Home owners Experience increased risks

We have noticed an increase in the risk of ownership due to a pull back by property and Casualty insurers. Following are some recent articles that point to the problem and with the weather becoming increasingly uncertain we can expect to see more of this. Its only logical that this may begin to affect buying habits in the future.

Homeowners Brace for Disaster Against Potential Property Losses
By M.P. McQueen

As natural disasters threaten to drive up property losses in many parts of the country, insurers increasingly are requiring homeowners to better protect their houses as a condition of staying insured.

These moves reflect efforts by the insurance industry, including Allstate Corp. and State Farm Insurance Cos., to place more responsibility on homeowners to reduce the risk of loss when disasters occur. In many Western states, where wildfires are a growing menace, some homeowners are being required to clear brush over large areas around their houses, or even to install a new fire-resistant roof. In hurricane prone areas of Eastern and Gulf states, some insurers are requiring that certain properties have storm-resistant window shutters in order to be insured.
David Wessman, 47, says he got notice from his insurer a couple of years ago that the company would drop him unless he replaced the wood-shingle roof on his home in Northern California with a fire-resistant one, a job he figures would have cost about $12,000. "We had just spent several thousand dollars to treat the roof [with fire retardant], and they refused to accept it," says Mr. Wessman, a computer-game designer. Mr. Wessman instead found coverage with another insurer.

Meanwhile, in hurricane-prone areas in the East, some insurers are requiring that houses be equipped to withstand heavy winds. The Florida legislature recently passed a bill requiring many homes valued at $750,000 or more to have permanent storm shutters within two years as a condition of receiving a policy from Citizens Property Insurance Corp., the state-run insurer that covers a majority of homes in Florida. The bill is awaiting the governor's signature. And Privilege Underwriters Inc., a new insurer that covers high-end homes in the state, says it refuses to accept any property that isn't built to 2001 state building codes for high-wind resistance.
Wall Street Journal

Hurricane and Windstorm Deductibles

* The South Carolina Wind and Hail Underwriting Association was expanded on March 30, 2007 and again on June 1. The orders, from the department of insurance, expand the coastal territories already covered by the wind pool in four out of the five counties and added coverage on three islands. The department ordered the expansions after considering the results of the Coastal Property Insurance Data Call, a report which found that “essential property insurance is not available on a reasonable basis through normal channels for all consumers within the seacoast area.” The insurance department also conducted a review of information from insurance companies and found that insurers are either not including wind coverage in the policies they write in wind-pool areas, which is permitted, or are increasing deductibles.

* On May 30, 2007 the Governor of Connecticut signed Public Act 77 which prohibits an insurer from not issuing or renewing a homeowners policy solely because the homeowner has not installed storm shutters to mitigate damage from hurricanes and severe storms. It also requires an insurer to offer a premium discount to homeowners who install shutters or impact-resistant glass. These provisions go into effect on January 1, 2008

* Florida Legislation: The governor of Florida signed legislation (SB 1980) in May 2006 which stipulates that starting July 1, 2008 Citizens, the state-run insurer of last resort, will no longer cover homes with a combined structure and contents replacement value of more than $1 million. In these cases, homeowners will have to apply for coverage from either the voluntary private market or the surplus lines market. Citizens coverage will only be available if an applicant can prove that coverage is unavailable elsewhere and then only for a limit of three years. Vacation or second homes were also eliminated, but this provision was rescinded in January 2007. The law also encourages homeowners to invest in hurricane-mitigation measures, such as hurricane shutters. Homeowners will be able to request inspections at no charge to get recommendations about how to reduce their home’s vulnerability to hurricane damage. Grants will be available for retrofitting; depending on the insured value of the structure and the homeowner’s income, some grants will have a matching funds feature. Owners of mobile homes and manufactured housing will also be eligible for grant money.

* Legislation passed in January 2007 requires insurers to give policyholders the option of declining windstorm coverage, if the homeowner provides a handwritten statement saying that he or she does not want the coverage and if a mortgage or lien holder provides a document of approval, confirming that there is no mortgage or lien on the home.
Insurance Information Institute

How is This Affecting the Homeowner?

Besides the highest risk areas no longer getting automatic insurance coverage from the large companies we all know and have dealt with over the years, there is a void that is being taken up by questionable insurers usually state run. These lenders of last resort are aggregating the risk in order to keep home covered. After all, could you sell your home if it was uninsurable? What lender would lend for a purchase for a home that was unprotected. Could an owner borrow to remodel?

The damages done by hurricane in Florida caused the state to apply a 3 billion dollar charge to its state policy holders. In other words, everyones premiums went up. The reason is the state associations charged with providing insurance to homeowners when there is no private market left, really dont have the money for a major disaster.

No one really believes that the California Earthquake Insurance Association could cover a major quake the size of the 1906 quake. They simply dont have that much in the till. Still, Cities and states have a big stake in making sure that their constituents have coverage. Real estate is a huge part of the economy if you consider property taxes, commodities used in remodel, sales tax generated by home sales, industry employment and more. All of this would go away if there was no coverage at all. Ownership would just be too risky.

The Lenders of Last Resort

These state created lenders of last resort offer premiums at affordable rates and are often the only option left as the private markets retreat form high risk areas, leaving only the state to protect their constituency. The result is that the states have taken on a financial responsibility that is not fully funded if a big disaster where to take place. These associations have actually created a pool of high risk potential cost. Ultimately, of course, it will be up to the state and the Federal Government to step up. According to the the Wall Street Journal, the cost of flood insurance in the 16 hurricane prone states has grown from 200 billion to 600 billion in just five years.

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