Insurance Time with Mike and Mike: Flood Insurance


Good morning everyone. It is Friday September 7th. I am Mike Renick. I am the senior broker, the team lead for Team Renick Real Estate Services, part of that great Keller Williams on the Water Sarasota family proudly serving the west coast of Florida. As we do every Friday morning I have Mike Mailliard with me. Good morning Mike. Good morning Michael. Welcome. Mike is the broker, the agent/ owner of MIC Insurance and someone I lean heavily on when I need answers to technical questions. The man is fantastic. So Mike we’re here today, we’re talking about late breaking news with flood insurance. Flood insurance changes. Go ahead. Okay, the big issue that has changed in the current update of the federal flood program is the ability to cancel a federal flood contract midstream and replace it with a private contract. With no penalty? With no penalty. Previously you could only cancel a federal flood contract with the sale of your home. So, if you bought it for a year you are committed for that year really no matter what unless you sold that particular property. With this change, this opens up an opportunity for people in a non pressured time frame setting to evaluate private flood options in comparison to the federal flood program. Particularly those individuals that are in an active flood zone, specifically AE, which covers the bulk of our properties on coastal, near rivers, streams, lakes, etc. Those particular properties are considered a true flood risk, so those clients are actually obligated to buy flood insurance as part of their mortgage. And even for a cash buyer it makes sense. In an active flood zone, it clearly would make sense to have coverage, because an active flood zone sends the signal that they have a much higher risk of activity of flood at that location than even a preferred zone. Now, preferred zones are construed as having a risk of two in a hundred years, okay. One in 50. Okay. The reason it’s called preferred is that in concept you could have a 30 year mortgage and be lucky and not have a flood within that time frame and that is why mortgages do not require flood coverage on X B and C zones. Those are the three preferred zone classes. But in AE, which is the bulk of flood exposed properties, the opportunity in a price savings, particularly for a non-primary occupant, now the federal government currently has two prices. One price if you live in your home for six months and a day. That’s construed as primary to them for the purpose of money, premium cost. Now they have a secondary occupancy level of 80 percent that really affects the coverage that they offer you at time of claim. So, if I am a seasonal owner and I only occupy for seven months of the year, I spend a four months at another home I own and a month on vacation, that coverage is not replacement cost on the dwelling. Okay. So if I’m not a primary occupant 80 percent of the days of the or more, then the flood coverage of a dwelling is not replacement cost. So, again, each week we demonstrate how complex this field is and I’ll never sit here and pretend that I can even come close to staying on top of this. That’s why we have partnerships with folks like Mike. Now let me go back to the beginning. Yes. So, for the first time, someone in mid policy, who has a federal flood policy, can take a look and go out get some private carriers and make a change if they’d like to. Correct. How often would you recommend someone sit down with all of their insurance and take a look at coverage vs. pricing? Well, a lot of that involves changes within your life, okay. Life changes may indicate that you have to evaluate that yearly. I think that, written correctly, a policy should be correct in place for at least two years. Now, I think an annual review is always appropriate. My company, we price markets as policies renew. So, as an example, if I have a homeowner’s policy come across our desk for renewal in six weeks we’re gonna check the market see if there’s a better offer available. So, a lot of that checking with the a well run agency is done in-house. So it’s transparent to the consumer. Correct. You’re doing all the hard work ahead of time. Exactly. It is our job to find the best place. Now, that best place is a balance of money and coverage, which we talked about in the last couple of weeks. Saving money to expose myself to catastrophic risk is not a very good plan. It’s a very short run plan. Well, it’s a it’s a plan that, historically, in fairness, that plan can work for a small percentile of people. It’s all in actuarial guess. But what I’m referring to, let’s say you move to an insurance company because the rates are cheaper. Right. And that catastrophe hits and they can’t pay anything. Well, it’s the can’t pay or don’t have the coverage in place that forces them, okay. So, you really were paying all that money even though it was less and you at the end of the day don’t have the coverage. Well, you’re paying one way or another. Yeah. That’s the reality of consumerism in America, but I would say on the private side, in the flood sense, the opportunities for people in AE zones and V zones, which is the high velocity wave zone, that would be the highest of all risk zones, the opportunity in private can be very attractive. Now, again, why why can a private company offer coverage for catastrophic losses cheaper than the government? Because they reinsure their risk, which means that they’re not pulling a dollar out of the treasury, a full dollar to pay every flood claim. A well-run insurance company is going to be purchasing reinsurance from other A.M. Best A rated or better reinsurance companies and maybe they perceive the risk at 50 cents on the dollar. Well, that’s a direct 50 cent savings for the federal government by allowing private to take that over instead of the Federal Reserve have those monies in place to pay that flood claim. So, I think that the push toward private is going to continue. This is a step allowing for an easier transition from federal to private and a number of large players have entered the private markets such as Lexington and Assurant. Lloyd’s of London does a lot of private flood coverage. These carriers have the ability to pay. Now, when we first started in the private flood, when it first hit the market, it was being offered by many smalls; small companies, limited levels of reinsurance. Not a high level of comfort for me personally. Okay. And, in that sense, I did not place a lot of the original companies that entered the private market, but today the carriers are strong and they sell other lines of coverage here so they do have the ability to handle the claims side of that perspective. So, everyone in a flood area should be talking to their insurance agent because of these changes. Their agent should be, actually, should be proactively reaching out to them. But things are happening, more options, there’s more diversification, more changes out there. Now’s the time to take a look at what makes sense. Is that a good summary? And it’s a, it’s an unusual situation because this particular change takes effect 10/1. So, effective October 1st, federal flood contracts can be replaced midstream with private. Excellent. Anything else Mike? That’s the hot news of the day. Mike you’re always tremendous. I look forward to having you back next Friday. We’ll have another topic selected. But thank you very much. Mike how will they reach you if they have more questions? What’s your office number? Our office number is 941-554-8909. And your email address. [email protected] Mike, again, thank you I really appreciate this. Have a great weekend. You too.

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