Quick Update on Long Island Flood Insurance

Summer is the season where everybody on Long Island has much better things to do than think about their insurance (as opposed to the rest of the year, when it's everybody's favorite pastime). But there is one item I wanted to post about since it may affect some of the readers.

FEMA, the government agency that oversees the National Flood Insurance Program, has been in the process of re-mapping Nassau and Suffolk counties, which is done about every 10 years. This is the first one for our area since Katrina so expect some changes.The new maps take effect next summer.

But in the meantime FEMA is hosting two meetings in Nassau County for anyone who might be interested in more information. The meetings will run from 4 to 8 p.m. and will be on September 9 at Valley Stream High School on Fletcher Blvd and September 10 at Long Beach Middle School on Lido Blvd.According to the Newsday article, 28,000 more buildings will be brought into flood hazard areas next year when the new maps take effect, and of those, the people who have mortgages insured by FNMA and other government backed plans will get a letter advising that they are now required to buy flood insurance where they did not have to before.

In the meantime, people have an opportunity to be 'grandfathered' into the maps and plans that are in effect now. If you buy flood insurance before the change next summer, and your flood zone changes under the new maps to a higher rate, you will still be able to keep the previous zone. So if you think you might be on the border of a flood zone, and may be in a higher rate class next year, you might think of buying coverage now to lock in your current zone.

Insurance Issues as we head into Hurricane Season 2008

Greetings all. have not posted in a while about the Long Island homeowners insurance market because it has been 'more of the same' for a while now. That's not to say the situation has gotten better, but change is what makes news, and there have not been many changes making their way to the public for a while.

It seems a little strange to be blogging about hurricane and flood catastrophes as I sit in my office and look out on to one of the most beautiful days we have had. Still, the 2008 hurricane season is underway, with Bertha chugging around the Atlantic as a reminder. Of course once again you can find experts who are saying that this season will be more active than normal, but those same experts have been saying that for several years and so far they have been wrong. I only wish I had a job like the weatherman, where I could be wrong half the time and still get paid.

There has been one interesting development recently that could make it easier to get homeowners or similar insurance down near the water. The New York Property Insurance Underwriting Association has been permanently authorized by the state legislature. This may not seem like much to the average person, but for years now, this New York State-backed insurer of last resort has had to be re-authorized every year, and has been held hostage by various groups within the legislature. They would only authorize the renewal if downstate legislators, who had to make sure this coverage was available to their constituents, would in turn vote for other things that they did not necessarily want. Ain't politics wonderful?

In any event, they have now been made permanent. In addition, they have been authorized to offer broader coverages, and incentives to partner with regular insurance companies who would then be able to write supplemental coverage known as 'wraparound' so that the two policies together will provide something closer to a homeowners policy. Naturally it will take some time to put this in place, but kudos to the state legislature for getting this done.

Meanwhile, on the flood insurance side, the re-mapping of Nassau and Suffolk Counties continues. Newsday had a big article this week on the changes that are being revealed now in Nassau. A lot of folks who were previously right on the edge of a 'special flood hazard area' as defined by FEMA and the National Flood Insurance Program may now find themselves drawn into the hazard area by the new maps, which use more accurate mapping techniques as well as information drawn from the government's experiences with Katrina and other flooding situations.

If you think you are close to a flood hazard area but not in one, you might want to think about buying flood insurance soon. If you are outside the zone, in what's called a 'preferred zone' and buy coverage at those low rates, then it changes, you are grandfathered in to the low rates for as long as you keep your home. The difference can be thousands of dollars. And if it turns out that you were NOT one of those now lumped in to the higher hazard area, you can always stop carrying the flood coverage in a year or two when we know more about the new maps.

As always, for more information you can contact us through our web site at www.NYInsuranceWithSerivice.com.

Flood and Wind Insurance Reform in Congress

The National Flood Insurance program, administered through FEMA which is in turn part of the Department of Homeland Security, is currently how the vast majority of Long Islanders and people all around the country buy their flood insurance when needed. The idea of the program was that because flood is catastrophic in nature, meaning that it can affect large numbers of people at the same time, that only the taxing power of the federal government was enough to make sure that when the time came to pay huge claims, the money would be there.

The problem is that the rates being charged in the program are not nearly enough to pay the claims, so additional monies have had to be put in over the years by Congress, and those funds basically come out of taxes paid be everybody, not just those in the flood hazard areas. There are some social arguments back and forth about whether that's right or wrong, but after Katrina, it was decided that the program needed to be revised to be 'actuarially sound', meaning that it would collect enough premium dollars to pay the claims, without resorting to general tax revenues or other bailouts. The difference is many billions of dollars, and the answer they have come up with is to include more people in the flood hazard areas and also to increase rates.

But since a couple of the people whose homes were destroyed in Katrina happened to be influential members of Congress, they are not looking to stop there. In trying to judge who was responsible to pay the claims of Katrina, there was a lot of finger-pointing on the part of insurance companies who denied some claims that they felt should have been paid under flood coverage. However since many of the affected residents had been told that the work of the Army Corps of Engineers, in building the levee system, would protect them from flood, they did not carry flood insurance and so were left with no way to rebuild.

What is being proposed is to move windstorm coverage from the private homeowners insurance industry to the government-backed flood insurance program, and price it accordingly. Interestingly, this has the insurance industry up in arms. Although as we know here on Long Island, and particularly as you get farther out on the South Shore of Suffolk County, many insurance companies are shying away from providing policies at all because of the windstorm exposure.

Now this sets up an interesting position for the insurance carriers. On the one hand, they are arguing that wind insurance should NOT be taken out of their hands and put into the Government hands. In general, a founding principle of our country was private ownership, and that the Government should not set itself up as a competitor to private industry. But there are many cases (Medicare, Workers Comp...) where private industry was not up to the task and the government stepped in.

To me, it seems simple enough - if covering losses for hurricanes is a money-losing proposition for insurance companies (which one would have to think it must be if they won't write more coverage) then why would they care if the government took it over? And virtually any argument that could be made for or against the government covering windstorm could be easily turned into the same argument for flood insurance. So which is it? The coverage is too risky and they don't want it, or it's profitable and should be left in private hands? The answers being given by the industry suggest they are trying to play both sides of the fence.

As for me as an agent, I have to say it doesn't really matter. I sell both the government flood insurance as well as home insurance for all kinds of waterfront property. Our job is to deliver, explain, and service the product. So I have no great stake in the outcome here, but I know a snow job when I see one.

Big Changes in Long Island Flood Insurance

Hello all, and please accept my apologies for not having written a blog entry in quite some time. But this morning's Newsday article regarding flood insurance had something in it that got me so frustrated that I had to write.

The article is about the re-mapping of flood zones on Long Island by the FEMA, the government agency in charge of the national flood insurance program. They are using new equipment and techniques to reevaluate all the flood maps which may or may not result in people now being required by their bank or mortgage company to carry flood insurance where they may not have been required before.

FEMA is suggesting that some who live near a flood zone are currently outside of it might want to think about purchasing flood insurance now because the price may change dramatically if they are included in a flood zone after the new maps are issued. For instance right now someone who is not in a flood hazard area here on Long Island would pay under $400 for the maximum flood insurance available from the government. If your house is deemed to be in a flood hazard area when the new maps are complete your rate could easily be four to five times higher.

Under FEMA rules, if you have a flood insurance in place and your zone changes you grandfathered in to the old zone for as long as you keep your insurance in force. So if you live close to a flood zone but outside it you might want to think about buying one of the inexpensive policies now. If you end up in a flood zone and your bank requires the coverage, you will be locked into the lower rate. If you remain outside of flood zone under the new maps, you could cancel the policy after a year if you wish. (FEMA will not allow a policy to be canceled in the middle of the year unless you sell your home)

My problem is that in the article there is a quote from County Executive Steve Levy saying that homeowners should be allowed to make their own decision on whether to carry flood insurance or not, as opposed to having that decision made for them by FEMA or their bank. The fact is that we hear every day from people who are only buying flood insurance because their bank is forcing them because of government regulations. They feel that the fact that they've never seen a flood in their home means they will never be flooded. Unfortunately this is not the case and we only need to look at the ongoing problems resulting from hurricane Katrina to see that.

In addition, the idea coming from the County Executive that people should be able to choose which government programs and mandates they participate in and which they choose not to is absurd. If that were the case most people on the South Shore would probably still have cesspools in their backyards except that the government mandated participation in the Southwest Sewer District in order to protect our drinking water in the long run. The same logic is behind a part of our sales tax collections which go to fund open space purchases.

And how about school taxes? I have no children in school anymore. Can I opt out of school taxes because I no longer see the direct benefit to me? I found this to be a very irresponsible statement by the County Executive and contrary to the whole reason for the existence of virtually every government program. It's fine to be a fiscal conservative with the general opinion that government should take the least role possible in people's day-to-day lives. However say that these decisions should all be left to the individual homeowner and rely on them to make the best decision for everybody for the long-term simply does not work and is not valid.

Major Changes Ahead for the Insurance Industry?

Welcome back. I hope everyone had a great Thanksgiving. This post will not be about the New York auto or home insurance coverage that we usually cover. This time I will be highlighting some larger trends that in some cases have already come to affect other industries but may now be coming to an insurance policy near you.

One such new area is that the 'capital markets' are starting to make eyes at the insurance industry. When I say capital markets, I'm talking about monies raised by the giant investment firms like Merrill Lynch or Goldman Sachs. Up until now, insurance companies raised the money needed to back their insurance products by selling stock, and collecting premiums and investing them. But now these super-sized financial companies have become experts at raising literally billions of dollars quite quickly and efficiently, in their constant efforts to find investments to sell to their clients.

Traditionally, these financial companies would raise money for other companies by underwriting offers of their stocks and bonds. So if General Motors wanted to raise a billion dollars to invest in a new vehicle product line, for example, they could have Merrill agree to make good faith efforts to sell enough shares of GM stock (remember that stock represents an ownership interest) or GM could offer corporate bonds (debt that has to be repaid, but does not give up any ownership) for a similar amount. They would have to weigh the plusses and minuses of each.

Now, however, with the advent of things like hedge funds, and giant pension funds and even major individual investors looking to put their money to work, enough capital can be raised to start whole new companies and industries. The capital markets were a major force behind the growth of sub-prime mortgages over the past several years, as investors chased higher yields which could only be had by coming up with the many strange variations of mortgages, and in many cases giving them to people who, it turns out, couldn't afford them and are now facing serious financial problems.

These companies could end up having a huge impact on major insurance coverages such as catastrophe insurance. For instance, billions could be quickly raised to offer reinsurance (the kind of insurance that insurance companies buy for themselves against major events like hurricanes) except that instead of insurance companies buying their reinsurance from traditional markets like Lloyds, or SwissRe, they might look for better deals from the capital markets.

Competition is generally good in that it reduces costs. For instance, it would help us here on Long Island right now if insurance carriers could lower their cost of reinsurance for windstorms and hurricanes. That's what is causing all the disruption in the insurance market for waterfront homes these days. On the other hand, the capital market's tendency to use overly aggressive sales pitches, and only shoot for short term profit as opposed to long term viability, can make for quite a mess. Right now we are going through a mortgage and real estate crisis that was made much worse by predatory lending practices and speculation, fostered by these 'capital markets' chasing down an extra per cent or two of interest on their money through sub-prime mortgages.

The one thing about insurance that is different from almost any other kind of product, is that you can have catastrophic, once-in-a-lifetime events like Katrina or the four hurricanes in 3 weeks that hit Florida a couple of years back. These require careful long-term planning and an industry with plenty of real money behind it. I'm not sure I want to see insurance get the same kind of treatment as the mortgage industry has gotten this year as a result of reckless short term practices over the past couple of years.

Next up, will the next Presidential election bring a total change to our health insurance system?

Another Hurricane Season

Welcome back. I have not had time to post in a while but today as I was doing some "homework" I found that I needed to change the look of the blog, because with Google's new system, they had new template designs, and I had to choose one. I hope you like the look, though I know I don't have that many 'regular' readers. After all, not many people choose to while away their hours reading about insurance. I do have some regular readers of my other blog, www.aroundbabylon.com, but that's because I write about local happenings in our Village.

But while I'm here, I will write a short post. The market for homeowners insurance on Long Island is continuing to change. This past week we had our first call from someone who's being canceled by State Farm. They were told that State Farm is canceling people within a half mile of the water. I had heard that they stopped writing new business within a half-mile of the South Shore of Long Island but not that they were canceling anybody.

I say this not to pick on State Farm in any way. I happen to think they are pretty good company, and they are the biggest in auto and home insurance. Unfortunately, I just point it out to show what is happening in the Suffolk County and overall Long Island insurance marketplace. Even the largest insurance carriers do not have the capacity to absorb the business being shed by their competitors.

We need a lot of changes in not only the insurance business but also in the codes for new home construction and in other government regulations. But in the meantime, what we need most is a number of new carriers to come in the market and each take a small percentage of the business.

A big part of my job these days is keeping my eyes and ears open all the time for these new players. We wrote our first policy with one such insurance program this week. Our agents Association works hard on this issue all the time but Independent Insurance Agents only represent about 35% of the personal insurance market (meaning car and house insurance). And so we are not the "big players."

That would be Allstate, State Farm, Farmers and a few others. The problem is that, as I pointed out above, size is not an advantage here, because of the massive damage that would be possible in a Katrina size hurricane. Allstate is in favor of a government 'backstop', which is the only thing that would help them because of the sheer volume of business they wrote in coastal areas. But that idea has not caught on with most of the other companies, who would rather see a competitive market with risk-based pricing.

And while the public may debate about global warming, and whether it's caused by humans or not, the fact remains that sea levels are rising and temperatures are going up. And so the insurance companies simply don't know what's going to happen. Even if there is no such thing as global warming (and I personally think there is such a thing), we are at the very least in a period of rising temperatures and increased storm activity, even if it's just a natural cycle that will go away at some point. That point may still be 20 or 50 years away during which time we may or may not have some pretty strong storms. When you add that in to the amount of property value there is here on Long Island it's a pretty scary scenario.

Meanwhile, there are also a number of major insurance companies, who need no introduction here, who are chasing just the automobile insurance market without taking any share of the risk 0f catastrophic loss that mainly affects the property market. As these companies suck dollars from the insurance buying public, the effect is to weaken the financial positions of those companies who also take their fair share of the property insurance market.

We live in interesting times. As always, more information is available by visiting our web sites at www.NYInsuranceWithService.com and www.FloodInsuranceNY.com.

Coastal Homeowners Insurance - Has it stopped getting worse?

Apologies for not writing in a while. I'm not unhappy to say that it's because our office has been very busy. We're having other adventures as well, having just installed a new 'paperless office' software and hardware system. There is still paper on everybody's desk, but the piles are slowly going down and will not return.

In any event, there is news, and some rumors, to report. In the very short term, like right now, insurance companies are still tightening up and cancelling or non-renewing homeowners insurance for many people on Long Island and other coastal areas. In the past two weeks, two fairly large players shut off new business in Suffolk County and most of Nassau. This is a matter of how much capacity they have overall, not a fear of any one house getting damaged. Another major carrier, one of the biggest in the country, in fact, stopped writing within a half mile of the shore and rumor has it they may start canceling those within 1000 feet of tidal water.

Insurance companies can buy reinsurance to protect themselves from major catastrophes. But how much they can buy is limited to some extent by their overall size and capital reserves (that's grossly oversimplified but the longer explanation is so boring that it hurts). And the insurance regulators as well as the financial companies that give insurance carriers their precious A and A+ ratings are threatening to lower them if they don't reduce their waterfront and coastal insurance exposure.

Add in to those issues that there are a number of large carriers that have come in to the market just writing car insurance, taking no part of the risk in the homeowners insurance department, and most especially not the coastal properties. That has also reduced the capital and reserves of the remaining companies that write both auto and home insurance. That's why one of the big criteria that a certain company is using to decide who to cancel is whether they have their car insurance with them or somewhere else. They are giving preference to customers who also insure their cars along with the home, and why not? Most businesses are expected to give some discount or other incentive to those who buy more from them.

But there may be some light at the end of the tunnel. For the first time in a long time I heard at a meeting the other day some news of early discussions with insurance carriers who are not in the Long Island homeowners insurance market at all. That's what we need, some companies who can balance their exposure in other parts of the country against some new business in Nassau and Suffolk Counties. This will still take probably the rest of this year to show any real progress, but at least it's a rumor in the right direction.