Sunday, July 27, 2008

COBRA Flood Insurance Premiums more attractive and accurate in 4WD area.

As previously stated, I have been working closely with a wholesale and a retail insurance outfit to formulate an flood insurance policy program that more accurately analyzes the risks associated with a dwelling and takes into account a number of factors when determining a policy premium.

The Problem: To date, nearly every policy written has only required an elevation certificate to determine the risk. Having visited Lloyd's of London and witnessed how the end user (insurer) determines the risk, this is very disadvantageous to the homeowner because there are a number of unknowns that the insurer must assume the worst.

The Solution: In addition to providing the elevation certificate data the insurers are used to seeing, help fill in the blanks or unknowns for them so that they do not assume the worst. In the meetings I attended, all of the insurers we spoke with were very open to being supplied more data and indicated they would treat the premiums with more careful consideration. They asked us to provide a premium model that distributed various weights to certain characteristics that would either increase or decrease the premium amount. Characteristics such as distance to the Ocean, primary dune height, total property value, and protection between dwelling and the Ocean, as well as construction style/standards were among a number to be considered.

Test Case 1: I decided to submit a house that is to be a model for what the insurers want to cover and see how low they would consider a home in the most hazardous flood zone, VE. A large Oceanfront home was coming up for renewal and was current paying $11,600 with a $50,000 deductible. They we set back very far from the Ocean, had NO groundfloor enclosure, and a very stable and high primary dune in front of their property. Since it was a renewal, the homeowners (and their bank) were fine with the same $50K deductible. After submitting topo surveys, elevation certificates, plans, photos during and after construction, as well as dune heights and distances to the Ocean, the premium model computed a figure of $5,600 and it was accepted! That was a $6,000 difference for the exact same coverage on the exact same property.

Test Case 2: The second house submitted was a 3rd row house that was under contract and the new owners had to purchase a flood policy. The house did have a ground floor enclosure but the elevation of the grade at the house was 20 ft, 8 ft above the base flood elevation. They too have a good distance from the Ocean even though the dune size is not as prevalent. Additionally, their deductible was $25,000 instead of $50,000. Their premium was placed at $6,800, significantly better than every other quote they received.

Premiums are getting better, or at least more accurate. With lot prices where they are and building code requiring smart construction, new homes will inevitably receive some of the very best rates available. Existing owners, feel free to email me if you want to try and get a better policy. Most existing policies can be refunded after 3 months without penalty.