4 Sandy lessons: an agent at the storm's center discusses advising your clients on flood coverage.
Offices for The Van Dyk Group are located in Ocean County, N.J., with our main office on Long Beach Island, which took a direct hit. One of our other offices is located in Stafford Township, N.J., the mainland area across the bridge from Long Beach Island. A major portion of Stafford Township consists of lagoon-front communities built in the '60s and '70s. Sixty percent of our insureds had claims from Superstorm Sandy.
Sandy ended up being a major flood event as opposed to the wind event that is experienced with most hurricanes. Practically all of the homes and businesses on Long Beach Island had some sort of flood damage, and the lagoon-front homes in Stafford Township all had flood damage, with most homes having at least 2 feet of water.
It's hard to believe that many people living in flood-prone areas do not have flood insurance. These are homes that are right on the water or within a block or two of both the ocean and the bay. You can see tidal waters from just about every home in our area.
It has been estimated that at least 25 percent of the properties that Sandy damaged were not insured for flood--and that may be a conservative number.
Most homeowners who go without flood insurance don't anticipate the worst, so they save money and do without the coverage. Most people do not read their policies and have little idea about what is covered. It seems as though an agency's efforts to get the word out are ignored, and when it comes time for a claim, everyone pleads ignorance.
Consistent communication, checklists and sign-off waiver statements do help educate clients and promote awareness.
Four major areas help you become more familiar with flood claims after a disaster like Sandy:
(1) Flood coverage exclusions
(2) Substantial damage
(3) Flood elevations
(4) Increased cost of compliance (ICC) coverage.
The main exclusions that relate to a flood policy include anything outside of the parameters of the dwelling's actual living area. This includes the home's exterior property and property below the first-floor living area of a post-FIRM house.
Keep in mind that a flood policy is different from a typical homeowner's policy. Flood policies are emergency policies geared to getting a homeowner back in his home, unlike homeowners' policies, which are designed to replace everything the homeowner lost.
There is no coverage in a standard NFIP policy for property outside of the dwelling, such as swimming pools, hot tubs, decks, docks, bulkheads, sheds or landscaping. NFIP policies also do not cover for removal of debris around the property that is not under the living area of the dwelling. NFIP has required since 1976 that all new buildings be elevated and that nothing underneath would be covered by flood insurance with minors exceptions for essential systems needed for the operation of the house.
After Sandy, debris like sand, boats and docks were washed onto properties from the tidal flooding. Many properties had as much as 5 to 10 feet of sand that had to be removed at the owner's expense. No debris removal is covered around the house or under decks, only directly underneath the home or living quarters.
Expensive landscaping including bushes, shrubs, trees, decorative rock, stone paving and patios were destroyed or just plain washed away--all of which is not covered under the NFIP policy.
Loss of use of the property and business interruption coverage also are excluded in NFIP policies. Many homeowners were left without a place to live and had to stay at hotels, motels or rental properties at their own expense. Fortunately, FEMA offers grants to year-round residents to reimburse them for living expenses..
The lack of business interruption coverage created problems for the local businesses that remain open year-round. Many of these business owners again turned to FEMA for Small Business Administration (SBA) loans to help them out while their operations were closed.
Many owners of elevated post-firm buildings were surprised at the lack of coverage for contents or improvements located under the elevated first flood living area. Although these items are clearly spelled out on page 4 of the standard NFIP dwelling policy, most owners do not read their policies or any of the many pamphlets and brochures provided by NFIP that clearly spell out what is not covered.
As we have pointed out to our clients and as common sense dictates, there is a reason the building codes force you to elevate your buildings and use breakaway siding on the pilings. There is not supposed to be anything in these areas that can be damaged except for utilities and systems essential to the operation of the home. It is not designed to be an extra storage or additional living area.
Rooms, sheetrock, stairwells, storage enclosures, cement pads and contents are not covered in these sections of a property. Unfortunately, many property owners have incorporated fancy entryways and foyers under their living area, without coverage for such additions.
Many clients asked where they could get coverage for property that was flooded and not covered, but a flood policy is the only policy available for damage from flood waters. Excess coverage is available for policy limits, but these have the same exclusions as a standard flood policy.
When a property is "substantially damaged" by more than 50 percent of what the dwelling is worth, the dwelling must be brought up to existing codes to comply with the latest flood insurance rate maps (FIRM).
This means if your dwelling was substantially damaged, you must either elevate, demolish or move your dwelling to be in compliance. The dwelling must be brought up to a higher elevation in order to receive affordable flood premiums.
In the lagoon-front sections of Stafford Township, most of the more than 2,000 homes had 2 to 5 feet of water and fall into the "substantially damaged" category. Most homeowners wanted to fix their homes and move back in, but then learned that not bringing their homes up to compliance could result in astronomical flood premiums of $20,000 to $30,000.
FEMA acted quickly and issued new advisory base flood elevations (ABFEs), which recommend rebuilding to higher limits. Unfortunately, these elevations may not be finalized until sometime this summer. We have advised our clients to be very careful before rebuilding to ensure they do not fall into the "substantial" category by going to the towns and laying out their damages, plans and options.
It is up to the local governing bodies and building departments to determine if a property has "substantial" damage and must come into compliance with the new codes.
Even though FEMA is increasing the new recommended base flood elevations by around 2 feet, we suggest homeowners build up an additional 2 to 3 feet to meet the highest of the FEMA suggested elevations.
The next step for the homeowner is how to pay for the cost of elevating his or her home. That is where the ICC (increased cost of compliance) coverage comes into play. The ICC coverage is part of every flood policy and offers homeowners up to an additional $30,000 to help defray the cost of raising a home.
To qualify for ICC coverage, the property must have sustained "substantial damage." Once a municipality has deemed a property substantially damaged, it issues a letter to the homeowner advising that he or she must come up to compliance with existing building codes and advises him to file an ICC claim.
The homeowner should take this letter to his or her agent, who then must file an ICC claim with the write-your-own (WYO) flood carrier. It is up to the homeowner to contact builders, contractors and house raisers to obtain estimates for the work to be done.
The coordination and communication between the initial flood adjustor, WYO carrier, homeowner and agent is extremely important to keep everything moving forward at a reasonable pace. Of course, not much is a "reasonable pace" when someone is without a home with nowhere to live; but that's where the role of the agent becomes vital.
In light of our experiences during Sandy's aftermath, we suggest agencies tighten up their recommendation checklists, produce a brief handout outlining the exclusions of the standard NFIP flood policy, and keep them front and center with every client.
It has been very helpful for our clients that we have stayed on top of the proposed regulations FEMA has put out and offered advice on what the effects of non-compliance may be. The towns are making sure the homeowners are aware of the new regulations. Agencies must inform their clients of the affects these regulations may have on their future flood insurance premiums.
More on the Web:
* Think Toys to Enhance Retention
* What's Your Flood Zone?
* The Coastal Coverage Challenge
Read these related articles at PropertyCasualty360.com
Dave Wyrsch, Sr. is the owner of The Van Dyk Group and past president of IIABNJ, former recipient of the National Flood Insurance Program Agent of the year award, and member of the National Flood Insurance Producer Council.
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|Title Annotation:||Getting Personal|
|Author:||Wyrsch, Dave, Sr.|
|Publication:||American Agent & Broker|
|Date:||Mar 1, 2013|
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