The guidelines do not address the situation of the issuance of a hurricane warning and the arrival of the storm in a lower category – a tropical storm as in the case of Irene.  At present following Irene, some insurance companies are living with the wording of their deductible.  This means that the Hurricane deductible will be invoked though Irene arrived in CT at less than Hurricane strength.  Other carriers are not invoking the Hurricane wording and are applying the general all perils policy deductible.

We would suggest that anyone being adversely impacted by this situation, contact the CT Insurance Department.  Our hope is that this situation can be avoided in the future with an adjustment to the wording of the minimum requirements for the application of a Hurricane deductible in CT.

• A very small percentage of homeowners buy earthquake coverage in New England.  Homeowners policies normally exclude earthquake coverage.  The coverage can be added by endorsement in most cases for an additional premium. It is seldom requested but consideration is recommended.   
• Damage caused by a tsunami is flood damage.  Flood is excluded under all Homeowners policies.  To obtain flood coverage, a separate policy issued by the Federal Flood Insurance Program is available.  The truth is a flood policy is seldom purchased unless a bank is mandated by federal law to require flood coverage when making a loan a high risk area.  In a high risk area, there is a 26% probability of a flood claim over the life of a 30 year mortgage.  Yet, everyone lives in a flood area though perhaps not a high hazard area.  The premium charged for flood coverage reflects the area’s exposure to flood.  Tsunamis can’t happen here.?  In 1929, a tsunami resulting from an underwater landslide struck Newfoundland with waves 2 stories in height.  28 perished in the aftermath.  In the past 500 years, researchers have evidence of 88 tsunamis having occurred in the Caribbean – some resulted in significant loss of life and property.
• Nuclear Damage – either by war or accident – is excluded in all policies with the possible exception of fire as a direct result.  Coverage normally can not be purchased.
• Finally, the loss of power can create many related loss situations.  Loss of refrigeration, loss of use of a home are examples.  These types of losses, if covered at all, are usually covered for very short periods of time and for very limited dollar amounts.

Nothing can undo the devastating loss of life and huge property losses suffered by the Japanese people.  Their industrious nature, independent spirit, civility, and work ethic provide them with great strengths to deal with this human tragedy.  How can we prepare for such devastation?

First, liability coverage should be added to your HO policy.  If the unit is for your use (insured only), it should be listed on the declarations page as an insured location.  If the carrier agrees to this, the cost will be slight.  If the unit is rented out, an HO 24 70 Endorsement – Additional Residence Rented to Others – should be added.  Again, the added cost should be minimal.  It the unit is used by you and rented out, then both endorsements should be added.

Next, owned personal property in the timeshare occupied by you is covered under your basic HO policy subject to a limitation of 10% of your HO personal property coverage.  This amount could be increased by using the HO 04 50 endorsement.  If the unit is rented out, this coverage will not apply.  If coverage is needed for personal property in a rented unit, a business policy form would be required.  The expense here might be considerable. 

Loss of Use coverage is not available under an HO policy in either the occupied or rented circumstance.  Further, Loss Assessment coverage may be desired depending on the ownership arrangement.  For the owner occupied unit, this coverage should be available by endorsement – HO 04 35 with limits above the $1,000 supplied by the endorsement available.  In most cases, this coverage would not be required given most ownership arrangements.  The need or lack thereof should be verified – the cost of coverage would be minimal.

There are no HO policy territory restrictions.  Therefore, timeshare units outside the US would be covered under an HO policy as described above subject to insurance company acceptance.

The costs to insure will be small but the exposure should not be neglected.  Too many clients don’t even mention timeshare ownership to their agents when outlining their owned assets.  Don’t forget!

Condominium Homeowners Coverage A is “Dwelling” coverage.  In the case of a unit owner, this means any part of the building which is owned by the unit owner specified in the condominium documents.  This would include any Additions or Alterations to the structure. 

Effective 7/1/2010, Connecticut has a new Common Interest Ownership Act which applies to common interest communities containing more than 12 units.  The Act states that the Association Master Policy will cover any buildings which share common walls or stacked units with common floors and ceilings – including Additions and Alterations (A&A).  The Master Policy Coverage under the act must include any Additions and Alterations in individual units.  Under the Act, the Association Board of Directors has the option to provide this “All In” coverage or to opt out of providing the coverage.  If the Association BOD opts out, the individual unit owner must then obtain any desired coverage on A&A.  In the opt out scenario, the individual unit owners must be supplied by the Association with an inventory of all original A&A at the original point of sale and each year thereafter.  This inventory would aid the individual unit owner to determine proper coverage A limits – the value of the structural items plus any A&A.  If the unit owner is responsible for insuring the A&A, it is recommended that the insurance be purchased on a Replacement Cost basis.  If the Association is to insure the A&A under the “All In” coverage condition, the BOD would decide on the limit and form of coverage.

Coverage B – Appurtenant Structures – another individually owned structure such as a garage or a shed - is not typically applicable. 

Coverage C is contents coverage.  Contents can typically be insured on a Replacement Cost basis.  The limit of coverage is determined by the unit owner’s estimate of the cost to replace all personal items owned.  Certain items (money, jewelry, silverware, gold, guns, collectibles, etc.) require special treatment given policy coverage limitations for these kinds of items.  These items are often targets of theft.  The coverage is limited given the heightened exposure.  Higher limits for these limited items may be purchased at an appropriate cost.

Coverage D – Loss of Use – coverage for expenses resulting from the inability to reside at the residence as the result of a covered claim –  is an automatic percentage of the contents limit purchased – normally 20%.

Coverage E – the Personal Liability limit – is selected by the unit owner based on perceived need for liability protection.  We would recommend a $300,000 limit at a minimum with the added purchase of a Personal Umbrella Policy providing an additional $1,000,000 limit or more in liability protection.  PUP policies are issued in $1,000,000 increments and provide protection above all required underlying coverage – home, auto, watercraft, etc.

Finally, we recommend the purchase of the maximum limit offered by the chosen insurance company for Loss Assessment Coverage.  This provides the unit owner with coverage for the owner’s pro rata share of any assessment made by the Association due to uninsured or underinsured property or liability losses.  This coverage will only provide up to $1000 towards any Association insurance deductible assessed to the individual unit owner as the result of an Association claim.  $50,000 Loss Assessment Coverage is the typical maximum limit available for purchase on an individual unit owner’s policy.

The standard Homeowners Policy in Connecticut provides coverage for the dog owner under the Personal Liability section of the policy.  Liability for the actions of a dog is imposed on the dog owner.  The typical Personal Umbrella Policy will provide additional Personal Liability protection including coverage for a dog bite situation. 

Given this background, insurance companies in Connecticut have heightened concern to limit their exposure as much as possible.  They are restricting the types of dogs that they will insure.  In some cases, an additional premium charge is made for the existence of a dog exposure in the household.  Once a dog has bitten someone, the insurance company will in all likelihood cancel the homeowners policy unless the animal is destroyed.

Most Homeowners Policy applications ask if the applicant owns pets or exotic animals and, if so, what breed(s).  Some insurance carriers may limit their underwriting by 10 or more breeds – including any mixture of the prohibited breeds.   Other carriers may be more liberal and limit the number of undesirable breeds to as few as three breeds.  If a homeowner acquires a prohibited breed after application and the insurance company becomes aware of the existence of the animal during the policy term, this can be grounds for non-renewal of the policy even though a loss has not occurred.  Once a loss (bite) occurs, the insurance company will in all likelihood non-renew the policy – one bite is usually it. 

The approach now is in this writer’s view an overreaction.  A more creative effective approach needs to be developed by insurance companies to avoid the use of the proverbial sledge hammer (cancellation – non-renewal).  As an example, studies show that dogs are three times more likely to bite if they are not neutered.  Most dog licenses clearly indicate if an animal has been neutered.  A veterinarian certificate is easy to obtain.  Yet, no insurance company to date has adopted neutering as a viable underwriting tool to allow underwriting flexibility.

This is a HEADS UP!  If you are about to get a new family pet, contact your insurance agent to be sure that your future insurance coverage will not be jeopardized if “Fido” or “Fluffy” happen to have the wrong DNA. 

The CDC (Centers for Disease Control and Prevention) advises the following to limit potential dog bites:

• Consult a Professional to determine a suitable breed for your home.
• Spend time with the dog before buying or adopting. 
• Make sure that children are not fearful or apprehensive about a dog.  Never leave infants alone with a dog.  Use caution if there are children in the home.
• Have the animal spayed or neutered.
• Socialize the dog with people and other animals.
• Stop children from disturbing a sleeping or eating dog.
• Play non-aggressive games – no tug-of-war.
• Avoid new situations that you are unsure of with your dog.
• Don’t approach a strange dog and avoid eye contact with a dog that appears to be threatening.

Good owners make for good dogs!

The ads are everywhere – “move your insurance to us and the average savings is $229.95”  “move your insurance and save 22% or more” “name your own price”.  Should this be the primary concern in placing insurance coverage?  The attempt to commoditize personal insurance coverage has been deliberate and is unending.

The Independent Agency system presents a business different in approach from insurers that market direct to the client.  Independent Agents represent a relationship driven individualized approach.  Those with assets – homes, boats, cars, etc. – require more than the measure of price to properly protect their investments. 

We all have an unique appetite for risk.  One person may be comfortable with a $500 Homeowners deductible, another a $2,500 deductible.  The cost of coverage is significantly impacted by an individual’s risk appetite.  The cheapest form of risk management is to retain risk rather than to transfer risk to an insurance company.  Not buying collision coverage on a vehicle is a good example of risk retention. Consideration of alternatives should be part of the purchase decision. 

Insurance is a promise to deliver in the future if certain things happen.  The insurance contract is an intangible.  When called upon, performance by the insurer and its agents can vary greatly.  Suffice it to say that the lowest price might very well yield the worst result.  Do you choose your doctor or lawyer by the perceived lowest initial cost or by the projected end result?  For those with significant assets, proper protection and consideration of risk is primary – the cost a necessary evil.

All Homeowners policies exclude flood.  Damage from wave action, rising rivers or streams, newly created ponds or lakes is excluded from Homeowners coverage.  The National Flood Insurance Program is basically the only source for this coverage.  Though the average homeowner is more likely to suffer a flood than a fire loss, flood insurance is not purchased by most unless their Mortgage company mandates it.  Agents try to create interest but have not been terribly successful.

The basic wet basement, water in the basement problem does not meet the Flood policy definition of a flood and is excluded from coverage under the Homeowners policy.  The basic Homeowners policy provides no coverage nor does the NFIP Flood policy.  The Homeowners policy excludes water damage from water which exerts pressure on or seeps or leaks into a building.  The fact that water has caused damage does not make the loss a flood related loss. 

Some insurance companies sell a limited coverage endorsement for water damage caused by the backup of sewers or drains or the overflow of or discharge from a sump.  These endorsements do not provide coverage for water damage due to water which seeps into a basement.  The water causing the damage must be the result of  a malfunctioning or inadequate sump pump, or the result of the backup of a sewer or drain.  These special endorsements are not part of the basic policy and typically provide only $2,000 to $5,000 in coverage.

It is unfortunately the case that a homeowner can purchase a Homeowners Policy, a Flood Policy, and one of the special Water Backup of Sewers and Drains endorsements and still not have coverage for a leaky basement.  An expensive recreation room in the basement may be a risky proposition!

Finally, after the water has been mopped up and everything is back to normal, mold may present itself.  The coverage for mold remediation is limited under most policies – including Homeowners policies – to $10,000.  But most importantly, this $10,000 remediation coverage is only available if the mold damage is the result of a covered peril.  Mold damage as a result of an uncovered Homeowners claim – say a flood – would not be covered. 

Bottom line, water damage presents a real problem for property owners and insurance does not present a total solution.  There is no substitute for good engineering and proper planning.

Homeowner insurers in Connecticut are increasing Homeowner rates as quickly as possible in an attempt to keep up with the increase in their reinsurance costs.  Many are utilizing the 6% or less file and use procedure in the state.  As we understand this, carriers are allowed by law to immediately begin the use of new rates in CT without prior approval from the Connecticut Insurance Department if the total impact of the change does not exceed a 6% increase in rate overall throughout the state.  The recent form of these Homeowners insurance increases has been no impact or even a rate reduction in non-coastal areas and large increases in rate (in most cases significantly over 10%) in coastal areas.  Primary insurance carriers are passing their increase in reinsurance costs to CT coastal homeowners while many non-coastal homeowners who may be adversely impacted by a future hurricane are untouched by rate increases.

This quickly changing rate environment is severely impacting coastal Homeowners.  A recent rate comparison provides an interesting perspective.  These Homeowner insurance rates were calculated using identical coverage, credit scoring, risk characteristics including fire protection.  The sole variable isolated was zip code – 2 coastal towns v. 2 interior towns.  The attached spreadsheet (HO Rate Comparison 10-2009) outlines the results which clearly indicate large differences in cost with the same carrier based solely on zip code location.  The cost varies with some carriers over 400%.  Since creation, this spreadsheet – if anything – under represents the coastal v. non-coastal rate variance due to recent rate activity.

What would the political climate be if this type of rate differential existed between inner cities and the suburbs due to the riots of the ‘60s or if this magnitude of rate differential existed between urban Personal Auto rates and suburban Personal Auto rates in Connecticut? -  I suggest that this would be politically unacceptable. 

An upper ceiling should be established – a percentage not a dollar amount – defining the largest % difference allowed for an identical risk in a coastal area versus a non-coastal area.  As an example, if a home is Hartford has a premium of $1000, a home in New London with like rating characteristics could not be priced at over (x)($1000).  If the carrier wants to charge more for the home in New London, then it would need to increase the cost on the home in Hartford to be within that mandated (x) pricing relativity.  200% (x=2) might be an appropriate maximum differential starting point.  This procedure would encourage some spreading of the coastal exposure and cost of reinsurance among all Homeowners in the state.  The spread of risk is Insurance 101.  To ask homeowners in coastal areas alone to bear the total cost of reinsurance based solely on projected (modeled) losses and not actual loss experience and to bear the cost to refill the coffers of reinsurers depleted by Hurricane activity is contrary to the basics of the insurance transfer process.

Does the fact that an insurance carrier is charging $1000 for a Homeowner policy in CT location A and $4000 for the same policy for an identical risk in CT location B (both in the same economic and regulated environment) indicate a viable, vibrant, rational Homeowners marketplace?

New London County Flood Zone Maps are being revised by FEMA and will be converted to digital format in 2011.  The new maps are in a preliminary stage with final adoption projected for 7/18/2011.

How are property owners impacted?  The majority of property owners are not impacted.  The majority will see no change in their Flood Zone determination.  However, some will find that their property is no longer located in a Special Flood Hazard Area (Zones A or V).  Therefore, they no longer will be required by their mortgage lender to carry Flood Insurance.  It still may be a very good idea to have flood coverage and may be considerably less expensive to purchase flood coverage. 

The remapping is of greatest concern to property owners who find that their property will be remapped into a Special Flood Hazard Area (Zones A or V).   These owners will be required by their mortgage lender to purchase flood coverage.  The banks have no choice.  If your home is remapped into an A or V flood zone, a federal law mandates that mortgage lenders require flood insurance effective the date of the new map adoption.  Your mortgage lender will require flood coverage in an amount equal to your mortgage or the maximum offered by the National Flood Insurance Plan – whichever is less.

Your town officials presently have the information regarding any change in flood maps for your community.  To find out if you have been impacted, you need to contact your local officials.  It makes good sense to do this well prior to the date of the new map adoption (tentatively 7/18/2011).  If flood coverage is purchased prior to the new map adoption and your home is newly mapped into a Special Flood Hazard Area, you may qualify to have the policy “grandfathered”.  This means that you may qualify for the use of rates applicable for the old zone determination.  This has the potential of providing a significant future premium savings.  Please see the attached FEMA documents on “grandfathering”. 

We can provide you with a quotation once the determination of Zone is made.  We suggest as a first step that you contact your local official responsible for the Flood Map change at your town hall.  With that information, we can be of assistance.  If you are required to purchase flood coverage in the future, “grandfathering” may apply to you and may save you significant premium.

Understanding Flood Map Modernization

Understanding Flood Insurance and the Grandfathering Rule

Saving on Flood Insurance

The Effects of Map Changes on Insurance 2009