Saturday, June 21, 2008

Lloyd's of London meetings on flood insurance for Carova Beach

Many of you know that I recently was asked to go and speak with a number of syndicates at the Lloyd's of London market in the UK. The sole purpose of my being there was to offer full market perspective to the underwriters about how CBRS flood insurance, calculated risk, and current lending and market conditions are interacting in the 4WD Area of the Outer Banks. It is no secret that flood insurance can be rather expensive in certain flood zones of a 'COBRA' area and obtaining coverage essentially forces you to purchase a flood policy through Lloyd's. To date, policy premiums have essentially been designed to have a minimum base premium price. From this base price, the premium gets more expensive if you have certain enclosures, less desirable elevations, etc...

I have always lobbied hard for the fact that there needs to be an "average" premium price for the "typical" home constructed in the 4WD area. From this sort of average standard, homeowners could then be rewarded or penalized with their premiums depending on factors such as elevation, preventative construction standards, groundfloor enclosures, proximity to the ocean, frontal dunes, etc... This method would allow a more accurate assessment of the property and thus a more accurate premium rate.

We further contested that rates should take into consideration all of the factors listed above and more when providing a quote. Currently the underwriters only use an elevation certificate with their application. They have no indication for such things as how far the water is (they assume the worst case scenario) or what kind of construction methods were used.

The underwriters of certain syndicates welcomed the idea of additional data and indicated that significant consideration would be given if they got a better sense of what they were quoting. I have sent a test case to see what they will say.

The last front of the appeal came in the form of deductible options. Currently most syndicates require a $50K or $25K deductible. Some lenders are not keen on the deductible amount being that high and won't quote reasonable rates or even quote rates at all. The underwriters seemed willing to allow us to design a flood policy that would allow some ala carte options such as choosing the deductible amount (ie $12.5K, 25K, 50K), coverage options/restrictions, etc... I was very encouraged by the meetings and their willingness to let us tweak some policies to give homeowners needing the flood insurance some options.

With all of that, we should be able to have some flood programs in place by mid-July that should be significantly more accurate and less expensive. Obviously the best rates will be for those without the enclosures on the groundfloor, the ones with good elevations above base flood, good dunes, etc... I would argue that is the way it should be. With current construction standards in place for coastal areas, new construction will inevitably offer some of the best premiums available.

Stay Tuned!