National Risk Management and Associates

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Flood Insurance & You

Courtesy of iii.org

Flooding is the most common and costly natural disaster in the United States, causing billions in economic losses each year. According to the National Flood Insurance Program (NFIP), 90 percent of all natural disasters in the United States involve flooding.

There is no coverage for flooding in standard homeowners or renters policies or in most commercial property insurance policies. Coverage is available in a separate policy from the National Flood Insurance Program (NFIP) and from a few private insurers.

Recent developments

  • ​NFIP reauthorization: Congress must periodically renew the NFIP’s statutory authority to operate. Congress must reauthorize the NFIP by no later than November 30, 2018. In the unlikely event the NFIP’s authorization lapses, claims would still be paid but the NFIP would stop selling and renewing policies (more details here.)
  • Hurricane Harvey: Hurricane Harvey made landfall in Texas as a Category 4 storm on August 25, 2017 and then turned into the single biggest rain event in U.S. history. Harvey’s floodwaters have caused multiple deaths and billions of dollars in property damage in Texas. Harvey made a second landfall in Louisiana on August 30th. As of January 24, 2018, $7.9 billion in closed claims have been paid out to Texas and Louisiana flood insurance policyholders, according to FEMA.
  • NFIP Reinsurance: In September 2016, the NFIP began a reinsurance program to put it in a better position to manage losses incurred from major events by transferring exposure to reinsurers. In January 2017, FEMA expanded its September 2016 placement and transferred $1.04 billion of the NFIP’s financial risk to 25 reinsurers in a program to be in force through January 1, 2018. The NFIP recovered the entire $1.04 billion from Hurricane Harvey’s floods. The NFIP returned to the private reinsurance market for 2018, paying $235 million for $1.46 billion coverage from a single flood event.
  • NFIP policies and premiums: The number of policies in force has been declining from the high point of 5.7 million in 2009 to 5.1 million in 2016. The 2016 level is about the same as in 2005, the year of Hurricanes Katrina and Rita. NFIP earned premiums fell 3.0 percent to $3.33 billion in 2016 from $3.44 billion in 2015. In 2016, 59,332 claims were paid, compared with 25,798 claims in 2015 and 213,515 in 2005. The cost of claims was $3.70 billion in 2016, compared with $1.03 billion in 2015 and $17.8 billion in 2005.
  • Private flood insurance: Flood insurance had long been considered an untouchable risk by private insurers because they did not have a reliable way of measuring flood risk. In recent years insurers have become increasingly comfortable with using sophisticated models to underwrite insurance risk, and modeling firms are getting better at predicting flood risk. In 2017 private insurers reported their flood insurance premiums separately for the first time. FM Global had 54 percent of the market share (based on 2016 year-end premiums). And the top three companies held almost 81 percent of the market share. Direct premiums written for all companies totaled $376 million.
  • Low flood insurance take-up rates: A 2016 Insurance Information Institute survey found that 12 percent of American homeowners had a flood insurance policy, down from 14 percent in 2015. A McKinsey & Co. analysis of take up rates for flood insurance in areas most affected by the three Category 4 hurricanes that recently made landfall in the United States — Harvey, Irma and Maria — found that as many as 80 percent of Texas, 60 percent of Florida and 99 percent of Puerto Rico homeowners lacked flood insurance. Some of the reasons cited for lack of coverage is that it is too expensive, that homeowners are not aware they don’t have it; and that people underestimate the risk of flooding.

Background

The National Flood Insurance Program: Before Congress passed the National Flood Insurance Act in 1968, the national response to flood disasters had been to build dams, levees and other structures to hold back flood waters, a policy that may have encouraged building in flood zones.

The National Flood Insurance Act created the National Flood Insurance Program (NFIP), which was designed to stem the rising cost of taxpayer funded relief for flood victims and the increasing amount of damage caused by floods. The NFIP has three components: to provide flood insurance, floodplain management and flood hazard mapping. Federal flood insurance is only available where local governments have adopted adequate floodplain management regulations for their floodplain areas as set out by NFIP. More than 20,000 communities across the country participate in the program. NFIP coverage is also available outside of the high-hazard areas.

The law was amended in 1969 to provide coverage for mud flows and again in 1973. Until then, the purchase of flood insurance had been voluntary, with only about one million policies in force. The 1973 amendment put constraints on the use of federal funds in high-risk floodplains, a measure that was expected to lead to almost universal flood coverage in these zones. The law prohibits lenders that are federally regulated, supervised or insured by federal agencies from lending money on a property in a floodplain when a community is participating in the NFIP, unless the property is covered by flood insurance. The requirement for flood insurance also applies to buildings that receive financial assistance from federal agencies such as the Veterans Administration. However, because the initial mortgage on the property is frequently sold by the originating bank to another entity, enforcement of this law has been poor.

Legislation was enacted in 1994 to tighten enforcement. Regulators can now fine banks that consistently fail to enforce the law, and lenders can purchase flood insurance on behalf of homeowners who fail to buy it themselves, then bill them for coverage. The law includes a provision that denies federal disaster aid to people who have been flooded twice and have failed to purchase insurance after the first flood.

Buildings constructed in a floodplain after a community has met regulations must conform to elevation requirements. When repair, reconstruction or improvement to an older building equals or exceeds 50 percent of its market value, the structure must be updated to conform to current building codes. A 2007 NFIP study on the benefits of elevating buildings showed that due to significantly lower premiums, homeowners can usually recover the higher construction costs in less than five years for homes built in a “velocity” zone, where the structure is likely to be subject to wave damage, and in five to 15 years in a standard flood zone. The Federal Emergency Management Agency (FEMA) estimates that buildings constructed to NFIP standards suffer about 80 percent less damage annually that those not built in compliance.

How it works: The NFIP is administered by FEMA, part of the Department of Homeland Security. Flood insurance was initially only available through insurance agents who dealt directly with the federal program. The direct policy program has been supplemented since 1983 with a private/public cooperative arrangement, known as “Write Your Own,” through which a pool of insurance companies issue policies and adjust flood claims on behalf of the federal government under their own names, charging the same premium as the direct program. Participating insurers receive an expense allowance for policies written and claims processed. The federal government retains responsibility for underwriting losses. Today, most policies are issued through the Write-Your-Own program but some non-federally backed coverage is available from the private market.

The NFIP is expected to be self-supporting in an average loss year, as reflected in past experience. In an extraordinary year, as Hurricane Katrina demonstrated, losses can greatly exceed premiums, leaving the NFIP with a huge debt to the U.S. Treasury that it is unlikely to pay back. Hurricane Katrina losses and the percentage of flood damage that was uninsured led to calls for a revamping of the entire flood program.

Flood adjusters must be trained and certified to work on NFIP claims. NFIP general adjusters typically re-examine a sample of flood settlements. Insurers that fail to meet NFIP requirements must correct problems; otherwise they can be dropped from the program.

What’s in a typical policy: Flood insurance covers direct physical losses by flood and losses resulting from flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drainage systems, levee dam failure or other similar causes. To be considered a flood, waters must cover at least two acres or affect two properties. Homes are covered for up to $250,000 on a replacement cost basis and the contents for up to $100,000 on an actual cash value basis. Replacement cost coverage pays to rebuild the structure as it was before the damage. Actual cash value is replacement cost minus the depreciation in value that occurs over time. (Excess flood insurance is available in all risk zones from some private insurers for NFIP policyholders who want additional coverage or where the homeowner’s community does not participate in the NFIP.) Coverage for the contents of basements is limited. Coverage limits for commercial property are $500,000 for the structure and another $500,000 for its contents.

To prevent people from putting off the purchase of coverage until waters are rising and flooding is inevitable, policyholders must wait 30 days before their policy takes effect. In 1993, 7,800 policies purchased at the last minute resulted in $48 million in claims against only $625,000 in premiums.

Flood Risk: As with other types of insurance, rates for flood insurance are based on the degree of risk. FEMA assesses flood risk for all the participating communities, resulting in the publication of thousands of individual flood rate maps. High-risk areas are known as Special Flood Hazard Areas or SFHAs.

Flood plain maps are redrawn periodically, removing some properties previously designated as high hazard and adding new ones. New technology enables flood mitigation programs to more accurately pinpoint areas vulnerable to flooding. As development in and around flood plains increases, run off patterns can change, causing flooding in areas that were formerly not considered high risk and vice versa.

People tend to underestimate the risk of flooding. The highest-risk areas (Zone A) have an annual flood risk of 1 percent and a 26 percent chance of flooding over the lifetime of a 30-year mortgage, compared with a 9 percent risk of fire over the same period. In addition, people who live in areas adjacent to high-risk zones may still be exposed to floods on occasion. Since the inception of the federal program, some 25 to 30 percent of all paid losses were for damage in areas not officially designated at the time of loss as SFHAs. NFIP coverage is available outside high-risk zones at a lower premium. to be continued…

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Auto Insurance & Road Rage

Courtesy of iii.org

Road rage incidents are not only dangerous, they are exempted from coverage by many auto insurance policies. Understand your risks and take precautionary measures to avoid being a victim—or a cause—of aggressive driving accidents.

Crowded highways and traffic backups at times cause drivers to lose control and become extremely aggressive. Road rage is a real problem that can lead to serious accidents or even incidents of violence on the road.

It’s important to realize that road rage is listed as an exemption in many auto insurance policies. This is because any damage or liability stemming from aggressive driving isn’t considered an accident but rather as having been caused by risky behavior.

Rather than risk paying the consequences of road rage—one of which may be not having your auto insurance claim paid—it’s best to avoid a dangerous and costly aggressive driving incident in the first place.

If you encounter an aggressive driver on the road…

 

  • Stay as far away as possible. Slow down or change lanes if need be, let the driver pass you and give yourself room at intersections to drive away.

 

  • Record a description of the car and note the license plate number if possible so that you can report him or her to the police for the sake of everyone’s safety.

 

  • Do not engage with or challenge the offender in any way. Ignore the driver’s rudeness and don’t give into the temptation to react in kind or you might escalate the risky behavior.

 

  • Put your safety first. If an aggressive driver starts to follow you, keep your doors locked, and head to the nearest police station. Never stop and confront an aggressive driver.

 

If you have a short fuse yourself stay cool and…

 

  • Leave plenty of time to get where you need to go. When you’re in a hurry, your patience is short and you are much more likely to become aggravated.

 

  • Remember other drivers are not annoying you on purpose. People make mistakes or they might be driving more slowly for a reason—they might be lost, or their sight might be impaired by sun glare.

 

  • Don’t use hand—or single finger—gestures other than a wave to someone who lets you into your lane.

 

  • Don’t tailgate slow drivers. Hanging on another car’s back bumper is dangerous. If the car in front of you has to stop short and you rear-end it, the accident would be considered your fault.

 

  • Don’t honk your horn insistently. Leaning on your horn is a bad practice. While it might make you feel better to express your frustration in a traffic jam, it won’t make anyone go any faster, it’s annoying to other drivers and passengers and it increases everyone’s stress level, which may lead to more aggressive behavior.

 

  • Never stop to confront another driver. It could lead to a dangerous situation for all concerned.

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Bob’s experience and thoroughness are second to none in the industry

[su_testimonial name=”Lamar Andrews, President” company=”Commercial Sector Insurance Brokers, Birmingham, Alabama”]Our agency always enjoys working closely with Bob Ray at National Risk Management because he is always crystal clear in his approach to handling his clients’ insurance needs. His experience and thoroughness are second to none in the industry.

Providing Bob with alternatives for his clients, as a wholesale intermediary, is always a pleasure because he totally understands what his clients’ truly need to provide the balance sheet protection they need for their businesses.[/su_testimonial]

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Helpful Tips for Auto Insurance in 2018

Courtesy of iii.org

The basic personal auto insurance mandated by most U.S. states provides some financial protection if you or another driver using your car causes an accident that damages someone else’s car or property, injures someone or both.

But to make the best decisions about purchasing other types of auto insurance coverage you might need, you’ll want to understand what’s covered, what’s not covered and what’s optional. In addition to understanding types of coverage, you’ll also want to consider coverage amounts.

Why? Because state-required minimums may not cover the costs of a serious accident, so it’s worth considering purchasing higher levels of coverage.

Here’s a rundown of the types of coverage available—some are required; others are optional; all are priced individually (a la carte) to let you customize coverage amounts to suit your exact needs and budget.

Mandatory coverage

Nearly every state requires car owners to carry the following auto liability coverage:

  • Bodily Injury Liability — This covers costs associated with injuries and death that you or another driver causes while driving your car.
  • Property Damage Liability — This coverage will reimburse others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building or utility pole.

Frequently required coverage

Many states require that you carry the following coverage:

  • Medical Payments or Personal Injury Protection (PIP) — Provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.
  • Uninsured Motorist Coverage — Reimburses you when an accident is caused by an uninsured motorist—or in the case of a hit-and-run. You can also purchase under insured motorist coverage, which will cover costs when another driver lacks adequate coverage to pay the costs of a serious accident.

Even if these types of coverage are optional in your state, consider adding them to your policy for greater financial protection.

Optional coverage

While basic, legally mandated auto insurance covers the cost of damages to other vehicles that you cause while driving, it does not cover damage to your own car. To cover this, you need to purchase the following optional auto insurance coverages:

  • Collision — This optional coverage reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object—e.g., a tree or guardrail—when you’re at fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.
  • Comprehensive — This provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees and other hazards—even getting hit by an asteroid!
  • Glass Coverage — Windshield damage is common, and some auto policies include no-deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.

Mind the gap… insurance

If you lease or finance your vehicle, auto dealers or lenders will likely require you to purchase collision and comprehensive. But keep in mind that collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars depreciate quickly. If your car is totaled or stolen, there may be a “gap” between what you owe on the vehicle and your insurance coverage. To cover this, you may want to look into purchasing gap insurance to pay the difference. (Note: For leased vehicles, gap coverage is usually rolled into your lease payments.)

Who is covered—and when?

Your auto policy will cover you and other family members on your policy, whether driving your insured car or someone else’s car with permission. Your policy also provides coverage if someone not on your policy is driving your car with your consent.

Your personal auto policy only covers personal driving, whether you’re commuting to work, running errands or taking a trip. Your personal auto policy, however, will not provide coverage if you use your car for commercial purposes—for instance, if you deliver pizzas or operate a delivery service. Note, too, that personal auto insurance will generally not provide coverage if you use your car to provide transportation to others through a ride-sharing service such as Uber or Lyft. Some auto insurers, however, are now offering supplemental insurance products (at additional cost) that extend coverage for vehicle owners providing ride-sharing services.

Learn More: Check out this handy infographic on the types of required and optional drivers insurance coverages.

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Boats, Insurance & You

Courtesy of iii.org

Insurance can provide limited coverage for property damage for small boats such as canoes and small sail boats or small power boats with less than 25 mile per hour horse power under a homeowners or renters insurance policy. Coverage is usually about $1,000 or 10 percent of the home’s insured value and generally includes the boat, motor and trailer combined. Liability coverage is typically not included–but it can be added as an endorsement to a homeowners policy. Check with your insurance representative to find out if your boat is covered and what the limits are.

Larger and faster boats such as yachts, and personal watercraft such as jet skis and wave runners require a separate boat insurance policy. The size, type and value of the craft and the water in which you use it factor into how much you will pay for insurance coverage.

For physical loss or damage, coverage includes the hull, machinery, fittings, furnishings and permanently attached equipment as part of either an actual cash value policy or on an agreed amount value basis. These policies also provide broader liability protection than a homeowners policy. But there are distinct differences between the two types of policies.

Actual Cash Value policies pay for replacement costs less depreciation at the time of the loss. In the event of a total loss, used boat pricing guides and other resources are used to determine the vessel’s approximate market value. Partial losses are settled by taking the total cost of the repair less a percentage for depreciation.

Agreed Amount Value basis policies mean that you and your insurer have agreed on the value of your vessel and in the event of a total loss you will be paid that amount. Agreed Amount Value policies also replace old items for new in the event of a partial loss, without any deduction for depreciation.

Physical damage exclusions might include normal wear and tear, damage from insects, mold, animals (such as sharks), zebra mussels, defective machinery or machinery damage.

Boat insurance also covers:

  • Bodily injury—for injuries caused to another person
  • Property damage—for damage caused to someone else’s property
  • Guest passenger liability—for any legal expenses incurred by someone using the boat with the owner’s permission
  • Medical payments—for injuries to the boat owner and other passengers
  • Theft

Most companies offer liability limits that start at $15,000 and can be increased to $300,000. Typical policies include deductibles of $250 for property damage, $500 for theft and $1000 for medical payments. Higher limits may be available. Additional coverage can be purchased for trailers and other accessories. Boat owners may also consider purchasing an umbrella liability policy which will provide additional protection for their boat, home and car.

Boaters should also inquire about special equipment kept on the boat, such as fishing gear, to make sure it is covered and verify that towing coverage is included in the policy.

Boat owners should also inquire about discounts for the following:

  • Diesel powered craft, which are less hazardous than gasoline powered boats as they are less likely to explode
  • Coast Guard approved fire extinguishers
  • Ship-to-shore radios
  • Two years of claims-free experience
  • Multi-policies with the same insurer, such as a car, home or umbrella policy
  • Safety education courses, such as those offered by the Coast Guard Auxiliary, U.S. Power Squadrons, or the American Red Cross.

Boat Safety

There are thousands of recreational boating accidents per year. Contributing factors to these accidents include traveling too fast for water or weather conditions, driving under the influence of drugs or alcohol, failing to follow boating rules and regulations, carelessness and inexperience.

To prevent boating accidents, we offer these safety suggestions:

Care and protection of vessel

  1. Check weather forecasts before heading out.
  2. Let someone know where you’re going and when you expect to return.
  3. Check engine, fuel, electrical and steering systems, especially for exhaust-system leaks.
  4. Carry one or more fire extinguishers, matched to the size and type of boat. Keep them readily accessible and in condition for immediate use.
  5. Equip the vessel with required navigation lights and with a whistle, horn or bell.
  6. Consider additional safety devices, such as a paddle or oars, a first-aid kit, a supply of fresh water, a tool kit and spare parts, a flashlight, flares and a radio.

Care and protection of crew and guests

  1. Make sure that every person on board the boat wears a life-jacket.
  2. Know and obey marine traffic laws, the “Rules-of-the-Road.” Learn various distress signals.
  3. Keep an alert lookout for other watercraft, swimmers, floating debris and shallow waters.
  4. Pay attention to loading. Don’t overload; distribute the load evenly; don’t stand up or shift weight suddenly in a small boat; and don’t permit riding on the bow, seatbacks or gunwales.
  5. Don’t operate a boat while under the influence of alcohol or drugs.

Skippers can obtain free advice and boating-safety courses from the U.S. Coast Guard Auxiliary. Upon request, the auxiliary will conduct a Courtesy Marine Examination (CME) on your boat, checking electrical and safety equipment and fuel hoses. Boats meeting safety standards are awarded the CME decal “Seal of Safety.”

Business Hours

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24 Hour Hotline: (407) 415-8528

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National Risk Management & Associates
220 Magnolia Avenue
Sanford, FL 32771
Phone: (407) 767-2950