June 2006
Insurance: Before and after a storm
The 2005 hurricane season was the busiest and most costly on record. Hurricanes Dennis, Katrina, Ophelia, Rita, and Wilma
accounted for $52 billion in insured property losses. The states hardest hit--Alabama. Florida, Louisiana, Mississippi, and
Texas--accounted for more than 80 percent of the year's four million catastrophic claims.
As the 2006 hurricane season begins, some insurance claims from 2005 have yet to be settled. According to the Insurance Information Institute (www.iii.org), difficulty reaching displaced policyholders and accessing the more heavily damaged areas are two of the reasons insurance companies are taking longer than usual to settle claims. A hotline run by Americans for Insurance Reform, a consumer advocacy group, found numerous instances in the wake of Hurricane Katrina, with insurers trying to avoid liability.
Interpretation of homeowners policies and damage are also a source of contention. Homeowners are battling with insurance companies over whether the hurricane damage to their homes was caused by wind or water. While policyholders contend that their homes were lost to wind damage (generally covered by homeowners policies), some insurers say flood damage was the cause.
Water damage from storm surges and other types of environmental flooding are not covered by homeowners policies. For that, you must have flood insurance through the National Flood Insurance Program (NFIP), a federally sponsored program sold through private insurance companies.
HURRICANE DEDUCTIBLES AND REPLACEMENT-COST LIMITS
In general, insurance companies are increasingly shifting the risks and financial burdens back on to homeowners. Hurricane-specific deductibles are being added to policies. Those deductibles are usually expressed as a percentage value of the home, up to 10 percent, according to the Consumer Federation of America. That consumer-advocacy group warns that some consumers may not be aware that such deductibles have been added to their policies.
Insurance companies have also added limits on replacement cost payments, relevant for cases where the home is destroyed. A replacement cost limit can leave a homeowner short of the financing necessary to rebuild, particularly if construction costs surge due to extreme demand. Check your policy to find out.
DO YOU NEED FLOOD INSURANCE?
NFIP policies are available in more than 20,000 communities that have agreed to stricter zoning and building measures to control floods. Keep in mind that coverage isn't available in some very high-risk coastal areas.
Who needs flood insurance? Just about anyone who wants to be covered for the risk of losing their home and its contents to water damage. Even people who live far from coastal areas can benefit. In 1993, river flooding destroyed 50,000 homes in nine Midwestern states. Flooding, in fact, is the most common natural disaster in the U.S., with property losses averaging $867 million a year from 1995 to 2004, according to the Federal Emergency Management Agency (FEMA). Twenty to 25 percent of all claims are filed in low- to-moderate-risk areas, according to FEMA.
People living near levees and in federally mapped flood plains, however, really should have flood insurance. The flood maps for the program have not been updated in more than a decade--if a reassessment were done, new areas would be included as floodzones. In fact, mortgage lenders participating in federally guaranteed programs, including the Federal Housing Administration, Veterans Affairs, Fannie Mae, and Freddie Mac, require borrowers living in high-risk areas to obtain flood insurance. Many private lenders now have the same requirement.
THE HIGH COST OF FLOOD PROTECTION
But flood insurance can be costly for those living in areas known to be flood-prone, which may be one reason so few homeowners have it. Of more than 11 million Americans living in flood plains, only 25 percent have flood insurance, according to the Insurance Information Institute. In the Alabama, Louisiana, and Mississippi counties affected by Katrina, flood-policy ownership rates ran as low as 4 percent and as high as 57.7 percent, according to an analysis of FEMA and U.S. Census data by The New York Times. Nationally, about 53 percent of single-family homes in high-risk zones have coverage. The average annual national cost of a policy was about $450 in 2005, but it can rise to more than $2,000 a year in high-risk areas. In low-risk areas, premiums can be as little as $112 a year.
Policies cover the replacement cost of the structure and the cash value of your possessions; they do not cover the cost of living while you are out of your home. Flood insurance for residential structures is limited to $250,000. Coverage above that limit has to be obtained from one of the few private insurers specializing in that type of coverage.
Homeowners, condo owners, and renters can buy flood-insurance policies from any licensed property and casualty-insurance agent. Policies are issued through private insurers but are administered by FEMA and backed by the federal government. The same private insurance agents and adjusters process claims. Policies take effect 30 days after purchase, so you can't buy one as a tropical storm is bearing down on your community. You can, however, buy a policy even if you've filed claims in the past.
FEMA and backed by the federal government. The same private insurance agents and adjusters process claims. Policies take effect 30 days after purchase, so you can't buy one as a tropical storm is bearing down on your community. You can, however, buy a policy even if you've filed claims in the past.
ARE YOU AT RISK?
To find out if you are living in an area at high risk for flooding, go to www.floodsmart.gov, where you can enter your address and ZIP code and find out your risk level. You should also consult the flood maps at your local municipality or town hall. Also check out the estimator at floodsmart.gov to figure out your flood-insurance premium. Community flood maps and tips on how to file a claim and clean up after a flood are also available on the site. For more information, go to www.fema.gov or contact your local homeowners insurance agent.
While flood insurance premiums may seem expensive, they're relatively cheap compared with the cost of replacing a home. If your home is located in a flood-hazard area, there is a 26 percent chance of a flood in the course of a 30-year mortgage, which is much higher than the risk of a major fire, according to FEMA. Review your homeowners policy before disaster strikes, and contact your insurance agent if you have any questions.
The Insurance Information Institute explains homeowner policy terms, and provides tips on filing a claim after a disaster at its Hurricane Insurance Information Center Web site.
WHEN DISASTER STRIKES
As the 2006 hurricane season begins, some insurance claims from 2005 have yet to be settled. According to the Insurance Information Institute (www.iii.org), difficulty reaching displaced policyholders and accessing the more heavily damaged areas are two of the reasons insurance companies are taking longer than usual to settle claims. A hotline run by Americans for Insurance Reform, a consumer advocacy group, found numerous instances in the wake of Hurricane Katrina, with insurers trying to avoid liability.
Interpretation of homeowners policies and damage are also a source of contention. Homeowners are battling with insurance companies over whether the hurricane damage to their homes was caused by wind or water. While policyholders contend that their homes were lost to wind damage (generally covered by homeowners policies), some insurers say flood damage was the cause.
Water damage from storm surges and other types of environmental flooding are not covered by homeowners policies. For that, you must have flood insurance through the National Flood Insurance Program (NFIP), a federally sponsored program sold through private insurance companies.
HURRICANE DEDUCTIBLES AND REPLACEMENT-COST LIMITS
In general, insurance companies are increasingly shifting the risks and financial burdens back on to homeowners. Hurricane-specific deductibles are being added to policies. Those deductibles are usually expressed as a percentage value of the home, up to 10 percent, according to the Consumer Federation of America. That consumer-advocacy group warns that some consumers may not be aware that such deductibles have been added to their policies.
Insurance companies have also added limits on replacement cost payments, relevant for cases where the home is destroyed. A replacement cost limit can leave a homeowner short of the financing necessary to rebuild, particularly if construction costs surge due to extreme demand. Check your policy to find out.
DO YOU NEED FLOOD INSURANCE?
NFIP policies are available in more than 20,000 communities that have agreed to stricter zoning and building measures to control floods. Keep in mind that coverage isn't available in some very high-risk coastal areas.
Who needs flood insurance? Just about anyone who wants to be covered for the risk of losing their home and its contents to water damage. Even people who live far from coastal areas can benefit. In 1993, river flooding destroyed 50,000 homes in nine Midwestern states. Flooding, in fact, is the most common natural disaster in the U.S., with property losses averaging $867 million a year from 1995 to 2004, according to the Federal Emergency Management Agency (FEMA). Twenty to 25 percent of all claims are filed in low- to-moderate-risk areas, according to FEMA.
People living near levees and in federally mapped flood plains, however, really should have flood insurance. The flood maps for the program have not been updated in more than a decade--if a reassessment were done, new areas would be included as floodzones. In fact, mortgage lenders participating in federally guaranteed programs, including the Federal Housing Administration, Veterans Affairs, Fannie Mae, and Freddie Mac, require borrowers living in high-risk areas to obtain flood insurance. Many private lenders now have the same requirement.
THE HIGH COST OF FLOOD PROTECTION
But flood insurance can be costly for those living in areas known to be flood-prone, which may be one reason so few homeowners have it. Of more than 11 million Americans living in flood plains, only 25 percent have flood insurance, according to the Insurance Information Institute. In the Alabama, Louisiana, and Mississippi counties affected by Katrina, flood-policy ownership rates ran as low as 4 percent and as high as 57.7 percent, according to an analysis of FEMA and U.S. Census data by The New York Times. Nationally, about 53 percent of single-family homes in high-risk zones have coverage. The average annual national cost of a policy was about $450 in 2005, but it can rise to more than $2,000 a year in high-risk areas. In low-risk areas, premiums can be as little as $112 a year.
Policies cover the replacement cost of the structure and the cash value of your possessions; they do not cover the cost of living while you are out of your home. Flood insurance for residential structures is limited to $250,000. Coverage above that limit has to be obtained from one of the few private insurers specializing in that type of coverage.
Homeowners, condo owners, and renters can buy flood-insurance policies from any licensed property and casualty-insurance agent. Policies are issued through private insurers but are administered by FEMA and backed by the federal government. The same private insurance agents and adjusters process claims. Policies take effect 30 days after purchase, so you can't buy one as a tropical storm is bearing down on your community. You can, however, buy a policy even if you've filed claims in the past.
FEMA and backed by the federal government. The same private insurance agents and adjusters process claims. Policies take effect 30 days after purchase, so you can't buy one as a tropical storm is bearing down on your community. You can, however, buy a policy even if you've filed claims in the past.
ARE YOU AT RISK?
To find out if you are living in an area at high risk for flooding, go to www.floodsmart.gov, where you can enter your address and ZIP code and find out your risk level. You should also consult the flood maps at your local municipality or town hall. Also check out the estimator at floodsmart.gov to figure out your flood-insurance premium. Community flood maps and tips on how to file a claim and clean up after a flood are also available on the site. For more information, go to www.fema.gov or contact your local homeowners insurance agent.
While flood insurance premiums may seem expensive, they're relatively cheap compared with the cost of replacing a home. If your home is located in a flood-hazard area, there is a 26 percent chance of a flood in the course of a 30-year mortgage, which is much higher than the risk of a major fire, according to FEMA. Review your homeowners policy before disaster strikes, and contact your insurance agent if you have any questions.
The Insurance Information Institute explains homeowner policy terms, and provides tips on filing a claim after a disaster at its Hurricane Insurance Information Center Web site.
WHEN DISASTER STRIKES
- Contact your agent or company as soon as possible. Many insurance policies have claim time limits. Be sure to ask about the limit as well as your coverage; whether your claim exceeds your deductible; and how long it will take for your claim to be processed. Your insurance company may also ask you to obtain estimates for repairs for structural damage.
- Protect your home from further damage. But don't make extensive repairs until the claims adjuster has assessed the damage. Temporary repairs are part of the total settlement, so be prudent with expenditures. Beware of contractors who demand a large sum of money up front. For more information, see our report on choosing a contractor.
- Survey your property. Before the insurance adjuster arrives, make a list of all damage, such as cracked walls, floors, or ceilings, or missing roof tiles. Also check with your insurance company regarding your electrical system, as many insurers pay for inspections.
- Keep records. Keep a running record of all of your interactions with your insurance company. Maintaining accurate and complete records will improve your credibility if you must dispute claims. Retain receipts for all expenses incurred, including temporary repairs or cost of other accommodations if you need to relocate while your home is repaired. Most policies include "loss of use" coverage for your home. Keep copies of any letters or documents you submit to your insurance company, as well as any paperwork received from your insurance company. Track any unfulfilled commitment by your insurance company, for example, if a claims adjuster does not show up on schedule. Videotape or photograph any damage, including before and after shots of any temporary repairs.
- Seek mediation. If you have problems reaching an acceptable settlement with your insurance company, file a complaint with your state's insurance department. (See Getting help in your state for contact information). Consider consulting with or retaining an attorney. If your claim has been denied, or if you think you are entitled to a larger payment, have your insurance company cite the specific language in your policy on which they are basing their decision.
