WEALTHY & WISE
                            March 2009 — Issue 7         ...
turn on the TV any day of the week to hear of
Cutting Costs continued from page 1
By Frank Rapisarda
Vice President

Do you live in a flood zone? Most everyone in the U.S. doe...
Flood Insurance continued from page 3

                                                           HRH HAS
effect when the...
                                                                              AN EXAMPLE OF AN
THE VALUE                                                                 Q. WHAT ARE THE MOST LIKELY AND


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Wealthy And Wise Winter 2009


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Wealthy And Wise Winter 2009

  1. 1. PRIVATE CLIENT GROUP WEALTHY & WISE March 2009 — Issue 7 CUTTING COSTS? DON’T REDUCE YOUR LIABILITY LIMITS! By Lynn Killeen Senior Vice President “Shouldn’t I reduce the amount of coverage on my house in light of its decreased market price?” That’s the question of the hour, as home values continue their downward slide. We are fielding many calls from clients asking to reduce the amount of insurance coverage on TIMELY TIP: their Homeowners or Excess Liability policies. Our response: Consider increasing your policy deductible or removing physical THE INSURANCE damage coverage on older vehicles if you wish to reduce your premiums. Do not reduce your Excess Liability coverage. And let’s INSTITUTE FOR discuss the correct amount of coverage for your home. HIGHWAY For most of us, our home is likely our most valuable physical asset. We need enough insurance coverage to rebuild in the event of a total SAFETY loss. While the market value of many homes has fallen, construction costs have not. The fluctuating but generally increasing costs of fuel and sluggish new home sales have kept the costs for residential By Mark Battat building from falling. Typically, contractors find it more expensive to Vice President build one home than work on a new housing development – a factor in estimates to rebuild an existing home. The Insurance Institute for Highway Safety is an independent, nonprofit, scientific and Most insurance policies require the amount of insurance carried on educational organization dedicated to the dwelling itself be equal to 100% of the cost to rebuild the home as reducing the losses – deaths, injuries and it currently exists. If you agree to do this, then several carriers that property damage – from crashes on the specialize in insuring high-value homes will agree to rebuild your nation's highways. home, even if the amount of coverage shown on your policy is not enough. (Individual contracts vary and should be reviewed with your The institute offers a variety of consumer broker.) If, at the time of loss, your home is insured for less than brochures, including: 100% of the cost to rebuild, you could be subject to a coinsurance Shopping for a Safer Car penalty. Although coinsurance is more common in commercial About Airbags including on/off switches property policies, we also see it in many personal home policies. and child safety Beginning Teenage Drivers For example, if your home is destroyed in a fire, and it costs Vehicle Research Center Guide $1,000,000 to rebuild and you only had $800,000 of dwelling coverage at time of loss, you were insured 80% to value. A To learn more about how you can improve coinsurance penalty is computed by “did over should.” In other your travel safety, simply go to words, you “did” have $800,000 of coverage; however, you “should” have had $1,000,000. Therefore, you were 20% underinsured, so if continued on page 2
  2. 2. turn on the TV any day of the week to hear of Cutting Costs continued from page 1 the latest and greatest lawsuit in the U.S. Unfortunately, anyone can sue you for just your policy contains a coinsurance penalty clause, the amount you about anything. Law firms advertise “if we collect could be reduced by 20%. Frequently, this also applies to don’t win, you don’t pay.” Add that to the fact partial losses. Let’s say you have a partial loss and the estimate is that anyone can walk into any municipality and $300,000 to repair your home. Even though you have $800,000 of pay $50 or so to file a small claims lawsuit, and dwelling coverage, if it is determined you should have had the potential exposure far outweighs the $1,000,000, then the insurance company can reduce your claim by nominal savings realized from reducing your 20% and pay you only $240,000, i.e., your penalty for underinsuring liability coverage limits. your home is 20% of your claim or $60,000. We see claims originating from minor fender A better solution is to consider increasing your deductible and benders, clients’ children loaning their cars to essentially self-insuring the first $2,500, $5,000 or even $10,000. a friend and the friend has an accident, dog This should reduce your annual premium and eliminate submission bites, the guy hired to clean the gutters falls off of smaller claims to your insurance company. Keep in mind that the ladder, family members falling on slick statistics indicate an insured will only submit one home claim every sidewalks, or a mishap at the country club 7 to 10 years. reception that our client hosted. Then there are watercraft accidents…think water skiing, When we assist our clients in making this decision, we determine the jet skis. And golf carts: the teenage son whips premium savings at each deductible option and divide it into the around the corner and his friend goes one way difference between the deductible they have and the option they are as the cart goes the other. The list is practically considering. For example, if you currently have a $1,000 deductible endless! The 47th Edition of JVR’s Current and are considering a $2,500 deductible, first determine the amount Award Trends cites jury awards over $1 million you will save annually if you choose the higher deductible option. range from 9% of the total of all judgments rendered in the Northwest to a high of 27% of Let’s say, your annual savings is $425. The difference between your all awards in the Northeast. This is the last current deductible and your potential new deductible is $1,500. place you want to skimp on your insurance. If Divide your annual savings into what your increase in risk is, i.e., a judgment is rendered against you as the $1,500 divided by $425 equals 3.53 years. That means it will take you result of a lawsuit and you do not have enough 3.53 years to break even. Every year after 3.53 years that you do not insurance, your assets are at risk. Additionally, have a claim, you will be ahead by $425. If you don’t have a claim for your wages can be garnished until the lawsuit eight years, you have saved almost $1,900. is paid in full. Reducing your Excess Liability or Umbrella limit is almost never a For Excess Liability, the bottom line is that good idea. You only have to open a newspaper, click on the internet or $1M is the old $5M, and $5M is the old $10M! 2 Willis HRH • 03/09
  3. 3. ZONING IN ON FLOOD INSURANCE By Frank Rapisarda Vice President Do you live in a flood zone? Most everyone in the U.S. does, thanks to the Federal Emergency Management Agency (FEMA). Although flooding causes over $3 billion per year in property damage in the U.S., prior to 1968, when Congress passed the National Flood Insurance Act in flood insurance was virtually unavailable from the private insurance industry. The National Flood Insurance Program (NFIP) managed by FEMA then began the ambitious task of mapping communities to delineate special hazard areas and risk premium zones. A zone is a geographical area on a Flood Insurance Rate Map (FIRM) that indicates the severity or type of flooding to which it is susceptible. Zones are a key ingredient in the promulgation of flood insurance rates. You may be in a low-, moderate- or high-risk flood zone, but you are in a zone. You can buy flood insurance as long as your community participates in the National Flood Insurance Program. And, it’s a good idea to buy even in low-risk areas because 20% to 25% of all flood insurance claims come from low-risk areas. The Flood Disaster Protection Act of 1973 requires federally regulated lending institutions to make sure that mortgage loans secured by buildings in high-flood-risk areas are protected by flood insurance. Flood zones may be changing as FEMA continues its ongoing map modernization project. Since the maps haven’t been updated in the last 20 years, you may find yourself in a higher-risk zone than before. If that happens, you may also pay substantially more for your flood insurance policy. If you own a home in Florida, Louisiana or Ohio, the likelihood of being re-zoned increases as FEMA is reported to have put most of its resources where storm patterns and real estate development have created new or higher-risk, flood-prone areas. Some communities have decreased the potential for flooding by making modifications or improvements in certain structures (dams, levees, etc.). In some cases, communities have revised their geographical boundaries, resulting in reduced flood hazard areas. In still other instances, the community has provided updated information that more clearly delineates flood insurance risk zones. Map upgrading was overdue, and while it could mean higher rates, some relief is built into the system to rescue homeowners from a negative impact. Owners of properties that move from a low- or moderate-risk zone into a high-risk zone may be able to take advantage of a process known as grandfathering. If you have had continuous flood insurance coverage, rules allow you to benefit in the rating. You are given the option of using the new and updated rating criteria or having the premium rate determined using the FIRM in continued on page 4 3 Willis HRH • 03/09
  4. 4. Flood Insurance continued from page 3 HRH HAS effect when the building was originally JOINED constructed or when flood insurance was first procured. This could result in a savings when the FORCES WITH new map revision, by itself, would raise your premium. WILLIS Owners of properties that move from a high-risk zone to a low- or moderate-risk zone may be Willis HRH, the North American arm eligible for reduced insurance rates by converting of Willis Group Holdings, came into to a Preferred Risk Policy. This policy covers both being in October 2008 after the a structure and its contents and offers substantial transformational $2.1 billion savings. A PRP can be obtained for as little as $112 combination of Willis and HRH. a year. The deal doubled Willis’ North The NFIP flood policy provides the basic America revenues and enhanced its protection needed for homes valued up to leadership in attractive growth $250,000 and containing possessions with a value markets. It more than doubled Willis’ up to $100,000. Since floods in fact frequently high-growth Employee Benefits cause total losses, and recognizing that many business in North America while homes today have values substantially greater strengthening Willis’ middle-market than the highest limits available through the flood leadership. program, some insurance companies offer Excess Flood insurance to meet the need for additional Willis HRH is now among the top coverage. Even if you live in a high-risk flood three brokers in 15 of the 20 largest hazard zone you can still obtain the needed U.S. markets – and number one in coverage. Like the NFIP policy, your rate is based Chicago, Philadelphia, Phoenix and upon the flood zone, the age and type of home and seven other major U.S. markets. All the amount of coverage you choose. Policies are told, the combined company is in 210 available to homeowners, condominium owners locations in North America, up from and renters. You may be eligible for a preferred Willis’ 70 locations previously. risk policy if your home is in a low flood hazard zone and has limited flood loss history. This is a simple, straightforward and very affordable coverage. Deductible options further reduce your costs. Loss control measures can be taken to mitigate the damage caused by floods. Contact your Willis HRH Client Advocate for information on how you can control the cost of protecting your property from flood losses. Also be sure to check out the FEMA website at for additional information. 4 Willis HRH • 03/09
  5. 5. FRAUD AND AN EXAMPLE OF AN EMBEZZLEMENT EMBEZZLEMENT COVERAGE CRIME A trusted assistant, responsible By Marnie Everline for paying bills for their employer also writes checks out Most of us think we are smart enough and financially sophisticated to “cash” and transfers monies enough to avoid becoming victims of fraud or embezzlement. But, into their own personal bank sadly, the rash of recent Ponzi schemes and other fraudulent account. By the time the activities that have been uncovered have substantially diminished, if employer discovers the crime, not totally destroyed, the assets of many of even the wealthiest the assistant has embezzled a individuals and some of world’s largest charitable organizations. total of $50,000. What constitutes fraud and embezzlement and is there any way to protect yourself from these crimes? WHAT IS FRAUD? Embezzlement can be small or large; as In criminal law, fraud is a crime or offence of deliberately deceiving minor as a retail store clerk pocketing a few another in order to damage them, usually to obtain property or services extra dollars from the cash register or as unjustly. Fraud can be committed through many methods, including major as an executive of a large company mail, wire, phone and the internet (computer crime and internet fraud). illegally transferring managed money into a WHAT IS EMBEZZLEMENT? personal account. ASSET PROTECTION Embezzlement, considered a white-collar crime, is a type of fraud where a person misappropriates the assets entrusted to them. Assets Some Homeowners policies can be endorsed are held lawfully but used for an unintended purpose. Embezzlement with supplemental coverage options that is a breach of the fiduciary responsibilities placed upon a person and address embezzlement and fraud crimes and can adversely affect individuals and corporations. respond to the loss of money, securities and personal property. Methodical and systematic, the embezzler conceals his or her actions, which of course are done without the consent or knowledge of the Check your Homeowners policy to see if such wronged party. Often it involves the trusted person embezzling only coverage is afforded or contact your Client a fraction of the funds received to minimize detection. If successful, Advocate for further assistance and this crime can continue for years undetected and is most likely information. discovered only when the funds are requested or needed and they are no longer available. 5 Willis HRH • 03/09
  6. 6. THE VALUE Q. WHAT ARE THE MOST LIKELY AND OF FINE ARTS COSTLY EXPOSURES THAT COLLECTORS FACE? By Wayne Wiedenbeck A. The single most frequent case of Fine Arts Vice President losses are transit related. Consider for a moment the entire process of moving a piece Did you know that over the past three years the number of active or a collection of artwork. The planning, collectors of Fine Arts tripled? This resulted in large general pricing packaging, the physical transportation, increases in the Fine Arts marketplace. Many collectors bought and unpacking and hanging. It’s all a chain of sold items frequently and many realized a gain in value. related events with so many opportunities for losses or damage to occur. Think of art In the last quarter’s volatile economy, many collectors are wondering transport like a chain that is only as strong as if their collections have retained, gained or decreased in value. its weakest link. A piece of artwork will pass Because every collection and art piece is different, no one broad through many hands and you need to test the answer can be given. strength of every link in the chain before a piece starts its journey. Recently, I spoke with Claire Marmion, a highly respected private curator and consultant who owns Marmion Advisory, LLC. Claire has Catastrophic exposures are another peril. A tremendous experience in the fine arts market, having worked for collector purchases an item at auction in New both the AIG Private Client Group and Chubb as Director of Fine York only to have it shipped to their home in Arts Services. What follows is a brief excerpt of our discussion. Florida. Did the collector consider that there is a loss potential due to wind or flood? The Q. WHAT HAS BEEN THE FASTEST GROWING SEGMENT OF same could be said for a piece of artwork in a THE FINE ARTS MARKET? home located in a wildfire zone. Collectors must be proactive to preserve their art and A. Over the last three years we have witnessed a revolution in the that begins in where the art will be housed. contemporary art market. Never before have so many collectors been Q. ARE COLLECTORS STILL drawn to art that is so difficult to look after – the most fragile of PURCHASING AND SELLING AT THE pieces in the most volatile market. SAME FRANTIC PACE AS IN PREVIOUS Q. WITH REAL ESTATE VALUES DECLINING IN MANY YEARS? LOCATIONS, COULD THE SAME BE SAID FOR FINE ARTS? A. Today many collectors may find it A. Many collectors mistakenly assume that because real estate values necessary to hold on to an item for a period of have generally fallen that the same must be also true for their time before the right opportunity arises to sell. collection. Not necessarily so. Some homes have held their values. Whether they are purchasing to enjoy or to sell, The same could be said with Fine Arts. Some artist’s pieces still hold collectors must safeguard their collections. excellent value while others may not. Claire Marmion Collectors with well prepared collections schedules should look into Marmion Advisory, LLC having a qualified appraiser conduct a “Schedule Review.” The 312 375 3807 appraiser will review and identify those specific items which may have gained or lost value and offer updated values. This saves the collector significant appraisal fees while at the same time keeping their values current. 6 Willis HRH • 03/09
  7. 7. KEY CONTACTS FOR FURTHER INFORMATION, PLEASE CONTACT: Jim Jameson Sandra Bravo New York, NY Practice Leader 212 915 8212 212 915 8019 Joseph Clark Laura Ebert Radnor, PA Phoenix, AZ 610 254 2664 602 787 6307 Lori Caldwell Mark Battat Knoxville, TN San Francisco, CA 865 583 3769 415 955 0242 Lesa Blaser Ken Kreutz Dallas, TX Denver, CO 972 715 6265 303 765 1561 Brian Olive Karen Murphy Seattle, WA Hartford, CT 206 386 7404 860 756 7343 CANADA OPERATIONS Robert J. Clark Tampa, FL Irene Dick 813 490 6811 Toronto, ON 416 216 0775 Leslie Hernandez Vero Beach, FL Trish McClintick 772 469 2864 Vancouver, BC 604 605 3692 Lynn Killeen Baltimore, MD 301 527 7255 Frank Rapisarda Hunt Valley, MD 410 584 8623 Wealthy & Wise provides a general overview and discussion on a wide range of topics. It is not intended, and should not be used, as a substitute for professional advice in any specific situation. 7 Willis HRH • 03/09