Flood Insurance Explained

By: Janet Srock, AAI, CISR, Commercial Lines Account Manager

A couple of weeks ago I wrote about the devastation that hurricane season, which started on June 1, can cause for both families and businesses.  At SIA Group, we cannot understate the importance of both purchasing and understanding your flood policy.  Forecasters are again predicting an increase chance of hurricanes, so let’s try and be prepared before the first storm strikes.

The following information outlines some of the important aspects you need to understand about this oftentimes misunderstood coverage:

  • You can only purchase flood insurance through the National Flood Insurance Program (NFIP) or one of the Write Your Own (WYO) carriers, which our agency has available for our insured’s needs.  A single hurricane event can cause hundreds or thousands of individual losses both to homes and businesses.  The National Flood Insurance Program was adopted in 1968, to provide for the following:
  1. To provide insurance coverage for property damaged by flooding.
  2. To encourage communities to implement practices for buildings and land use methods that help to mitigate (eliminate) damage from flood.
  • This insurance covers direct physical loss to property that is insured for flood and will cover reasonable expenses for sandbags, construction materials and human labor in the handling of the materials that are used to minimize damage to flood-imperiled property. The reimbursement for labor uses the federal minimum wage. The maximum amount payable is the minimum building deductible amount applicable.
  • The Standard Flood policy is designed for 1 – 4 family residences and their contents; tenant’s personal property and residential condo-unit owners.  For condo-unit owners, coverage can be for the individual owner and the common areas (areas that are used by all condo-unit owners).  There are flood policies available for the condo association’s residential condo buildings and for non-residential businesses.
  • There are also Preferred Risk policies for 1 – 4 family residential buildings that are located in Flood Zones B, C or X.  This form is not available for condos.
  • Waiting Periods: For obvious reasons, the NFIP has set up 30 day waiting periods for the purchase of flood insurance, however there are some instances in which this waiting period is waived.  To learn more about the exceptions, contact your agent.
  • Exclusions: Some exclusions on this policy include, but are not limited to: theft, loss of profits, fire, windstorm, explosion, earthquake, land sinkage, land subsidence, landslide, and land movement except for mudslides or erosion, which is covered under the flood peril.  There are other exclusions as well that are noted within the policy documents.
  • Cancellation: An insured can cancel a flood policy at any time, although unlike other policies, there is no return premium, as flood premiums are fully earned.
  • Direct Government Insurance (Flood) – The government, using the Federal Emergency Management Agency (FEMA), provides flood coverage. It combines insurance with mandated risk management to help communities in flood-prone areas to mitigate flood losses.  FEMA enforces compliance with this mitigation by withdrawing federal assistance if these mitigation techniques are not implemented, which will result in homes or businesses not being able to purchase insurance.
  • Cost of Flood Insurance:  The cost of flood insurance is based on many factors, including the communities themselves that are required to document their vulnerability to flood by flood mapping, or the analysis of how likely a community can flood, and to create and maintain preventative measures that help to mitigate damage to property when flooding occurs.  Keep in mind that the severity of large hurricanes, such as Super Storm Sandy, Hurricane Hazel and others, all contribute to the rise in flood insurance costs, as billions of dollars are spent on these types of losses to protect our homes and businesses.

Contact SIA Group and your producer or account manager to discuss this valuable type of insurance and how we can assist your homeowners or business needs.

Truly “Grasping” Enterprise Risk Management

By: Brandon Mills, RHU, Risk Advisor

Here at SIA Group, we oftentimes draw metaphors between our sales and staff initiatives and sports: saying “practice makes perfect,” ensuring a team approach and always striving to outperform our competition in all aspects of our business.  The same can be true for understanding enterprise risk management, or the proactive practice of controlling the risks your business is faced with.

Can you imagine shooting a basketball or catching a football with just two fingers?  This illustrates the issue that most companies are facing in terms of understanding and addressing their risks.

Business owners have a tendency to 1) assume and 2) finance (or purchase insurance) the risks they face today.  The only way to truly reduce risk is by catching that football with all five fingers.  Business owners need to add in those last three fingers: 3) prevention, 4) mitigation and 5) transferring.  This will allow for a more controlled and successful approach to risk management.

Every business owner assumes risk.  By owning a company, there are inherent risks you cannot reduce or remove in their entirety, so these are staple issues in any risk management program.  The same is true for financing.  It is illegal not to finance some risks through the purchase of insurance policies, such as workers’ compensation.  Many business owners stop here, but as stated above these do not lead to a well-rounded approach to enterprise risk management.  Three vital parts are missing to the equation.

Prevention starts with understanding which of the risks a business faces can be potentially reduced as well as working to reduce the likelihood that the business will be affected by these risks, such as training employees on anti-harassment initiatives to try and prevent a discrimination or harassment lawsuit.  Mitigation is addressed once a risk has already occurred and consists of asking yourself “what can I do about it now?”  For example, in the event an OSHA inspection leads to violations, mitigation can include responding quickly to fix violations immediately with clear steps to ensure it does not happen again, and, should the fine be large enough, hiring a third-party to argue for a reduction in the fine(s).  Transferring risk involves shifting the risk to another responsible party, for example utilizing the services of a staffing agency so, should employment issues arise, it will be left to the agency to handle them.

When business owners are able to fully “grasp” these techniques, their company’s total cost of risk will be controlled and, ultimately, reduced to lead to greater success.

Immediate Jeopardy

Wally NelsonBy: Wallace Nelson, Jr., Vice President

The Centers for Medicare and Medicaid (CMS) have a classification for crisis situations in which individuals’ health and safety are put at risk. This classification is called Immediate Jeopardy. Immediate jeopardy can have a significant impact on the financial and social reputation of all long term care facilities. The reason for this is an obvious one. By definition, immediate jeopardy is a situation in which the provider’s noncompliance with one or more requirements of participation has caused, or is likely to cause, serious injury, harm, impairment, or death to a resident.

Guidelines are put into place to assist Federal and State Survey and Certification personnel and Complaint Investigators in recognizing situations that may cause or allow for immediate jeopardy so that they can be corrected. These guidelines apply to all Medicare/Medicaid certified providers, suppliers and facilities. Surveyors play the role to investigate potential immediate jeopardy situations for the sake of the health and safety of residents within these entities. There are also associate triggers that assist surveyors with investigations in their consideration of whether a situation can be constituted as an immediate jeopardy case.

With increased inspections, more citations are being issued. This is not an indication that facilities are getting worse, but rather that inspectors are now finding more problems that were there to begin with. The identification and removal of immediate jeopardy is the main goal of the survey process and long term care facilities should be aware of the potential losses that may occur so that prevention can be the first line of defense.

Here are some items that are essential when determining whether a situation will be considered an immediate jeopardy by a surveyor (this list is not all inclusive):

  • Only one individual needs to be at risk,
  • Serious harm, injury, impairment or death does not have to occur before considering immediate jeopardy,
  • Psychological harm is as serious as physical harm,
  • Serious harm can result from both abuse and neglect.

It is important that case-by-case situations be viewed in such a way as to reduce the risk of putting residents in danger and thus reducing the potential of Immediate Jeopardy. Some states are beginning to make inspection reports accessible to the public along with the citations that long term care facilities receive from state and federal regulators. These citations can be detrimental to the social reputation of these entities, but should make facilities think more about the bigger problem of compliance issues.

Immediate Jeopardy can be costly and should play an integral part in the operations of all facilities in order to provide the best care possible while staying complaint with state and federal regulations.

Market Trends in Insurance: Hard and Soft Markets Explained

By: Tosha Revell, Benefits Consulting Account Manager

Economists study consumer behaviors, but it is up to sociologists and psychologists to help explain why we buy what we do. When deciding what to buy at any given time, you will most likely consider your ability and willingness to buy a product. The utility, or total satisfaction of a product, will help you make your decision.

All industries go through cycles of ups and downs, and the insurance industry is no different. There are two defining cycles in which the insurance industry can determine what rates to impose and how much capacity is available at a given time for insurance in the market place. These two cycles are the hard market and soft market.

Characteristics of a soft market:

  • Lower premiums
  • Broader coverage
  • Available and reduced underwriting
  • Easier to obtain insurance
  • More competition among carriers

Characteristics of a hard market:

  • Higher premiums
  • More underwriting
  • Harder to obtain insurance
  • Less competition among carriers

So are we in a hard or soft market? There is some controversy surrounding this subject. Some would say that we are in a hard market or fast approaching one currently. However the evidence still does not prove that is actually true. According to economist there are four things that must happen before we reach the hard market.

  1. The insurance industry would have gone through a period of large underwriting.
  2. We must see a decline in capacity, or the ability to provide insurance.
  3. The cost of reinsurance would rise considerably, subsequently creating a shortage of reinsurance capital. This will take large catastrophic losses to reach. Although we are seeing some of these types of losses, we have not reached the level of hard market.
  4. We would see more pressure and restriction with underwriting and pricing.

Contrary to what some may believe, there is no concrete evidence that places us in a “hard market” today. We are, however, in an unstable economic market; this means agents and consultants must act accordingly and explain in detail the situations of their clients. Businesses should be looking to appropriately manage their risk at higher levels than they have done in past years.

One of the major components of managing risk starts first with identifying the risks you have. Once you have thoroughly assessed what your risks are, speaking with a insurance professional who can help implement the most effective way to reduce your loss frequency is key. This makes your risk less surprising and more predictable. It is also a good idea to see how each risk differs from each other, this way you can determine the best possible solution on how to insure the risk at hand.

MOD Control: Why Hiring And Wellness Pick Up Where Safety Can’t

Brandon MillsBy: Brandon Mills, RHU, Sales Executive

Work-related injuries are an epidemic for companies worldwide.  As a result, “Experience Modification Rates,” often referred to as MODs, are increasing. MODs are used by insurance companies to gauge both the cost of injuries and future chances of risk. The lower your MOD, the lower your workers’ compensation insurance premiums. Depending on your company’s experience, your MOD can either reward or penalize you.

Most companies’ knee-jerk reaction to this problem is to audit current safety measures and implement standard solutions, including safety manuals, loss control assistance, safety training and return-to-work programs with a bank of light duty jobs.  While these are all proactive steps toward reducing the likelihood of a workplace accident, companies are missing the bigger picture. Well chosen, healthy employees are the roots of a safe workplace.

Strategic hiring practices and the implementation of workplace wellness programs are consistently and mistakenly overlooked when it comes to addressing workplace safety.   It is no secret that any company can hire its next workers’ compensation claim, and healthy employees bounce back from injuries faster and better than unhealthy employees. With that in mind, it is time employers take responsibility for hiring great workers and helping them get and stay healthy.

Here are some tips for proactively addressing safety from a human resources perspective:

  • Job Posting and Advertising – Post jobs like a marketer!  Your goal here is to ensure the best, most qualified candidates are able to find and apply for your open positions.  Ensure that your job descriptions include the essential functions of the job so candidates can pre-screen themselves and not apply for a position they cannot physically perform.
  • Pre-Employment Screening – Although the following are more standard pre-employment processes, they are critical parts of the hiring process to remember.  
    • Drug Tests – Each employee should be drug tested prior to employment.  This process must be consistently enforced amongst all employees so as to not discriminate.  A healthy employee is a drug-free employee, and a drug-free workforce will encourage a safe and healthy company culture.
    • Background Checks – Although conducting background checks does not contribute to the wellness of employees, it contributes to the overall mission of a strong safety culture.
    • Post-Offer Physicals – Each new hire should undergo a physical before starting work to ensure that they are capable of performing the job’s essential functions. This will reduce the likelihood of workplace injuries.
  • Standard Interviewing Guidelines – Having a standard set of interviewing guidelines for all managers to follow ensures not only a non-discriminatory hiring practice, but a practice that assesses all candidates for their ability to contribute to your corporate culture of health and safety.
  • Physician Relationships – Establishing a relationship with a physician is beneficial for both new employees and those returning after a workers’ compensation claim. This relationship can ensure consistency and conformity in the evaluation of employees returning to work while simultaneously controlling the cost of physicals and workers’ compensation.
  • Workplace Wellness Programs – A well-implemented wellness program can contribute to the health and longevity of employees.  It can focus on everything from weight loss, to analysis and education of comprehensive health screenings for potential risks.   This program ensures that employees are healthier, less likely to have a workplace accident and able to stay at the company longer.

The bottom line is that it all boils down to culture. When your corporate culture is established as focusing on the health and safety of employees, policies and procedures are developed to further promote that culture.  For it to work, everyone from management to interns needs to participate and contribute.  

Do you have any Human Resources strategies not listed here for lowering your MOD and reducing workers’ compensation costs?

The Importance of Understanding How Our Industry Protects Itself

By: Janet Srock, AAI, CISR, Commercial Lines Account Manager

When it comes to insurance, stability and reliability are necessary to provide a sense of security to insured individuals and financial institutions. Here in North Carolina, our Insurance Commissioner and the Department of Insurance (DOI) monitor the financial condition of insurance companies that conduct business within the state. The DOI ensures that insurance carriers have sufficient assets to pay claims and to fulfill their fiduciary responsibilities and obligations to the state’s policyholders. If a carrier does not meet these requirements, it is considered insolvent, based on a regulation known as the Financial or Solvency Regulation.

How are insurance companies regulated?

  1. Companies become licensed to transact business only after proving to the DOI that they have enough capital and reserves to meet the North Carolina legal requirements.
  2. The DOI reviews and analyzes both quarterly and annual financial statements that are filed by the insurance companies. With this review, the DOI can determine which carriers are not meeting the requirements and indicate warning signs of financial positions that need to be addressed and improved.
  3. The DOI periodically conducts financial audits of insurance companies licensed to transact business in North Carolina.
  4. If the DOI sees a “troubled company” (one that has developed financial problems), the DOI will monitor it and require corrective actions. A “troubled company” sometimes becomes insolvent if it is unable to return to financial health. When this occurs, the Commissioner of Insurance takes on the role of the “liquidator,” and is responsible for paying claims out of available company assets to the extent possible.

There are two non-profit guaranty associations in North Carolina: the North Carolina Life & Health Insurance Guaranty Association (for life insurance, health insurance and annuities) and the North Carolina Insurance Guaranty Association (for property and casualty insurance). These guaranty associations protect North Carolina policyholders from severe financial loss and delayed claim payments if an insurance company becomes insolvent. There are limits on how much each guaranty association will pay per claim and in total (per policy and per policyholder).

Each licensed insurance company in North Carolina is required to be a member of one of the guaranty associations, which obtain funds from two sources: 1) assessments paid by solvent member companies and 2) remaining assets of insolvent insurers.

All 50 states and Washington, D.C., have guaranty associations, which are just another way our industry protects itself and our policyholders. Because the insurance industry is so well connected and regulated, policyholders can be confident that they are protected for the future.

Just a Reminder: The Form F in North Carolina, which outlines the risks for obtaining a policy through a non-licensed insurance company, states that “In the event of insolvency of the insurance company, losses under this policy will not be paid by any State insurance guaranty or solvency fund.”

Five Things to Know About Terrorism & Insurance

By: Janet Srock, AAI, CISR, Commercial Lines Account Manager

With all of the news these past few weeks regarding the bombings at the Boston Marathon, it is a relevant time to discuss how insurance is affected by acts of terrorism. First, it is most important to note that many insurance policies exclude coverage for damages as a result of acts of terrorism. At the time this blog was written, it had not yet been determined whether or not the Boston Marathon bombings were declared an act of terrorism as defined below, as situations have to meet very specific criteria. Even if on the surface, an event seems to be an obvious act of terrorism, this may not be the case.

Below is a list of the five things everyone should know about the additional, and oftentimes overlooked, risks that acts of terrorism can bring upon your family or business.

  1. What Is Terrorism? Insurance policies have a very specific definition of terrorism, the understanding of which being critical for determining what acts are considered to be terrorism during coverage determinations. Terrorism is defined by the following ISO definition: “a violent act or an act that is dangerous to human life, property or infrastructure that is committed by an individual or individuals and that appears to be part of an effort to coerce a civilian population or to influence the policy or affect the conduct of any government by coercion.”
  2. How Do I Know If Terrorism Has Occurred? Certified Acts of Terrorism are acts that are certified by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General of the US, to be acts of terrorism pursuant to the federal Terrorism Risk Insurance Act (TRIA) of 2002. In order to be considered a “certified act of terrorism,” the act must have been committed by an individual(s) as noted above and the total loss must exceed $5,000,000. The Reauthorization Act of 2007 changed this to include acts by persons with no foreign affiliation. Additionally, the program trigger increased to $100,000,000 in 2007 and remains so today. This act is extended through Dec. 31, 2014.
  3. Does My Insurance Cover It? As noted above, many policies have what is called a Terrorism Exclusion, meaning that, should a cause of loss be deemed that of terrorism, your losses resulting from that act are not covered. However, you can request that your policy includes coverage for terrorism, but that typically requires payment of additional premium.
  4. How Does It Work? An insurance company must pay a deductible before federal assistance becomes available. This deductible is based on a percentage of direct earned premiums from the previous calendar year and has increased to 20 percent as of 2007. The insurer is also responsible for 15 percent of the loss above the deductible amount. Losses that are covered by the program are capped at $100 billion above this amount and Congress is to determine procedures and the source of funds to pay for losses in excess of $100 billion. For example: a commercial lines direct written premium for 2011 was just under $154 billion excluding auto (not part of TRIA under the 2005 extension); so the deductible was about $31 billion, and we would be responsible for the 15  percent of the loss exceeding that deductible. 
  5. What Do I Do If Faced With A Potential Terrorism Loss? Losses resulting from acts of terrorism should be treated just like losses from other, more standard, perils such as natural disasters. Before a loss, be sure to conduct a thorough inventory of your belongings. After a loss, call your insurance company to report any losses. They will then work to determine whether or not your loss was due to a true act of terrorism, as defined above, and whether or not that loss is covered.

Acts of terrorism are tragic events. Ensuring that you are making educated decisions regarding your coverage options can help alleviate some of the tragedy after the event occurs. Insurance companies nationwide want consumers to make educated decisions to reduce the financial turmoil caused by the statement “I thought I had coverage for that.”