Transcript P6466 - iii Template

How to Read Your
Insurance Policy
Understanding What You Bought & How it Works
National Hurricane Conference
New Orleans, LA
March 2013
How Insurance Works
 Insurance is an agreement – a contract.
 For a specific payment (the premium),
one party (the insurer) agrees to pay the other party
(the policyholder or designated beneficiary) a
defined amount (the claim payment or benefit)
upon the occurrence of a specific loss.
Q: Why does my insurance policy read like some
type of legal document?
A: Because it is a contract.
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How Insurance Works
 Rates are based on the risk pool.
 To charge the right premium, insurers consider the annual
losses expected for the pool – and potential variation.
 Your premium represents your share of the pool’s
total premium.
 Losses are paid out of the premiums collected from
the pool of policyholders.
 The entire pool compensates the few policyholders who
experience losses.
Q: Is “everyone in the pool” or are there parameters?
A: Some companies may segment risks to give better rates
to those who earn them. Each state is a pool of its own.
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Each state has its own pool
 Insurance is regulated at the state level.
 Every state has its own rules and statutes.
 State regulators oversee insurer solvency, review
market conduct, rule on rate increase requests, to
name a few of the duties.
 Model rules and regulations for the insurance
industry are developed by the National Association
of Insurance Commissioners.
 Before these rules are implemented, they must first be
approved by state legislatures.
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Insurance principles
 Risk transfer.
 The risk of an unanticipated loss is transferred from the
policyholder to the insurance company.
 Frequency & Severity.
 The number of losses that occur over a specified period &
the size of the loss.
 Indemnity.
 Provide financial compensation to return the policyholder to
pre-loss condition.
Q: Does the frequency & severity of loss change?
A: Yes. More people and more expensive homes are being
built in coastal areas, and storms are more intense.
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How much insurance do you need?
 Enough to rebuild your home, if it is destroyed.
 Find out what rebuilding costs are in your area.
– Rebuilding costs are NOT decreasing!
– Rebuilding costs are not the same as real estate value.
 Shop around, but don’t select an insurer on price
alone.
 Check reputation for claims handling and financial rating.
Q: What if I insure my house for less than
rebuilding costs?
A:It means more out-of-pocket costs for you,
slower recovery or only partial recovery.
“Must read” information in your policy
 Important Messages section.
 Policy changes.
 Regulatory changes and mandated language, such as:
– Your policy does not cover flood damage,
– Assessments have been charged, or
– There is a separate deductible for hurricane losses.
TIP: Note the sentences in BIG TYPE.
These are…..IMPORTANT!
Typically, state regulators dictate the language and
size of these messages so you are informed.
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“Must read” information (continued)
 Declarations page.
 Shows coverage and limits of liability.
 Displays any credits you are getting, such as for a burglar
alarm.
 Details your deductible.
 Lists your premium amount.
– Check to see if there are surcharges, which some states have
for state-run insurance pools.
 Identifies your mortgage company.
 Outlines separate endorsements and additional coverage
you may have purchased.
 Lists your total annual premium.
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Coverage types in a homeowners
policy
 Damage to Property
 Coverage A – damage or destruction to residence.
 Coverage B – damage or destruction to detached
structures.
 Coverage C – damage, destruction or theft of personal
property.
 Coverage D – Additional living expenses as a result of
losses under Coverage A, B or C.
 Damage to People
 Coverage E – personal liability.
 Coverage F – medical payments to guests.
Coverage A – damage or destruction to
residence.
 Insurance should be sufficient to cover the cost to
repair or rebuild your home.
 Replacement cost of your home is not the same as its real
estate value.
 Coverage included for attached structures, such as a
garage or deck.
 Older homes may need to be brought up to current
building code if damaged. Consider:
 Inflation guard coverage.
 Building Ordinance and Law coverage.
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Coverage B – damage or destruction to
detached structures
 Covers an unattached garage, shed and your pool.
 Most insurers provide discounts for detached garages, due
to the reduced fire hazard.
 Some companies may exclude coverage for pool
enclosures.
Q: Why are detached garages less expensive to
insure than one that is attached?
A: The risk of fire is considerably less when
gasoline-powered cars and tools are not stored
in places that connect to living quarters.
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Coverage C – damage, destruction or
theft of personal property.
 This is for your “stuff,” and it typically is 50 – 70
percent of the amount of coverage on the structure of
your home.
 If your house is insured for $200,000, you may have
$100,000 coverage on the contents.
 Some insurers allow you to increase or decrease the
amount of coverage for contents.
 Coverage travels wherever your stuff goes and is not
limited to your property while it is inside your home.
 It also applies to your guest’s “stuff” while it is at your home.
on your residence premises as well.
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Conduct a home inventory
It helps ensure you
select the right
amount of coverage –
and it speeds the claim
process.
Free home inventory
software at:
www.KnowYourStuff.org
TIP: Store your home inventory some place
other than your residence.
Options for coverage
 Actual cash value.
 This takes depreciation into account.
– Claims payment would deduct for age on your 15-year-old roof
with a life expectancy of 25 years.
 Replacement cost coverage.
 Repairs or replaces your damaged property with materials
of similar kind and quality, without deducting for
depreciation.
 Most companies require the policyholder to insure
for at least 80 percent of replacement cost.
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Coverage D – Additional living
expenses as a result of losses
 If your home is damaged so badly that you cannot
live there, this coverage pays the extra expenses you
incur to live away.
 Pays for costs above the normal expenses, such as the
costs of eating out since you cannot eat at home, relocation
and storage costs, furniture rental and additional
transportation costs.
 Check your policy to see the limits of this coverage.
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Coverage E – personal liability.
 Protects you against a claim or lawsuit resulting from
bodily injury or property damage to others, which
could be considered your “slip and fall” coverage.
 It applies to damage to people, rather than property.
 Coverage is for all family members in the household.
 Intentional damage by you or family members is not
covered.
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Coverage F – medical payments to
guests
 Provides for reasonable medical care to people who
are not insured under the policy.
 Differs from Coverage E in that it pays claims when the insured is
not necessarily “at fault,” such as when a neighbor falls over your
front stairs and breaks an arm.
– If the neighbor sued because your crooked stairs caused the fall,
Coverage E applies because the neighbor is saying you were at fault.
 Medical payments under a homeowners policy are
different from those under an auto policy.
 Med pay for auto policies cover all passengers who are injured,
including people insured on the policy (first party), while medical
payments on a homeowners policy only go towards people not
insured on the policy (third-party coverage).
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Insuring your home
 Always consider insuring for 100 percent
replacement cost.
 Consider the following coverage:
 Extended or guaranteed replacement costs.
 Building ordinance and law.
 Inflation guard.
 Umbrella or excess liability.
 Sewer back-up.
Condo insurance
 Master policy vs. individual coverage.
 Unit owner covers own belongings, PLUS whatever is not
covered in the master policy.
 Loss assessment and deductible assessment
coverage.
TIP: Always get a copy of the condo’s master
insurance policy so you can identify any gaps in
coverage that you may need to fill for your own
protection and peace of mind.
Exclusions and coverage
 Deductibles for hurricanes/other perils.
 Take the highest deductible you can afford.
 Most homeowners insurance policies do not cover
flood damage.
 Flood insurance is from the federal government’s National
Flood Insurance Program.
 Check costs at www.floodsmart.gov
Q: What if I don’t live in a flood zone?
A: Keep in mind that 25% of floods occur in
“low-risk” zones.
Estimating your flood risk
Tips for lowering costs
 Check on multi-policy discounts if you buy several
policies from one company.
 Ask about credits for:
 Smoke detectors and sprinkler systems.
 Burglar and fire alarms.
 Deadbolt locks.
 Long-time policyholder discounts.
 Upgrades to plumbing, heating and electrical systems.
 Wind-resistant features, such as windows and garage
doors.
Preparedness Resources
 Most insurers have preparedness information on
their websites.
 Insurance industry resources include:
 Insurance Information Institute
– www.InsuringFlorida.org
– www.iii.org
 Insurance Institute for Business & Home Safety
– www.DisasterSafety.org
 Federal Alliance for Safe Homes
– www.FLASH.org
Number of Federal Disaster
Declarations, 1953-2013*
99
81
75
47
59
63
48
52
56
44
32
36
32
38
43
45
47 federal disasters
were declared in 2012
0
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
3
11
31
34
27
28
23
24
21
15
23
22
25
29
17
17
19
11
11
22
20
25
25
12
12
7
7
13
17
18
16
16
40
30
38
42
48
46
46
60
20
69
65
80
The number of federal
disaster declarations set a
new record in 2011, with 99,
shattering 2010’s record 81
declarations.
50
45
45
49
100
There have been 2,084
federal disaster
declarations since
1953. The average
number of declarations
per year is 35 from
1953-2011, though that
few haven’t been
recorded since 1995.
75
120
The Number of Federal Disaster Declarations Is Rising and Set New Records
in 2010 and 2011. Hurricane Sandy Produced 13 Declarations in 2012/13.
*Through Jan. 31, 2013.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
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Federal Disasters Declarations by State,
1953 – 2013: Highest 25 States*
Over the past 60
years, Texas has
had the highest
number of Federal
Disaster
Declarations
30
39
47
46
42
40
40
47
47
48
48
48
48
51
51
51
53
54
56
57
65
50
50
59
60
66
70
72
Disaster Declarations
80
78
90
86
100
Other top states:
CA, OK, NY, FL, LA
20
10
0
TX CA OK NY FL LA AL KY AR MO IL TN MS WV IA MN KS PA NE VA OH WA ND NC IN
*Through Jan. 31, 2012. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
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Top 12 Most Costly Hurricanes
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
10 of the 12 most costly hurricanes in insurance
history occurred over the past 9 years (2004—2012)
Hurricane Sandy could
become the 3rd costliest
hurricane in US
insurance history
$60
$50
$40
$30
Hurricane Irene
became the 12th most
expensive hurricane
in US history in 2011
$48.7
$25.6
$20.0
$20
$10
$5.6
$6.7
$7.8
$8.7
$9.2
$4.4
$5.6
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.1
$13.4
$0
Wilma
(2005)
Ike
(2008)
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
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Insured Coastal Exposure As a % Of Statewide
Insured Exposure In 2007
Florida
79.0%
64.0%
Connecticut
62.0%
New York
59.0%
Maine
54.0%
Massachusetts
36.0%
Delaware
35.0%
Louisiana
34.0%
New Jersey
29.0%
Rhode Island
28.0%
S. Carolina
26.0%
Texas
23.0%
NH
13.0%
Mississippi
11.0%
Virginia
9.0%
NC
5.0%
Georgia
Maryland
Most of Florida’s Exposure
is Considered Coastal – 79%.
12.0%
Alabama
1.0%
0%
Source: AIR Worldwide
20%
40%
60%
80%
100%
Population Growth Projections for Hurricane
Exposed States (2000 to 2030) (000)
Florida
12,703.4
12,465.9
Texas
4,178.4
3,831.4
2,746.5
North Carolina
Georgia
Virginia
By 2030, Florida is expecting a
population increase of 12.7 million,
closely followed by Texas with an
expected increase of 12.5 million.
410.7
New Hampshire
1,725.8
Maryland
229.1
1,136.6
254.5
1,388.1
Delaware
South Carolina
Hawaii
New Jersey
136.2
662.9
104.6
427.1
247.8
283.1
333.7
501.0
Maine
Massachusetts
Rhode Island
Alabama
Mississippi
Connecticut
Louisiana
New York
0
2,000
The U.S. as a whole is expected to have a population increase
of 82.1 million, or 29.2 percent during the same period.
4,000
6,000
8,000
10,000 12,000 14,000 16,000
Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls
Why property insurance rates have not
dropped in hurricane-free years
 Emphasis is on strategic underwriting in a down
economy.
 In a vibrant economy, healthy investments make up for any
gaps in insurance rates. Today, rates have to hold their
own.
 Insurers must have money on hand in advance to pay
anticipated claims.
 Private insurers do not borrow money to pay claims, nor
can they charge rates to make up for past losses.
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Insurance Information Institute Online:
www.iii.org
www.InsuringFlorida.org
Thank you for your time
and attention!