Flood insurance gets harder to find wsj.com


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See Tom Crowley, a partner at Maran Corporate Risk Associates, in the Wall Street Journal discussing insurance and this year's hurricane season!

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Flood insurance gets harder to find wsj.com

  1. 1. Flood Insurance Gets Harder to Find - WSJ.com Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit www.djreprints.com See a sample reprint in PDF format. Order a reprint of this article now WEEKEND INVESTOR JUNE 19, 2010 As Hurricane Season Begins, Insurance Gets Harder to Find By M.P. MCQUEEN From the Gulf oil spill and the floods in Arkansas and Oklahoma to the procession of hurricanes forecast for this year, the stage is set for major property damage in 2010. Yet people looking to bolster their homeowners-insurance protection are likely to find that premiums are pricier, and extra coverage is harder to get, than ever before. Government and private forecasters are predicting an active hurricane season, which runs from June 1 through Nov. 30. But insurers are selling fewer policies, raising premiums and reducing or dropping wind coverage as far north as Massachusetts, insurance industry spokesmen and agents say. View Full Image Getty Images "The average price of a homeowner policy on Long Island is A house rests atop a car in Lake Charles, La., after Hurricane Rita—then a Category 3 storm—landed in above $2,000 a year now, and five years ago it was probably September 2005. half that," says Thomas J. Crowley, an independent insurance agent in Southampton, N.Y. "My own policy has doubled in five years to over $3,000 a year." Of particular concern this hurricane season: flood damage. Storm surges could bring polluted floodwaters from the oil spill in the Gulf, potentially affecting property owners from Louisiana to Cape Hatteras, N.C. But standard homeowners' policies generally don't cover pollution damage resulting from a flood; only supplemental flood insurance does. "In general, whatever is mixed in with the water is part of the flood, hence excluded from a [traditional] homeowner policy," says Robert Hartwig, president of the Insurance Information Institute, an industry nonprofit group. Finding Flood Coverage Only one in five homes in a high-risk flood zone carries flood insurance—and new coverage is getting increasingly difficult to find. Congress hasn't yet extended the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency and provides the vast majority of flood policies in the U.S., after it expired on June 1.
  2. 2. Flood Insurance Gets Harder to Find - WSJ.com As a result, no new NFIP policies and renewals are being issued. The handful of private companies that issue flood insurance for high-end properties continue to do so. Congress's failure to extend the flood insurance program is delaying an estimated 1,200 real-estate closings a day across the U.S., according to the National Association of Mutual Insurance Companies. Federal law requires homes with federally backed mortgages in flood-hazard areas to have flood insurance. The House has passed an extension bill, and federal officials say they believe Congress will reauthorize the program eventually. New policies would likely be retroactive—but there is a 30-day waiting period after a policy is approved before it takes effect. So insurance experts urge homeowners who need flood insurance to apply now despite the hiatus. The average flood-insurance premium is about $570 a year for a $217,000 policy, according to FEMA, but it rises to $2,000 for $187,500 of coverage in areas of high storm-surge risk. (For more information, go to www.floodsmart.gov.) People with high-end homes—generally those valued at more than $500,000—often have an easier time finding insurance, but usually must pay handsomely for it. Privilege Underwriters Reciprocal Exchange, or PURE, sells so-called high-value coverage in 14 states. ACE Ltd., Chubb Corp., Allianz SE's Fireman's Fund Insurance Co. unit and the Private Client Group at Chartis, the property-casualty unit of American International Group Inc., offer it too, though some sharply limit policies in high-risk areas, or insure only recently built or second homes. Such firms offer special coverage not generally available elsewhere. Many carriers sell excess flood insurance above the NFIP's $250,000 limit. Some also sell personal flood policies with high loss limits like $15 million, though generally outside of high-risk zones. Specialist Referrals Some firms, including Chubb and Fireman's Fund, also provide referrals to a network of experts with discounted services, including arborists who can help identify weak trees and shore them up before storms hit. They also may offer assistance in taking inventory of valuables and evacuating fine art and antiques. Chartis recently introduced the services of its Hurricane Protection Unit to Martha's Vineyard, Cape Cod and Nantucket, Mass. But these insurance policies cost an average of 20% to 25% more than those in the general market, brokers say—and prices are rising. Hub International, the big broker, expects premium spikes of 8% nationally, with double-digit increases in some coastal areas and 5% inland. One high-value home insurer recently told agents it will raise premiums in Florida by 14%, although its rates will drop for condo owners and renters. (Florida, Texas and Louisiana residents pay the highest premiums, according to the Insurance Information Institute.) Dos and Don'ts When examining or comparing insurance policies for hurricane-related coverage, it is important to make sure that you have enough insurance to rebuild fully after a disaster. Check your policy limits to make sure they have kept pace with additions and upgrades; insured values reflect rebuilding costs, not the market value. Be sure to distinguish between "extended replacement cost," coverage that pays a percentage above the policy
  3. 3. Flood Insurance Gets Harder to Find - WSJ.com limit, and "guaranteed replacement cost," which pays whatever it costs to replace insured property with like materials—an important distinction for historical and custom homes. Also, scrutinize policy deductibles and exclusions. In 18 states and the District of Columbia, home insurance policies now have wind, beach or hurricane deductibles that are separate from the standard dollar deductibles that apply for fire and other perils. Depending on the insurer and state, hurricane and wind deductibles generally run from 1% to 5% of the home's insured value. The owner of a $1 million home could pay a minimum of $10,000 for repairs before the insurer pays the first dollar for hurricane damage. Also, in some coastal counties, homeowners may have to buy wind coverage separately from special pools. (See www.iii.org for more information.) Emergency Expenses Next, look for how your home insurance policy treats emergency living expenses, in case you are displaced. And choose coverage from a company that has received top financial-strength ratings from one of the financial- ratings firms, which include Moody's, Standard & Poor's and Fitch Ratings. Spending for quality coverage can pay off when disaster strikes, says Chari Hust, 55 years old, of Houston. Ms. Hust, a registered nurse, and her husband, Bob, 57, a cardiologist, suffered major damage on their primary and vacation homes in Sept. 2008, when Hurricane Ike pounded eastern Texas. The Husts' second home, on Lake Livingston, outside Houston, had much of its roof blown off, exposing all the contents to wind-driven rain. "We had to rip it down to the studs and get rid of the sheet rock and everything else," Ms. Hust says. "It was like entirely rebuilding the house." Her insurer, Chubb, paid about $400,000 in claims on that house, which was insured for more than $600,000. Her primary home in Houston flooded, triggering a $64,000 claim under the National Flood Insurance Program as well as a $140,000 claim for other damage under her Chubb home policy. Ms. Hust says that unlike some of her neighbors, she and her husband had no problems settling claims. "You may pay more," she says, "but if you have a catastrophe, it is worth having the right insurance." Write to M.P. McQueen at mp.mcqueen@wsj.com Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com