House passes major Flood Insurance legislation: most coastal flood rates to increase, broader coverage options coming!

New Orleans, LA, March 8, 2006 - The level of ...

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On July 12, 2011 the House of Representatives passed a bill (HR 1309) that will fundamentally change the National Flood Insurance Program, the public’s main outlet for flood insurance.  The bill passed by an overwhelmingly bipartisan vote of 402 to 22.  An amendment to close the whole program was roundly defeated.  Senate passage is expected, though when is uncertain.

The existing program was in trouble.  Congress missed four reauthorization deadlines last year, meaning the program lapsed four times for several days at a time, creating havoc in the real estate and insurance markets.  In addition, a lingering debt of $18 billion remains on the books from 2005 (mostly Hurricane Katrina); a hurricane in any metropolitan area in Florida or the Gulf could double that loss in a weekend.  The 112th Congress is less inclined to accept these kinds of unpredictable expenses, and the bill seems to reflect this change in attitude.

The National Flood insurance program has been around for decades and today is the primary vehicle for providing insurance for about 5.5 million property owners around the country.  Locally, many homes from Quincy to Plymouth and hundreds more on the Cape have been rebuilt with NFIP insurance.

Conceptually the National Flood Insurance Program makes sense: private insurers are reluctant to insure against losses that are geographically concentrated because of an insurance concept known as ‘spread of risk’.  A single company can’t accept such concentrated risk without putting its own balance sheet on the line.  The national government can spread risk better: they collect premiums for spring river overflows in the Midwest, winter nor’easters in New England, and fall hurricanes in the Gulf.  The problem is that the current rates are not developed with the same detail as private insurers need when trying to make a profit.  To wit, in 2006, the year after over $17 billion in losses, NFIP rates actually went down.  This pricing failure leads to a problem known as ‘adverse selection’: flood insurance is a great deal if you’re really near the water; it’s not a great deal if you’re only mildly exposed to flood waters.  Thus, the people at the greatest risk get the best (most subsidized) deal.  This is not a formula for long term survival, or even a break-even program.  Consider the findings of a 2006 Congressional Research Service study: the program operated at a loss for 19 of the previous 34 years.  This spring’s midwestern floods likely contributed to pressure for overhaul.  In its existing form, it is truly another disaster waiting to happen.

The program has also been criticized for promoting development in environmentally sensitive coastal areas.  While coastal development was seen as a positive thing 40-50 years ago, today many voters prefer to see remaining undeveloped coastal land and wetlands set aside for conservation.

In the bill passed by the House, rates will be transitioned gradually to risk based premiums.  Many properties with multiple claims will see lower subsidies, and in some cases, insurance may be refused altogether.  During the transition phase, annual premium increases, previously limited to 10% per year, will be capped at 20% per year.  Other features include minimum $2,000 deductibles on subsidized rate properties, and $1,000 deductibles on risk rated properties.  The bill also established a ‘Technical Mapping Advisory Council’ to develop new mapping standards.  In short, the NFIP is transitioning in a direction toward the way for-profit companies measure and charge for risk.

Because of the transition to risk based pricing, some new options will become available: annual increases indexed to inflation, and additional living expenses common with homeowners insurance.  Business income loss will be offered for business properties.  Importantly, the bill reauthorizes the program through 2016, which will provide a measure of certainty severely lacking in previous years.

The bill’s author, U.S. Representative Judy Biggert, R-Ill., said after the vote, this “eliminates barriers to the development of a private flood insurance market, and helps take taxpayers out of the risk business. The NFIP is too important to let lapse, and too in debt to continue without reform. I urge my colleagues in the Senate to speed this legislation to the President’s desk.”  Locally, Congressman Bill Keating of the 10th Congressional district and Stephen Lynch of the 9th, both voted for the bill.  More detailed summaries of the bill are available at thomas.gov site linked here.

For most homeowners along the coast, this will mean higher flood insurance costs beginning this fall.  There are still steps homeowners can take to reduce costs, and to control what kind of insurance you need to buy. Those steps include:

  • Know what zone you are in; if you buy insurance before your local flood map changes, you should be grandfathered to the existing zone. View FEMA’s map pages here
  • If you are in a n A, B, or X zone, getting an Elevation Certificate from a qualified engineer may help you especially if you are on or near the border of a lower rated zone (Your home might be in a better place than the map says).
  • For more about coastal insurance for your home, visit www.agordon.com/home.
    Consider mitigation practices such as those recommended by FEMA and other construction experts.

The bill had broad support from insurance companies and agency groups for improving the predictability and sustainability of the program’s future.   For more about what you can do to contain the cost of insuring property along the coast, visit www.agordon.com/home for more.

Geoff Gordon

The MA Homestead Act Changes: Home Sweet Homestead

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We’ve noticed an uptick in phone calls to our insurance agency,  inquiring about the recent changes to the Massachusetts Homestead Act.  Customers are wondering if they need to make any changes if they already have a Declaration of Homestead filed for their primary residence. New home buyers  or customers refinancing their mortgages are questioning if they need to file documents to obtain any protection. 
Massachusetts and many other states put Homestead laws in place to protect homeowners from losing their primary residences if they have no other assets available to pay their debts.  Under the previous Homestead law, homeowners and their families could protect up to $500,000 of home equity from many types of creditors if they filed a simple Declaration of Homestead at their Registry of Deeds.  Under both the old and new law, if a homeowner records the Declaration of Homestead  before a creditor files a lien against his property, the creditor cannot recover the debt by forcing the homeowner or his family to sell their home as long as the amount of the debt or debts are under $500,000. The Homestead Act does not protect homeowners from debts owed for mortgages, child support and condo association fees.

Here is a summary of the Massachusetts Homestead Law effective March, 2011. The changes were made to reduce ambiguities under the previous Homestead law: 

  • All Massachusetts homeowners receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
  • All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the Registry of Deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
  • If you already have a homestead recorded at the Registry of Deeds, you do not have to re-file it. You are all set, and have the full $500,000 protection.
  • Homesteads are now available on 2-4 family homes, and for homes in trust. This is also new.
  • The existing “elderly and disabled” homestead will remain available at $500,000.
  • If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse. Homesteads now pass on to the surviving spouse and children who live in the home.
  • You do not have to re-file a homestead after refinance. There’s always been confusion here, with lenders requiring homeowners to either subordinate or release homesteads. Under the new law, homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
  • Closing attorneys in mortgage transactions must now provide borrowers with a notice of availability of a homestead.
  • The cost of filing the Declaration of Homestead is $35 and it must be notarized. Need a notary? Our insurance agency offers free notary services. You can file the document at the Registry of Deeds or  an attorney can file the declaration for you.  

 Hope you find this information helpful. It is not designed to provide any legal advice-as in all areas of the law, to fully understand your rights, you should consult an attorney of your choice.

For more information, here’s an excellent question and answer document.

Kasey McCarthy
CPCU, Andrew G. Gordon, Inc.

Ice Dams – what to do

Many homeowners may have ice dams forming on their roofs after all the snow we’ve had this winter. Once an ice dam forms, it is difficult to fix. The safest course is to hire a professional because of the dangers of falling snow and icicles, unsecured ladders, and possible damage to shingles and gutters.

If you choose to do the work yourself, take extreme care and follow these recommendations from contracting experts:
1. Use a roof rake to remove snow buildup from the roof.

a. AVOID USING A ROOF RAKE NEAR ANY ELECTRICAL WIRING!
b. DO NOT climb on a roof or work on a ladder beneath a roof that has lots of snow on it
c. Be especially careful on ladders; be sure the base is well secured.
2. Remove ice buildup around gutters by melting the ice with calcium chloride (other products such as rock salt will damage the roof shingles). For added effectiveness, put the melting agent inside a sock or nylon stocking, and lay perpendicular to the gutters or roof line. This creates a channel in the ice dam, releasing the melting agent slowly and allowing the water to drip to the ground through.
3. After applying a melting agent, if you must chip the ice, do so very carefully. NEVER strike your roof with an axe, hammer, or anything that will damage the shingles.

Warning signs: Aside from leaks, stains, and damaged ceilings or walls, there are several signs that ice dams are beginning to cause interior damage.
• Large icicles hanging from the gutters during cold-snaps following snow storms.
• A thick blanket of snow down slope of bare shingles points toward trouble.
• Water dripping from the roof over a layer of ice is a hint that a dam has formed.
Visit our website at www.agordon.com for a list of local contractors who are trained at removing ice dams safely and effectively. The cost to have ice dams removed from your home is usually less than your deductible!
For other tips on keeping the cost of your homeowner’s insurance low, visit www.agordon.com/home, or view our library of whiteboard presentations at www.agordon.com/whiteboards.

Don’t Let the Bedbugs Bite!

Bedbug

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You can’t scroll the internet or listen to the news without hearing about  the harsh reality of bedbug infestations in hotels, planes, theatres, campuses, hospitals and office buildings.  This public health issue is quickly becoming a global crisis with sightings of these creepy critters from most U.S. cities  to the far reaches of Mumbai, India.

However, there are several measures you can take to minimize the risk of bedbug bites and infestation. Some include: checking your hotel mattress and keeping luggage away from soft bedding or upholstered furniture so you don’t transport the unwanted guests back home. Yard sale aficionados  need to think twice about snagging upholstered sofas  or chairs left at the curb.  These tips may help to minimize your exposure to bed bug bites and property infestation.

What happens if you do have an infestation? Will insurance pay the costly expense to eradicate the pesky pests? Unfortunately, insurance usually isn’t the answer here.   Most policies exclude insect infestation of any kind and do not include any coverage. “…The cost of getting rid of bedbugs, like other vermin, is considered part of the maintenance associated with owning a home and generally is not covered by standard homeowners’ and renter insurance policies,”  wrote Claire Wilkinson, Vice President for Global Issues at the Insurance Information Institute; “Most standard commercial-property insurance policies also have vermin exclusions for infestation”.

Most seasoned insurance agents will agree that insurance property coverage forms clearly exclude coverage for bedbug treatment; however, liability coverage may be a different  bug story. Ever think what would happen if a guest  is bitten by a bedbug at your home? Or perhaps your child has a sleepover and a young guest is bitten, resulting in infection and ongoing medical treatment. Before you know it,  you are being sued by the parents for negligence as a result of harboring the bloodthirsty buggers.  The good news is most homeowners liability policy forms do not exclude insects so there is probably liability coverage for this kind of lawsuit.. The same is true for commercial policies if the policy form does not specifically exclude insects. In addition, many businesses have coverage under business interruption forms if the need to close their business to properly exterminate the creepy crawlers arises.

Insurers may end up feeling the bite from bedbugs in other ways. New York state legislators became the first state to introduce a bill that would require bed bug coverage as an option for policyholders.  If NY passes this law, look for other states to follow suit.

It will be an interesting few months in the insect and insurance world as the globe grapples to safely avoid a 21st century plague. 

And for more relevant and topical insurance information, visit the A. G. Gordon, Inc. Website.

Hurricane Preparation: Take 2

Hurricane Katrina in the Gulf of Mexico near i...

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Hurricane Earl was not as bad for New England as weather experts anticipated. Where I was, there were 2-3 inches of rain and some light wind gusts; no apocalyptic storm was this. But that’s ok; it served as practice for the peak of Hurricane Season, which we have just begun to experience.   

I had gone to the grocery store and bought three cases of bottled water in anticipation of Earl; as frustrating as it was to waste time and money on preparations such as these, it was and is a good idea to prepare before any major storm. There is no time like the present to make a survival kit, draw up an evacuation plan, or check your insurance coverage. All these things become exponentially more difficult to accomplish when an actual hurricane is approaching.  

One of the most helpful things you can do insurance-wise is to take pictures/video of your house. Should a devastating storm occur along with damage, having photographic evidence of what exactly was damaged will facilitate your interaction with your insurance provider.   

One of the greatest tragedies of Hurricane Katrina was the amount of displaced animals after the disaster occurred. Before any sort of storm is forecast, make sure you have up-to-date pictures and paperwork of your pets, as well as immunization records. Should the need arise to keep a pet at a shelter or clinic following evacuation, it is vital to have all this paperwork and identification information at hand. Appropriately sized pet-carriers should also be purchased before hurricane season in case of evacuation (pet carriers should have enough room for pets to stand and turn around in). After a large storm, pets should be walked on leashes to become re-acclimated to their new environments. Avoid large pools of water, as downed power lands and displaced reptiles could pose a threat to household pets.   

After a storm is forecast, make sure automobiles have full tanks of gas. If evacuated, traffic and congestion will arise. Running out of fuel while waiting in traffic on the highway would only compound the danger of a hurricane or severe storm.
Lastly, KNOW YOUR INSURANCE COVERAGE. Most flood damage is not covered by homeowners policies.    

For more relevant insurance resources to save you time and money, visit the Andrew G. Gordon, Inc. website.    

Water, Water, Everywhere.

Water damage due to faulty rainwater downpipe

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Homeowner claims resulting from water damage are on the rise (no pun intended). Bob Passmore of the Property Casualty Insurance Association of America reports that “out of every $100 paid in insurance claims, $12 goes to water damage and freezing claims, not including water damage from flooding rivers and seas.   Flooding from ground water is not covered unless you have a flood insurance policy.  

Water damage, other than floods, is covered if the cause is sudden and accidental. A loose drain pipe from the bathtub that slowly leaks for months and buckles the bathroom floor is not covered.  However, the damage caused by a pipe that suddenly bursts is covered. The plumber’s repair to replace the pipe is not covered but the resulting damage is.  

There are measures you can take to prevent and lessen the amount ofwater damage and their resulting claims. Here are some that come to mind:  

  • Ice dams are caused by the melting ice in your gutter that backs up under your roof shingles, causing water damage to your ceilings, windows and walls. Use an ice dam rake on your roof when snow accumulates.
  • Have a licensed plumber periodically check your plumbing pipes.
  • Replace your washing machine and dishwasher hoses with ‘no-burst’ hoses. Unlike rubber hoses that can burst over time, these are made of a metal sheath that protects against bursting.
  • Periodically check around and under your hot water heater for any signs of leakage – a small drip from the tank can turn into a ruptured tank in no time at all!
  • Never run your dishwasher or washing machine when not at home (easier said than done, I know).
  • Check your toilets and under your sinks for any signs of water leakage.
  • At the first sign of freezing weather, turn off your outside water spigots (from the inside of the house) then drain from the outside. Newer spigots are designed to prevent freezing do not have to be shut off from the inside during the winter months. These can be replaced by a licensed plumber.
  • Check your ice-maker and its water line for any signs of leakage.
  • When on vacation, especially in the winter, have someone check your home daily.
  • Water alarm sensors are available to detect the presence of water in your basement
  • A temperature monitoring device plugs into your phone outlet and can alert you via cell phone that the temperature has dropped to the danger point of freezing. Use such a device when vacationing in the winter.
  • Newer gas furnaces operate with an electronic pilot. Older models have a gas flame pilot that can blow out from a draft. No heat means freezing pipes! Before going away on vacation, familiarize which type of pilot you have. If the former, this is another good reason to have someone check your home daily or have a temperature monitoring device!

Please watch for our future blog, “How to minimize further damage if you sustain water damage to your home “.  

And for more relevant insurance information, and resources to save you time and money, visit the A. G. Gordon, Inc. Website.  

Hurricane Earl

Hurricane Rita

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With the cloudy pall of a Hurricane looming in the distance, a curtain of anticipation and apprehension has fallen on the South Shore. And while Earl is a storm that we’ll all inevitably ride out, we should all (as the boy scouts say) “Be prepared”. Fortunately for those without the ability to control the weather, there is an abundance of internet information about Hurricane safety that we have conveniently accumulated here for your viewing pleasure.  

Microsoft Word – Hurricane Preparation Checklist 

Stay safe during the storm, and for more insurance information and relevant resources, visit our website.  

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