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Natural disasters have been on the rise in the last decade, and according to a new analysis, it’s causing a spike in home insurance rates across the country. According to the Insurance Information Institute, 2018 saw 850 “natural catastrophes” across the world—a jump from 740 in 2017 and just 500 a decade earlier. The disasters have racked up damages to the tune of $350 billion in some years—and those were just the insured losses.

A recent report noted that 2017 and 2018 brought the costliest back-to-back years on record for economic losses solely due to weather-related events. As insurance companies struggle to keep up with two years of higher-than-expected losses from natural catastrophes, homeowners may see increases in rates, particularly in more disaster-prone parts of the country.

“Every year in the United States, natural disasters account for tens of billions of dollars in damages,” the report reads. “A significant portion of those damages falls on the shoulders of insurance companies. When insurance companies experience huge loss from natural disaster-related claims, they compensate for that loss with an increase in home insurance rates.”

Average home insurance rates have risen in every state in the last decade, mainly due to natural disasters, according to the National Association of Insurance Commissioners. And Florida’s average rate is the highest in the nation. Florida tends to have most of its damages caused by hurricanes, such as Hurricane Irma, which hit the state in September 2017 and caused $11.1 billion worth of damage, with the vast majority of that to homes, according to the Florida Office of Insurance Regulation. Hurricane Michael hit Florida in October 2018, causing $6.4 billion worth of damage to the state.

You can read the full analysis of the decades’ worth of NAIC data by clicking here.

You may have heard the phrase “A-rated” and wondered what that really means. What is an “A” rated insurance carrier and why should it matter? Insurance carrier ratings look similar to school report cards, and, in a way, they are. Most homeowners want a carrier with a high financial stability rating.

There are many companies that monitor the strength of insurance providers, but the most common ones you’ll run into are A.M. Best, Standard and Poor’s, Moody’s, and Demotech. For more than 100 years, A.M. Best has been recognized as the industry standard for insurance carrier ratings. A.M. Best is the most prevalent insurance-specific agency and is the one most commonly used by major insurers. Each rating agency uses proprietary scales to rate an insurance company. As a result, one company’s rating isn’t necessarily equivalent to another’s. These rating agencies consider a wide variety of factors, but look at how well the business is doing financially, how responsibly it is run, and external factors like vulnerability to natural disasters.

A.M. Best Ratings

A.M. Best ranks each insurance carrier with a letter grade and often a plus or minus. Ratings might also include a second plus or minus, called a “notch,” that further expresses the degree of the rating.

The A.M. Best rating is an indicator of the company’s ability to meet ongoing insurance obligations. Their rating is based on a comprehensive, quantitative, and qualitative evaluation of a company’s balance sheet, operating performance, and business profile. A.M. Best’s rating system has a proven track record in indicating insurance companies that may, over time, encounter financial difficulties. As such, A.M. Best’s rating is recognized worldwide as the benchmark for assessing and comparing insurers’ financial strengths.

A Note on Demotech Ratings

Demotech joined the ratings arena in 1985 and specializes in providing ratings and detailed financial analysis of regional and specialty insurers. Many consumers prefer an A.M. Best over Demotech rating, but if you live in a coastal area or certain hard to insure areas, you may need to rely on Demotech. A company with neither a Demotech nor an A.M. Best rating should be a cause for concern.

What it all means to you?

Considering the financial stability of an insurance carrier before purchasing coverage is important because the insurer has an ongoing financial obligation. Generally, an “A” rated insurance company is considered one that performs at the top of its industry in creditworthiness (the ability to repay creditors and pay any claims presented) as well as how it performs financially when compared to its peers. The stronger the financial strength rating of an insurance company, the more likely it is that it will not experience financial failure and perhaps even close its doors. You need a company you can depend on to be around when it is most needed.

Gulfshore Insurance represents the top-rated insurance companies that specialize in insurance protection for successful individuals and families: AIG, Berkley One, Chubb, Cincinnati, PURE, and Vault. Our preference is to place our clients’ personal risk management programs with these Admitted Carriers that receive superior financial ratings from the national rating agencies. We value their financial stability, breadth of coverage, loss prevention services, and their track record of settling claims promptly and fairly. In situations where the Specialty Providers are not the right fit for our clients, our agency represents up to 20 other companies, allowing us to find appropriate solutions to fit our clients’ needs.

With the unimaginable devastation left in the wake of Hurricane Dorian, it is important to note some of the nuances that apply to homeowners coverage. Did you know that if you have hurricane coverage on your homeowners’ policy, you most likely have a separate hurricane deductible? A hurricane deductible is the amount a homeowner must pay (or is deducted from total claims payout) before insurance will cover the damage caused by a hurricane.

Many homeowners don’t realize that hurricane deductibles are separate from regular homeowners’ insurance deductibles and are based on a percentage of the home’s value, typically two to 10 percent. That percentage, along with details about a policy’s hurricane deductible, usually appears on the first page of your policy.

Nineteen states and the District of Columbia have hurricane deductibles. Florida laws are very specific regarding when the hurricane deductible applies, for what duration of time, and how many can be applied in a calendar year.

In Florida, hurricane deductibles apply for damage that occurs from the time a hurricane watch or warning is issued for any part of Florida, up to 72 hours after such a watch or warning ends, and anytime hurricane conditions exist throughout the state.

Most deductibles apply on a calendar year basis (some are per occurrence). Therefore, policyholders should always file claims even when the cost to repair the windstorm damage is less than the hurricane deductible. If you file the claim, the insurance carrier has a record of the amount of credit that should be applied towards the hurricane deductible for the second or subsequent claim resulting from a hurricane. For example, in 2004, some areas of Florida were hit by three major hurricanes in about 40 days.

Hurricane damage is usually extensive. Even though a $10,000 deductible may seem steep, it pales in comparison to the cost of rebuilding your home from the ground up without the financial help hurricane coverage offers.

Homeowners often mistakenly think their property insurance will cover loss during remodeling — or may assume that their contractor’s general liability policy may provide all of the needed coverage. Some property policies even have exclusions for coverage to the existing structure if renovations are taking place at the time of the loss.

Work site injuries. Damage. Vandalism. Fire. Theft. The list goes on. Many families look forward to remodeling their home, but too often the renovation process can become riskier than expected. Some of the largest losses that insurers experience occur to homes under renovation. The following is a quick list of some of the factors that arise during renovation projects that increase the risk of loss.

  • Increased foot traffic from the workers leads to a greater risk of injury on the property.
  • Luxury homes may have valuable objects inside that may be stolen.
  • Workers use tools to renovate the house that can cause damage. Some of the tools used involve flammable material, such as blowtorches, paint thinner, floor sanders, etc.
  • Unoccupied luxury homes under renovation are a target for vandalism, unauthorized use, and theft of building materials.
  • Contractors make mistakes too. If they cause damage to the home, their policy should cover the associated costs. However, there are uncontrollable factors that need to be considered, such as a canceled policy due to a missed bill.

 

Properly insuring a home while it is under renovation is a critical component of the planning process, and it is not one that should be overlooked.

There are two common ways to insure a residence under construction or major renovation: Homeowners Insurance and Builder’s Risk Policies. Each is based on specific criteria, and we strongly encourage owners and financial planners to consult with an insurance advisor who can determine the policy options to best manage potential risks.

Homeowners Insurance

Insuring projects under a Homeowners policy is often the preferred approach to managing the risks because it affords both property and liability coverage to the owner. It is critical for owners to maintain sufficient liability protection during the entire span of any renovation project. In most cases, contractors can be added as an “Additional Interest” to the policy, protecting their financial interests throughout the project while excluding them from liability coverage. However, a contractor should always maintain commercial liability and workers’ compensation insurance.

Builders Risk Insurance

Most owners and contractors involved in residential new construction projects are familiar with builders risk coverage to insure against the risk of property loss. However, builders risk insurance can provide coverage beyond new construction projects. Builders risk also provides much-needed coverage for remodeling or additions to residential structures like custom homes. Owners or contractors working on a remodeling project may not be aware that builders risk coverage is a valuable purchase to protect the structure in the event of a loss. Builders risk is designed to protect property owners, real estate developers, and general contractors who have an insurable interest in a construction project. The policies extend well beyond that of the contractor’s general liability policy – and the homeowners policy. Builders risk insures materials, equipment and fixtures being permanently installed, whether the project is new construction or remodeling.

Please contact us for additional guidance if you are planning to renovate or begin construction on a property.

Understanding what an elevation certificate is and how to read one will help you better navigate the issues a home may have in regards to flood insurance, a critical component of the home buying process. An elevation certificate (EC) is a document prepared by a land surveyor (or other licensed professional) that details the elevation of a home in reference to the Base Flood Elevation, commonly referred to as the “BFE.” The BFE is the elevation that floodwaters are estimated to have a 1 percent chance of reaching or exceeding in any given year. Remember, no type of flood damage, no matter the source of the water, is covered by standard homeowners policies.

FEMA Fact Sheet: Elevation Certificates

FEMA Elevation Certificates Instruction Guide

How an EC Is Used
If the property is in a high-risk area—a zone indicated with the letters A or V on a Flood Insurance Rate Map (FIRM)—the EC includes important information that is needed for determining a risk-based premium rate for a flood insurance policy. For example, the EC shows the location of the building, lowest floor elevation, building characteristics, and flood zone. The EC consists of six pages. Pages one through four are informational regarding the property, the Flood Insurance Rate Map (FIRM), and data pertaining to the structure. Pages five and six are photos of the property and structure. Your insurance agent will use the EC to compare your building’s elevation to the BFE shown on the map being used for rating, and determine the cost to cover your flood risk.

Section A (Page 1)
This section provides pertinent data including: the address of the property, the property description (otherwise known as the legal description), the latitude/longitude of the property, and information regarding the type of structure that is on the property such as: basement, crawl space, on slab, etc., and information regarding buildings with attached garages.

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