Sandy: Let the Good Times Roll - Insurance Claims

[don]

surefire bestseller - insurance claims for dummies . . .

By RON LIEBER

There is a sort of honeymoon period that occurs after a big storm like Hurricane Sandy, when insurance executives appear on the local news offering reassuring words. Their brightly painted vans pull into residential neighborhoods amid the standing water and debris. Everyone is hopeful. Handshakes and back-patting all around.

That period is about to end. Prices for roofers and construction materials will rise, disadvantageous parsing of policy language will commence and gangs of class-action lawyers will round up aggrieved clients who still have months of homelessness ahead of them. Many claims will take years to settle.

It happens every time, and so it will with this storm. That’s not to say that a majority of people with insurance claims won’t be satisfied with the check they receive or won’t get one quickly.

But when this many people have extensive damage to their most significant asset, billions of dollars are at stake for the companies that have the power to make them whole. So there is no reason for policyholders to be anything but wary until their own big check clears.

Many victims of Hurricane Sandy are novices when it comes to catastrophic insurance claims. So to see what sort of resistance they should expect shortly, I turned to the lawyers and adjusters-for-hire who do nothing but negotiate with insurance companies all day long. Some of them used to work for the companies, in fact.

Here are the things they warn people to watch out for:

THAT INDEPENDENT ADJUSTER Many people with damaged homes have started to meet with representatives who assessed their damaged homes to estimate repair costs. They may have introduced themselves as “independent adjusters,” but this is a misnomer. They represent the insurance company and are not neutral.

In storms like this, large numbers of these freelance claims adjusters parachute in from out of town. In the industry, they are known as storm troopers. They work 18-hour days for a while since no insurance company has enough of its own full-time staff to deploy after a storm like this one. Often, they make enough money not to work for months afterward.

“These guys have a lot of work to do, and it’s a thankless job,” said Matthew Tennenbaum, who used to be an independent adjuster but switched sides and now works for policyholders as a “public” adjuster in Cherry Hill, N.J.

Mr. Tennenbaum worries about the storm troopers’ thoroughness. “They’re going to see 10 properties a day and they’re quickly writing estimates,” he said. “If they spend an extra three or four hours properly writing one estimate, they could have written three more and made more money.”

Though many of them are former builders or contractors, they may not, if time is of the essence, always pull up every floor, explore every inch of the attic or look behind every wall. And they may not know much about your insurance company’s policy.

“The insurance companies hand them a manual, and they may not really understand the manual,” said J. Robert Hunter, the director of insurance for the Consumer Federation of America, who has worked for insurance companies and once ran the federal flood insurance program. “It’s a crash course at that point.”

The good news here is that these are not the people who make the final call on your claim. But many policyholders assume that their word is the final word.

WIND VERSUS FLOOD Back at headquarters, other adjusters have their eye on an exclusion that will be crucial for this storm, with its horrific storm surges but relatively mild winds: homeowner’s insurance generally does not cover floods.

Unfortunately, many people do not know this and many more have not purchased or renewed policies with the federal flood insurance program that covers up to $250,000 of flood damage. Researchers from the Wharton Risk Management and Decision Processes Center, working with colleagues at Florida State, the University of Miami and Columbia University, surveyed people in the storm’s path by telephone three days before it hit.

Among people within a block of a body of water, 46 percent had no flood insurance. In areas that had been evacuated in past storms or where the authorities advised people to leave, 58 percent did not have it. Moreover, 39 percent of all the people who thought they did have flood coverage mistakenly believed that their homeowner’s insurance covered it.

People without coverage but lots of damage from the storm surge might do one of a couple of things. A few stubborn ones will sue, arguing that if the wind drove the surge then it’s not really a flood. Judges haven’t taken kindly to this line of reasoning over the years, but that probably won’t keep people from trying again. The Federal Emergency Management Agency may also offer some assistance.

Others may try to prove that wind damage, which is generally covered, was responsible for the loss. “Let’s say the house is gone completely,” said Leslie L. Knox, a public adjuster in Toms River, N.J. “Was it blown off the foundation? How significantly was it damaged prior to the flooding event?” Often, no one can say for sure, since everyone evacuated.

If the house is not a total loss, you may look for other clues. “We’ll find upper-level structural twisting, and the insurance company will say that it’s from a flood,” said Mark Boardman, a public adjuster in Maitland, Fla. “But then we’ll find that upstairs is twisted but not the ground.”

Then, there’s the concurrent causation clause that has crept into policies in recent years. Here, insurance companies refuse to cover anything if one thing that causes damage (like wind) is insured but another (like a flood) is not and both seem to have happened at the same time. “I’m sure this will be litigated again, but we won’t know that for three or four more weeks,” said Mr. Hunter of the Consumer Federation of America.

REPLACE AND REPAIR After most storms of this size, prices rise. There may be a shortage of building materials, for instance, or the higher-quality materials may get more expensive. After two hurricanes in Florida, contractors turned to Chinese drywall several years ago, which ended up making people sick.

Your policy may call on your insurance company to pay for materials equivalent to what you need to replace, or it may merely require similar ones. But make sure its estimates reflect the new market price, lest you end up settling for what turns out to be this storm’s Chinese drywall, whether it’s bad lumber, paint, cement or something else.

Then there are the labor costs. The adjusters that insurance companies deploy have software that’s supposed to reflect market prices. “It’s garbage in, garbage out,” said David Bierman, a former Allstate adjuster and staff lawyer who now represents consumers in Dania Beach, Fla. “You don’t know if the independent adjuster has updated his software, and prices are going to continually increase until things calm down.”

BUILDING CODES If you live in an old house, any major repairs will have to comply with newer local building codes. Homeowner’s insurance policies may include riders known as “law and ordinance” coverage that will cover the extra cost of doing so.

But recovering the money may not always be easy. Mr. Tennenbaum said that insurance companies often make you wait to collect until you’ve already spent the money, and then they demand proof that the local code enforcement office insisted on every course of action. Even after that, there’s often trouble. “They’ll usually dispute certain items saying that they really weren’t necessary,” he said. “And then you end up having to compromise on the claim just to get it done.”

By the way, building departments in hard-hit communities are likely to be busy over the next couple of months. That won’t make it easy to get help.

PUBLIC ADJUSTERS If you have a large claim, sorting it out and making repairs will be at least a part-time job for many more months. And if this is your first big claim, you’ll essentially be learning a new language.

Hiring an experienced, licensed public adjuster can help, but the firms usually charge you 10 percent or so of your eventual payout. That means the adjuster needs to do 10 percent better than you for it to be worth it.

Some people, however, find that after a giant chunk of wood comes through the ceiling of their bedroom during a hurricane and they can’t sleep in their own bed anymore, they’ve dealt with enough stress and want to hand the haggling over to somebody else.

That’s what happened to Scott Golden and his wife, who knew an adjuster at Goodman-Gable-Gould/Adjusters International through his son. “Even if you were competent at one point, you’re not when your house is intruded upon like that,” said Mr. Golden, who ended up with a check for over $40,000 from his insurance company after Hurricane Irene last year sent that branch through his roof in Bethesda, Md. “We thought the whole house might come down, and we didn’t want to mess around with doing this ourselves.”

http://www.nytimes.com/2012/11/10/yo...l?ref=business

[don]

Re: Sandy: Let the Good Times Roll - Insurance Claims

Flood Insurance, Already Fragile, Faces New Stress

By ERIC LIPTON, FELICITY BARRINGER and MARY WILLIAMS WALSH



WASHINGTON — The federal government’s flood insurance program, which fell $18 billion into debt after Hurricane Katrina, is once again at risk of running out of money as the daunting reconstruction from Hurricane Sandy gets under way.

Early estimates suggest that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt.

Congress, just this summer, overhauled the flawed program by allowing large increases in premiums paid by vacation home owners and those repeatedly hit by floods. But critics say taxpayer money should not be used to bail it out again — essentially subsidizing the rebuilding of homes in risky areas — without Congress’ mandating even more radical changes.

“We are now just throwing money to support something that is going to end up creating more victims and costing more money in the future,” Representative Earl Blumenauer, Democrat of Oregon, said of the program, which insures 5.7 million homes nationwide near coasts or flood-prone rivers.

Even with the new rules, critics argue, it will be many years, if ever, before many homeowners are required to pay premiums that accurately reflect the market cost of the coverage. Some communities have long resisted imposing more appropriate building codes to prevent damage, putting the program at further risk of devastating losses when storms like Hurricane Sandy hit. And despite some efforts in recent years, many of the flood maps the program relies on are out of date — which can have expensive, and even deadly, consequences in this era of rising sea levels if homeowners are not cognizant of the risks they face.

The program’s giant debt makes matters worse because simply covering the interest owed the Treasury consumes from $90 million to $750 million a year, depending on interest rates. This means it is much harder to build reserves for future catastrophes.

But others on Capitol Hill argue that the changes adopted in July are an important first step, and that Congress must give the Federal Emergency Management Agency, which runs the program, a chance to apply them before any additional changes are considered.

Already, 44 members of the House of Representatives have called for Congress to appropriate whatever money is needed to help victims recover from Hurricane Sandy, and aides on Capitol Hill say that under such extreme losses, they expect lawmakers will do what they have to do to keep the program solvent — even amid a federal budget crisis.

“It is a program we require people to participate in, so we have to make sure it is adequately funded to handle claims,” said Representative Timothy H. Bishop, Democrat of New York, whose district in Long Island has more than 100 miles of coastline. “You can’t say: ‘Awfully sorry. Hope this works out for you.’ ”

The federal government’s flood insurance program, established in 1968, is one of the world’s largest. The insurance is mandatory for homeowners with a federally backed mortgage if they live in an area subject to flooding at least once every 100 years. The average annual flood insurance premium is about $615, but for homeowners in areas at higher risk of flooding, an annual policy can cost from $1,200 to $3,000, according to Steve Harty, president of National Flood Services, a claims-processing company, depending on the level of coverage.

The federal program collects about $3.5 billion in annual premiums. But in four of the past eight years, claims will have eclipsed premiums, most glaringly in 2005 — the year of Hurricanes Katrina, Rita and Wilma — when claims totaled $17.7 billion. Private insurance companies have long avoided offering flood insurance to homeowners.

“It’s like rat poison to them,” said Tony Bullock, an insurance industry lobbyist, explaining how the risk outweighs the benefit for private insurers. “You need the federal backstop.”

But the program is still a moneymaker for the private insurance industry. Even though these companies bear none of the risk, they take, on average, $1 billion a year of the premiums the government collects, as compensation for help in selling and servicing the policies. Federal auditors argue the payments are excessive.

FEMA officials declined to address whether changes beyond the already passed legislation are needed to strengthen the program.
“These reforms are being implemented,” the agency said in a written statement. “Right now, we’re focused on helping survivors.”

More than one million property owners who live in homes at least four decades old also have historically paid only about 40 percent of the estimated true cost of the coverage the government provides — in large part because of lobbying by the real estate industry, mortgage brokers, homeowners associations and other groups to keep federal authorities from charging more.

Perhaps the most troubling problem, program officials acknowledge, is that only a tiny share of enrolled properties accounts for a giant share of the overall claims, as the properties are repeatedly flooded and rebuilt in low coastal regions and in hurricane flight paths.

One Biloxi, Miss., property valued at $183,000 flooded 15 times over a decade, costing the program $1.47 million, according to federal data provided by the agency to a member of Congress. Another in Humble, Tex., has resulted in over $2 million in flood payouts even though it was worth just $116,000.

An analysis of two decades of claims by the Wharton Risk Center at the University of Pennsylvania shows that certain states, like Texas, which has the second-largest number of policies, pay much less in insurance premiums than the homeowners there collect in damage claims, evidence of the inherent inequity in the national program.

The problem of repetitive claims is much less prevalent in coastal New York and New Jersey, where FEMA estimates Hurricane Sandy flooded 100,000 insured homes.

But homeowners in those two states have fought measures that would reduce storm damage. Barrier island communities in the Northeast, for example, have resisted overtures from the Army Corps of Engineers to build sand dunes as a natural flood barrier, arguing that the dunes would block ocean views or harm the local tourism industry.

Other communities, like Tuckerton, N.J., have failed to take steps recommended by FEMA to better protect homes after flooding through a program that pushes owners to elevate new homes above minimum required heights or to move flood-prone buildings.

Hurricane Sandy damaged more than 300 of the 660 houses in Tuckerton’s beach area, including 22 that were washed away, according to Phil Reed, the town building inspector.

Fifteen years ago, Don Horneff, 74, had his Tuckerton house raised on pilings nine feet above ground level. As a result, he said, Hurricane Sandy’s floodwaters ran only through his basement.

That is the kind of protective measure that federal officials want mandated into all new or rebuilt homes in flood zones.

Last week, piles of mattresses, fencing, chairs, appliances and other debris sat outside many of the homes on Mr. Horneff’s street — and a backhoe worked to clear the mess. “All around me, the homes that were lower, most of them will have to be demolished,” he said, surveying his neighborhood. “It’s very sad. They have lost everything.”

The pending costs for Hurricane Sandy would have been even higher if a greater share of residents along the East Coast had signed up for the insurance, which is voluntary outside the 100-year-flood zones. There would also have been more premium dollars, though not enough to pay the claims.

The fact that many homeowners hit by Hurricane Sandy have no flood or homeowners insurance could prompt Congress to provide assistance to the uninsured, too, as happened after Hurricane Katrina, further raising the cost to the federal Treasury.
Officials in New Jersey and New York say the federal government must move quickly to put the flood insurance program back on stable footing, even if it means increasing the federal deficit.

“All we want in our community — not any more and absolutely not less — is what is due to Sea Isle,” said Leonard C. Desiderio, the mayor of Sea Isle City, N.J., one of the coastal towns hit hard by Hurricane Sandy.

Hurricane Katrina put the program so deeply into debt that federal officials have acknowledged they will never be able to fully repay the $18 billion Treasury-financed loan that bailed the program out.

FEMA, as a result of this year’s legislation, has the authority to raise premiums by as much as 25 percent per year over the next five years. The increases will be imposed mostly on vacation homes and other properties that repeatedly flood, but whose owners have paid far below market insurance rates. The legislation also authorizes the creation of a national reserve fund to help the program handle major flood catastrophes, and urges Congress to appropriate $400 million a year to update the thousands of out-of-date flood control maps. That would likely force new homes to be built elevated off the ground in spots where rising sea levels or recent major storms have had an impact.

Lawmakers who pushed the legislation call it major progress in fixing the program’s well-documented failings.

“The program is on a much more responsible path than it had been just one year ago,” said Zachary Cikanek, a spokesman for Representative Judy Biggert, Republican of Illinois, who co-sponsored the legislation.

But others say much more needs to be done. The federal government should ensure continuous coverage in flood-prone areas, spreading the risk among a larger pool of homeowners, who now often allow their coverage to lapse, said Robert Hunter, an insurance administrator in the Ford and Carter administrations.

The 20,000 communities that participate should also be adopting stronger building or flood prevention codes the way Florida has since Hurricane Andrew did $23 billion worth of damage in 1992. Mr. Hunter pointed to earthquake-prone Chile, where builders must assume the liability for catastrophic earthquake damage for 10 years after construction. “This program still encourages unwise construction instead of discouraging it, and to me that means the program has failed, even with the reforms Congress just adopted,” Mr. Hunter said. “People are being killed and their properties are being destroyed because of a government that gives the false impression that there is less of a flood risk than there really is.”

Eric Lipton reported from Washington, Felicity Barringer from San Francisco, and Mary Williams Walsh from Philadelphia. Jon Hurdle contributed reporting from Tuckerton, N.J.

[Thailandnotes]

Re: Sandy: Let the Good Times Roll - Insurance Claims

As someone who has owned a house on the tidal Potomac for 20 + years, I don't think this article does a very good job of explaining what federal flood insurance is. I cannot buy any insurance (private or government) that covers damage caused by tides or waves wiping out our dock or eroding our shoreline. We have suffered moderate damage from hurricanes in the past, but it was always clear that our house was covered, our shoreline and dock, not, and that was the risk we took owning the property. Communities participating in the National Flood Insurance Program, were supposed to meet zoning and development guidelines in order for homeowners to be eligible. The Outer Banks in N.C. are a clear example of the government insuring property the law did not intend to cover.

Private insurance companies believe in global warming big time. They are getting out of coastal insurance as fast as they can.

"Even though these companies bear none of the risk, they take, on average, $1 billion a year of the premiums the government collects, as compensation for help in selling and servicing the policies."

The I in FIRE is shining brighter than ever.

[shiny!]

Re: Sandy: Let the Good Times Roll - Insurance Claims

Among people within a block of a body of water, 46 percent had no flood insurance. In areas that had been evacuated in past storms or where the authorities advised people to leave, 58 percent did not have it. Moreover, 39 percent of all the people who thought they did have flood coverage mistakenly believed that their homeowner’s insurance covered it.

... and...

"The fact that many homeowners hit by Hurricane Sandy have no flood or homeowners insurance could prompt Congress to provide assistance to the uninsured, too, as happened after Hurricane Katrina, further raising the cost to the federal Treasury.
Officials in New Jersey and New York say the federal government must move quickly to put the flood insurance program back on stable footing, even if it means increasing the federal deficit."

What is the incentive for homeowners to pay for flood insurance if the gov't (taxpayer) is going to "provide assistance" to those who did not pay for such insurance? Especially if FEMA raises premiums by as much as 25%?

[Thailandnotes]

Re: Sandy: Let the Good Times Roll - Insurance Claims

It is very confusing.

Imagine being caught in this middle...

"Michael Michali said a FEMA inspector told him Sunday that the claim for his family’s heavily damaged house would be denied."

“FEMA said they would put pressure on the insurance company to pay,” Michali said. “The insurance company said they will put pressure on FEMA.”

http://www.washingtonpost.com/politi...a_story_1.html