Insurance Q&A

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Wednesday, September 28, 2005

Insurance Industry Update #2 on Hurricane Rita


Jeffrey Brewer





September 27, 2005

Insurance Industry Update #2 on Hurricane Rita

CHICAGO – As insurance professionals are gaining more access to areas affected by Hurricane Rita it is becoming increasingly clear that the damage to Louisiana and Texas from Hurricane Rita was substantial. Due to extensive flooding and other damage that resulted from Rita, access to some areas of both states continues to be restricted. On a positive note, the Federal Emergency Management Agency (FEMA) and state government officials have insurance information centers open in both states to help victims of Katrina and Rita. These centers are an important first step in getting the claims process started for many residents.

In an effort to keep the public abreast of the latest insurance-related developments, the Property Casualty Insurers Association of America (PCI) is continuing to collect information from its member companies that write both personal and commercial insurance policies in the affected areas, as well as from state insurance regulators and other officials.

Here is the most up-to-date information regarding the most frequently asked questions about the storm:

Business Interruption Coverage - Business interruption insurance may prove to be of great assistance to the hundreds of businesses forced to close due to damage caused by Hurricane Rita. Business interruption insurance protects the profits that an owner would have earned if the business remained open, and it can also provide paychecks for employees while the business is shut down. With the large scale flooding, power outages and property damage in the affected areas, business interruption losses should be expected on a large scale, although specific numbers are yet to be determined. PCI can walk you through the basics of how this coverage works.

Flood Insurance - In the aftermath of Hurricane Katrina there has been increased attention focused on distinctions between wind damage and flood damage. When a home is flooded, a standard homeowners policy will not cover the damage. A separate flood policy is needed that is offered by the National Flood Insurance Program (NFIP). This policy covers direct physical losses by flood. Since the areas affected are now designated natural disaster areas, if a property owner does not have flood insurance, the Federal Emergency Management Agency (FEMA) may be able to provide some financial assistance to help with the cost of the damage. Assistance can be provided either by loan or cash grants. PCI has experts on this subject that can answer questions regarding these coverages.

Use caution in hiring a contractor - For homeowners who are able to begin the rebuilding process following Hurricane Rita, the Property Casualty Insurers Association of America (PCI) urges them to use caution in hiring a contractor or other workers to help repair and clean up storm damage. As the rebuilding process gets underway, unlicensed contractors and scam artists may be looking to cash in on the misfortune of property owners. Consumers who see or experience fraudulent practices can report these situations to the local authorities and the National Insurance Crime Bureau at 1-800-TEL-NICB (800-835-6422). PCI can offer tips on how to avoid being ripped off.

PCI has spokespersons and subject matter experts available for print and broadcast interviews from Chicago-based studios. Please contact Joseph Annotti at 847-553-3604, or Jeffrey Brewer at 847-553-3763, to arrange an interview.

PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $184 billion in annual premium, 40.7 percent of the nation’s property/casualty insurance. Member companies write 50.8 percent of the U.S. automobile insurance market, 39.6 percent of the homeowners market, 33.5 percent of the commercial property and liability market, and 41.6 percent of the private workers compensation market.


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Locking out auto theft

by Terry Troy, Free lance Writer

Is it possible to manufacture a theft-proff automobile? Frank Scafidi, spokesperson for the National Insurance Crime Bureau in Talos Hills, Ill., doubts it. But he admits it might be getting a bit closer.

Scafidi's company, nationally recognized in the field of insurance fraud investigation, has some figures to back up his assertion.

"Preliminary data we have from the FBI for 2004 indicates that car theft nationally is down 2.6 percent," he says.

Having said that, he quickly adds that car theft was actually up in each of the preceding four years.

"even given that," Scafidi says, "we have the feeling the American driver may finally be getting the message. Our statistics show that the great preponderance of vehicle theftstake place because of driver carelessness. Leaving the car unlocked. Leaving keys in the ignition. Sometimes even leaving the enginge running. How helpful can you get? Those are actions that no anti-theft device can overcome."

But at the same time, Scafidi adds, more sophisticated anti-theft devices serve a valuable purpose. Their mere presence emphasizes the importance of driver care. One reason for Scafidi'sbasic optimism is that many car makersnow offer anti-theft devices as standard on new cars, rather than what was once an expensive option.

Daryl Kirchner, sales manager at Joe Firment Chevrolet on Route 57 in Lorain County, says that On Star positioning systems are now standard, at least for the first 12 months, on most Chevrolet models. While On Star doesn't in itself prevent theft, a vehicle so equipped can be tracked virtually anywhere on the globe, greatly speeding up vehicle recovery time. On Star simultaneously offers important driver safety features in notifying the authorities in the event of accident or breakdown.

More specific anti-theft devices are the so-called "Smart Keys." These ignition keys are equipped with an embedded computer chip. Without your personal key in the ignition, no gas can flow to the engine.

"It would take a master mechanic hours of effort to disconnect this system, so the car could not be hot-wired," Kirchner says.

And as any police department will tell you, professional car thiefs depend on getting your car going in 60 seconds.

According to Ed Babcock, owner and dealer principal of Junction Auto Group in Chardon OH, alarm systems are now standard on a number of Buick and Pontiac models, including the new Buick Lucerne. Such systems trigger a horn blast if any attempt is made to force entry.

Mike Kepich, service manager at Lakeshore Chevrolet in Cleveland OH, takes a very hands-on approach to antitheft devices.

"Back in the 70's, when I started out in this business, " Kepich says, "probably as much of our service time was taken by making repairs caused by auto theft. Today it's a very small margin of our business. As a matter of fact, in many instances, car thiefs have no intention of stealing the car itself. What they are after in many cases, is the sound system."

So GM has come up with what Kepich calls "Delco lock".

"Quite simply with Delco Lock, the sound system, if removed, will not function without its own power source, so the resale value of the sound system is nil."

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Saturday, September 10, 2005


From the American Insurance Association


Contact: Julie Pulliam
(404) 261-8834


AIA Brochure Provides Timely Tips

ATLANTA, Sept. 7, 2005 - Now is the time for consumers living in states threatened by hurricanes or their aftermath to ensure that their homeowners’ insurance policies provide sufficient coverage. The American Insurance Association (AIA) has developed an easy-to-read brochure for consumers to use in conducting an annual insurance check-up.

“Hurricane Katrina’s devastation serves as a powerful reminder that consumers who live in coastal states as well as inland areas prone to flooding should review their homeowners’ policies, and then call their insurance companies or agents to discuss whether they have adequate coverage for their property and personal belongings,” said Eric Goldberg, AIA assistant general counsel. “Last year’s Atlantic hurricane season was one of the most destructive in recent history, causing $23 billion in insured damage. Unfortunately, the 2005 season may be even more costly. The good news for consumers still untouched by threatening weather is that they still have time to conduct a thorough insurance check-up.”

The bad news is that a majority of homeowners don’t have adequate insurance. Marshall & Swift/Boeckh, a company that provides property valuation services to the insurance industry, estimated that last year 61 percent of U.S. homes were underinsured by an average of 25 percent of what it would cost to rebuild them. In determining adequate coverage, consumers need to pay special attention to current construction costs and building code upgrades in their area, take into account home upgrades or remodeling, and be aware of limits or exclusions in their homeowners’ policy.

Completely reviewing homeowners’ policies is a good idea not just for coastal residents, but also for consumers in inland areas that are prone to flooding. The 2005 hurricanes have brought coastal flooding due to storm surge, inland flooding like that experienced in New Orleans, as well as flooding at higher elevations as the storms have brought heavy rainfall to locations hundreds of miles from the coast. A separate flood policy, available from your insurer or from the federal government, is required to cover damage due to water intrusion.

AIA suggests consumers take the following steps in conducting an insurance check-up:

  • make sure your coverage limits are adequate enough to enable you to repair or rebuild in the current building market;
  • create an up-to-date home inventory of personal belongings, and consider purchasing extra coverage for expensive items;
  • if you live in a coastal area, know what your windstorm deductible is, either a flat dollar amount or a percentage of the insured value of your home; and
  • consider buying flood insurance, which must be purchased separately from a homeowners’ policy.

“A homeowners’ policy is a contract between the policyholder and the insurance company. The insurer understands the terms and conditions of the contract – the policyholder should, too,” said Goldberg. “Your insurance agent or company representative will be happy to walk through your policy and answer any questions you may have. Completing an annual insurance check-up today could be much less costly than waiting until after a storm strikes to discover that you don’t have adequate coverage.”

A copy of AIA’s hurricane season insurance check-up brochure can be accessed on AIA’s home page under the State Section:

# # #

The American Insurance Association represents over 435 major insurance companies that provide all lines of property and casualty insurance and write more than $120 billion annually in premiums. The association is headquartered in Washington, D.C., and has representatives in every state. All AIA press releases are available at

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Should Insurers Be Allowed to Deny Hurricane Katrina Claims?

From the Foundation for Taxpayer and Consumer Rights:

September 8, 2005

CONTACT: Doug Heller, (310) 392-0522 ext. 309

Insurers Should Not Be Allowed to Deny Hurricane Katrina Claims Based on Flood Exclusion

Consumer Advocates Provide Insurance Claims Tips For Katrina Survivors, Call on Elected Officials to Speak Out

Santa Monica, CA -- Insurance companies should pay claims for all Katrina survivors who have an insurance policy with hurricane coverage, advocates with the California-based nonprofit Foundation for Taxpayer and Consumer Rights (FTCR) said today. Some companies have begun informing policyholders that they will be denied coverage because their damage is from flooding rather than the hurricane. The majority of hurricane survivors do not carry flood insurance. According to FTCR, the strong wind of Hurricane Katrina was the obvious and principal cause of the storm surge and the primary reason for the flooding and should be covered by insurers under the homeowner/wind coverage policies that most homeowners in the Gulf Coast and New Orleans purchase.

FTCR said that in the wake of the nation's worst natural disaster and at a time when insurers' profits and reserves are at thirty year highs, the insurance industry should not force policyholders to have to go to court in order to have their claim paid.

"In a time of such extraordinary need, insurance companies are turning their back on hurricane survivors to protect and trying to wiggle out of their responsibility to their customers," said FTCR¿s Executive Director Douglas Heller. "Katrina survivors have paid premiums all these years in preparation for this disaster only to find their insurance companies playing language games about whether or not to blame Katrina for the damage. The fact that survivors may have to go to court to fight for their rights at a time like this is shameful."

FTCR provided a series of claims tips for Katrina survivors and is calling on government officials to step in and demand that insurers pay survivors' claims. The group also is collecting stories from Katrina survivors about their frustrations and problems with insurance companies at

The consumer organization provides the following basic tips for Katrina survivors:

- Contact your agent or insurance company as soon as you can and tell them that you sustained losses and will file a claim;
- Get a copy of your policy from your insurer if you do not have it;
- Ask your agent or insurer what the timeline is for filing a claim under your policy, to make sure you do not miss any deadlines;
- As much as possible, document your losses with photographs and video;
- Take careful notes of every conversation you have with your insurer, agent or insurance adjuster;
- Be an assertive policyholder: if you are having problems with your adjuster or the insurer, complain in writing, copy letters to the Department of Insurance and if you feel you are being unfairly low-balled or denied, contact an attorney.
- Do not sign any "releases" or waivers of your rights without first checking with an expert, such as an attorney with insurance experience, who is independent of the insurance company.

60% of Survivors May Not Have Flood Insurance

According to reports, as many as 60% of homeowners in New Orleans and the Gulf Coast do not have flood insurance and would be denied much or all of their claim, if customers are not allowed to claim the damage as hurricane damage. FTCR has heard from family members of military personnel who were originally told they did not need flood insurance on the coast of Mississippi and that their hurricane insurance would be sufficient to cover their risk, but are now be denied coverage because the storm surge is allegedly covered by flood not hurricane insurance. Similarly, homeowners from New Orleans who have contacted FTCR point out that the only reason the levees broke and their homes were damaged was because of Hurricane Katrina and if it was not a category four or five hurricane, their homes would not have been destroyed.

"To get out of paying claims by arguing that flooding caused the loss and not the hurricane is the moral equivalent of letting a murderer off the hook because it was actually the bullet that killed the victim," said Heller.

Insurer Profits and Surplus at Record Levels

Insurers' quick denials of Katrina claims is made even more shameful in light of the industry's record profits in recent years, FTCR said. The insurance industry's 2004 profits shattered results of the past three decades, according to insurance company data released earlier this year in a special report by A.M. Best.

Property and casualty insurers netted $40.5 billion in profits and increased the industry surplus to more than $400 billion in 2004, the data show. The statistics show that, for the first time since 1978, insurers profited from their policy sales (known as underwriting) even before accounting for $41 billion in investment earnings. Because insurers are allowed to invest policyholders' premiums and reap the returns, insurers make their profit from these investment returns and not from underwriting, as had been the case every year since 1978. In 2004, the industry had approximately $800 billion in policyholder premiums and surplus with which to invest.

"The customers who have built these profits for insurance companies deserve, at the very least, fair dealing from their insurer in this time of extraordinary need," said Heller.

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Friday, September 09, 2005

Common Questions on Homeowners

Q: What is a homeowners policy?

A: A homeowners policy protects your home against fires and theft.
Q: Are all homeowners policies alike?

A: No, there are a number of different policies and it is important to choose the one that is right for you.
Q: Does a homeowners policy also protect my home against floods?
A: No! Floods are excluded in most homeowners policies. However, Flood Insurance policies can be purchased to protect you from flood losses.
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