brokers have them) to see if your property is located in a National Flood Insurance Program, ("NFIP") participating area. Consider your region's flooding history and your property's proximity to levees and waterways.
2. Even if you're not in a designated flood zone you can generally buy flood insurance if you are willing and able to pay for it. The price of the coverage goes down in lower risk areas.
3. Call a reputable insurance agent or broker and get a quote for adding flood coverage to the risks your property is insured against. Don't assume your home is not at risk for flood damage just because you are not legally required to buy flood insurance. If an agent/broker tells you they don't sell it or you can't buy it, call elsewhere. Some agents won't sell flood coverage because they're not familiar with the policies and may be reluctant to learn the rules of the NFIP.
4. If you decide to buy flood insurance, make sure you buy adequate coverage limits. Flood policies generally have fixed dollar amounts for dwelling and contents coverage that don't adjust upward if replacement costs prove higher than expected. Flood policies generally don't cover temporary living expenses while your home is uninhabitable or landscaping, trees, etc. If you buy a flood policy, you want it to cover the full replacement of or repairs to your structures, personal or business property, debris removal, business interruption, recreation of valuable papers, damage to property of others, etc.
5. Verify with your agent that you have “replacement cost” coverage and “code upgrade” coverage — especially if the insured structure is older than five years. Code upgrade coverage covers the cost of rebuilding in compliance with current building codes, even if means making improvements.
Buyers Must Resist "Use it and Lose it"
The phrase "use it and lose it" describes a bad, relatively recent trend in the insurance world. It means if you use your insurance you will lose your insurance, or… file even one claim and your rates will increase or your policy will be non-renewed. Insurer reps deny that it's a reality, but state regulators and consumers are painfully aware that it is. UP has received many complaints from affected consumers.
There are many aspects to the "use it and lose it" phenomenon. Factors include:
- Shared claims databases, (e.g. "CLUE") that all insurers can access;
- An increase in vendors selling services and tools to insurance companies such as "Risk Meter" that purport to help insurers weed out undesirable risks;
- The fact that fewer claims translate into higher profits for insurers;
- Consumers are naturally averse to paying higher premiums and/or being uninsured;
- The increasing use by insurers of "surcharges" as a way of avoiding regulatory scrutiny of rate increases.
The causes of "use it and lose it" have been discussed in the Spring 2003 and Fall 2004 issues of What's UP. Policyholder advocates take this issue very seriously because it truly undermines the concept of insurance as a worthwhile product to buy. What's the point of paying for it if you'll be unfairly penalized for using it?
The problem has been serious enough to require action by some state regulators and legislators. California passed a law requiring insurers who non-renew policyholders to disclose their reasons and invite a response. CA Insurance Commissioner John Garamendi issued issued emergency regulations barring insurers from using improper criteria to nonrenew customers. Insurers sued the Commissioner to keep the regulations from taking effect and won, so the Commissioner revised and reissued them and they're currently pending.
How to resist use it and lose it:
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FEMA Pitch to Residents is Wasteful, Critics Say
as posted at www.dispatch.com
By James Nash,The Columbus Dispatch
Flood-insurance mailings tout agents, go to low-risk areas
Tuesday, March 07, 2006
Catherine Zwissler says FEMA should focus on helping Gulf Coast residents.
The letters arriving in thousands of central Ohio mailboxes look ominous: They show a picture of a home dissolving into a river, right under the logo of the U.S. Department of Homeland Security.
While the glossy mailings are intended to prompt homeowners to buy flood insurance, they are provoking a different reaction in some households: anger.
The Federal Emergency Management Agency has spent more than $19 million to blanket homes — including those miles from the nearest large body of water — with the warnings. The mailings direct people not to FEMA’s own national flood-insurance program, but to local agents.
"It’s a disgraceful waste of resources at a time they should be taking care of people in Louisiana and Mississippi," said Catherine Zwissler of Bexley, who received the mailing in January.
"We have homeless people in New Orleans and they’re spending this kind of money on people who don’t even need (flood insurance)? And why would FEMA be touting these private entities as the provider?"
The federal government has had a virtual monopoly on flood insurance since 1968. Local agents sell the federal policies at standardized rates and collect profits equal to one-third of the premium. FEMA previously allowed homeowners to buy flood insurance directly, without the agents getting a cut, but the agency no longer offers that option.
Some FEMA critics say the arrangement smacks of a sweetheart deal with the insurance industry, which has been a major player on Capitol Hill. The industry spent about $40 million on federal lobbying in 2005, according to filings with the clerk of the U.S. House of Representatives.
J. Robert Hunter, who served as administrator of the National Flood Insurance Program in the 1970s, said that during his tenure and into at least the 1980s, homeowners could buy policies directly from FEMA. Although they cost the same as those purchased from agents, the share that would have gone to agents was available to settle claims from flood victims.
Now, callers to FEMA’s tollfree number are directed to agents and not given the option of buying from FEMA, except in especially high-risk areas.
Hunter said the direct-buy option never was popular among the politicians who oversaw FEMA, though it ensured more money for claims.
"They’d rather offend the taxpayers than the insurance agents," said Hunter, now director of insurance for the Consumer Federation of America. "Since the taxpayer benefits, they ought to make (direct-buy) available to the general public."
FEMA spokesman Butch Kinerney said it makes sense for private agents to sell the policies.
"Since we have these relationships with agents nationwide, it makes a lot more sense for us to refer people to them because they’re in the community and most homeowners insure their houses against fire — so it makes sense that they could buy flood in the same place," he said.
"If we promoted our policies, then we’d be harming the agents in the community who sell policies on our behalf."
But there’s little evidence that FEMA’s new promotional push — the agency’s first aimed at households in low- to moderate-risk areas — is bringing new business to central Ohio agents.
Nationally, fewer than 1 percent of households that received FEMA’s mailing in November have bought flood insurance, according to statistics from the agency.
About 10 percent of structures in Ohio flood plains are insured, far below the national average, the Ohio Insurance Institute says.
"I haven’t seen anything as a result of what they’re doing," said Trisha DeLong, an agent at Tri-Wood Insurance Agency in Columbus, one of the insurance agencies on the FloodSmart Web site, www.floodsmart.gov. "If a mortgage requires (flood insurance), that’s pretty much the only reason they do it."
Hunter said some homeowners might be more likely to buy flood insurance, which typically costs $400 to $600 a year in central Ohio, if FEMA restored the direct-buy option.
Kinerney disagreed, saying that would "provide an economic disincentive for insurance agents."
The National Taxpayers Union, which has long criticized FEMA for inefficiency, said both responses highlight shortcomings with the program. Union spokesman Pete Sepp said the system combines FEMA’s sluggish bureaucracy with profits for private agents for little more than pushing paper. "This is one of the many dilemmas with the National Flood Insurance Program," he said. "It’s hard to know whom to root for in this. If the government insists on remaining in the insurance business, and we’re not sure it should be, cutting bureaucracy should be lesson No. 1 from the Katrina disaster."
The program, which is supposed to be self-sufficient, is facing the biggest crisis in its history because of claims in the wake of Hurricane Katrina and other recent floods. Congress is considering a bailout of the program, which is straining under the weight of more than $24 billion in claims against $2 billion in annual revenue.
Amy Bach, executive director of the nonprofit insurance-consumer-advocacy group United Policyholders, said glossy promotional brochures won’t mask the program’s glaring problems.
"Many people who have (insurance) have found out that it pays very little and very late," Bach said. "You have the bad aspects of the government, a slow bureaucracy, and the bad aspects of private insurance, which is cheating people."
Some consumer advocates say FEMA is targeting people in lower-risk areas, such as neighborhoods a quarter-mile or more from water in Canal Winchester and Gahanna, to increase the size of the insurance pool without taking on significant risk.
Zwissler, for example, lives about 750 feet from a stream that she said has not flooded in the 20 years she has lived there.
"It’s hardly a flood plain," she said.
Kinerney said FEMA is reaching beyond the high-risk areas it previously had identified. In January, the agency sent out 4.6 million mailings to property owners in Ohio and 15 other states who live within a halfmile of a high-risk area, rather than those who are only in flood-prone zones.
"The risk of flooding affects residents across Ohio," he said.
When your insurer plays hardball
Here's what you need to know when home insurers add exclusions to your policy.
as posted at www.money.cnn.com
August 17 2006
NEW YORK (CNNMoney.com) -- A Mississippi couple who lost their home in Hurricane Katrina is getting less than $1,230 after battling Nationwide Mutual Insurance Company to pay for damage done to their home.
In today's top tips we'll tell you what insurance lessons we can all learn from this verdict.
gerri_willis_toptips.03.jpg
Let's look at the bottom line of this ruling: Insurance companies do not have to pay for flooding that destroyed tens of thousands of homes in Hurricane Katrina, according to a federal judge. But insurers can't cancel wind damage coverage when it happens in combination with flooding.
Here's what homeowners need to know about their policies:
1: Pay attention to exclusions
In the past two to three years some insurance companies began adding "wind exclusion" policies to homeowners insurance.
The Independent Insurance Agents & Brokers of America estimates that about 30 percent to 40 percent of homeowners policies along the coast do not cover wind damage.
The exclusion that caught the Mississippi couple was a water-damage exclusion. There has been a dramatic increase in water damage exclusions, according to Amy Bach of UnitedPolicyholders.org.
"Almost every insurance company has expanded their water damage exclusion," she said.
This is why it's so important to look at the 5-30 page explainer document that comes with your insurance policy. Look specifically at the "Exclusions" page. In this case, the exclusions are on page 11 out of 22 pages.
According to the IIABA, the language should be in "Plain English." But even lawyers we spoke to said it was difficult to understand all the complexities. If you don't understand something, you need to sit down with an insurance agent and go over the details.
2: Don't rely on your agent
The plaintiff testified that the insurance agent had told him that he did not need to buy flood insurance. But it's up to you to gauge your home's risk of flooding.
To get a sense of what your risk might be, go to the National Flood Insurance Program's Web site at www.floodsmart.gov or call (888) 379-9531.
The average premium for a flood insurance policy is $400-$500 a year on $150,0000 to $200,000 worth of insurance. You can only get up to $250,000 for your property./p>
3: Don't take no for an answer
Sometimes it's your insurer who will leave you in the lurch. We've already seen insurance companies refuse to renew homeowner policies. Here are some things you can do if your policy isn't renewed.
First, complain to your state's insurance department if you think you've been treated unfairly. A rise in complaints may trigger an investigation.
You may have to start doing some homework. Check out smaller insurance companies, advises Bach. "Homeowners have to find people with smaller ad budgets," she says. Check out your state regulators site or unitedpolicyholders.org.
Setting a precedent
While this case was the first among hundreds of Katrina insurance cases yet to come before this judge, the insurers are clearly the winners here.
But for homeowners who can prove that wind damage was a major factor in their claim, and that the exclusion in their policy is ambiguous, the ruling indicates some wiggle room.
Debra Perkins of the IIABA says insurance companies are likely to take a closer look at the wording of policies to refine their language and make clear what is covered and what isn't.
United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP publishes educational materials and serves as a resource for individual and business policyholders and residents of communities with insurance problems. UP’s Amicus Project provides information to courts of law to support policyholders’ legal rights. UP unites policyholders and their advocates by sharing information. Write to UP at 110 Pacific Ave., PMB 262, San Francisco, CA. 94111, call us at (510) 763-9740, or visit our website at www.unitedpolicyholders.org.
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