Archives for the ‘Commercial Property’ Category

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No Comments August 8th, 2017 Commercial Property, Latest News, Storm Preparation

Flood Insurance Reforms Loom In Florida

 Florida wades deeper into hurricane season as the debate heightens over what to do with the deeply indebted National Flood Insurance Program and its coverage of properties prone to repeated flooding.

The Sunshine State ranked fourth nationally in damages paid by the national program to rebuild homes and businesses that have suffered repeated and severe flood losses, according to a recently released report by the National Resources Defense Council. The group has urged a house-buyout program for flood-weary residents, rather than bailing them out time and again.

In Florida, more than 1,600 properties have flooded an average of five times since 1978, according to the council’s review of data from FEMA. Flood potential remains a risk as Central Florida’s lakes continue to rise with daily afternoon-storm deluges — even with more than three months left in hurricane season.

The nation’s flood-insurance piggy bank is set to expire in late September — potentially hitting a state with about a third of the country’s 5 million policies. If it ends, no new policies would be written and hme sales requiring flood insurance could suffer. Facing $24 billion of debt, the program faces calls for an end or overhaul.

Lake County resident Dolores Blood owns a Debary-area rental duplex that flooded with several feet of water in 2008 when parts of Volusia County were inundated with unusually high rainfalls.

“The insurance works for property where flooding isn’t expected but it should not cover places known for being under water repeatedly. If you live on the beach, then you pay a premium,” said Blood, who saw her flood insurance rates double last year almost a decade after getting $82,000 for each of two duplex buildings that flooded.

The National Resources Defense Council  just proposed a plan allowing repeated flood victims to sign up for a buyout program prior to the next flood. If high waters then damage their property, FEMA would fund local governments to purchase the flood-prone home or business and demolish them to provide more open space.

“The National Flood Insurance Program was designed to help Americans recover from flood disasters, but it can also unintentionally ‘trap’ homeowners who would prefer to move somewhere safer,” stated a spokesman for the council. ”Instead of moving, many policyholders find themselves rebuilding their homes again and again.”

Other plans call for shifting the insurance program to the private sector. In addition, Sen. Bill Nelson co-sponsored bi-partisan legislation to extend the program six months and cap premium increases at 10 percent — down from 25 percent currently.

 

Source: Emergency Management

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No Comments July 25th, 2017 Commercial Property, Latest News

Determining Apartment Building Risk

Ideally we all would like to know the amount of risk involved before making a decision.

That’s why we evaluate the side-effects before trying out a new medication, check online reviews before eating at a restaurant or check a vehicle’s motor history before purchasing a used car. It’s safe to say that knowing certain information pertaining to risk helps us to understand what we’re really getting ourselves into, especially as it pertains to investing in rental property.

Knowing the true risk of a rental property reduces losses even when unexpected events occur. Historically, commercial underwriters have approached the problem of assessing risk with a mixture of tactics such as: Examining prior losses, reviewing ownership information, and weighing historical property characteristics in addition to other external risk factors that may play a role, such as local crime rates.

An underwriter may review the property using an internet search for pictures of the property and by obtaining residents’ reviews or complaints about property management. Underwriters may also issue a loss control inspection to review the roof, property maintenance and other potential hazards to assist in the overall property risk assessment.

However, without incorporating resident data into the underwriting process, it’s hard to paint a comprehensive picture. That said, insurers can gain valuable insight to assess the risk for every property by using predictive analytics. Here are some tips to consider during the underwriting process.

The Current Process

Some insurers will manually review rental rates to determine the quality of the resident risk. However, rental rates do not give a clear picture because they can vary significantly by region and do not precisely assess the residents’ overall risk profile. Reliance on benchmark pricing to determine an overall rate also requires understanding an area’s price points.

Next Steps

Today’s habitational insurance market is similar to the 1980s homeowners’ market when the industry relied on property characteristics and inspections for pricing and underwriting information. The homeowners’ industry learned that one of the most important underwriting factors, the resident owner, was missing from their pricing and underwriting process. As a result, the industry made huge segmentation gains from the creation of insurance scores based on the resident (or owner’s) credit.

New technology and real-time resident data can help commercial residential insurers aggregate information such as the occupants’ ages, the age distribution for the entire property and the average occupant tenure. Then, a tenure distribution can be performed to identify residents at a given address, enabling commercial underwriters to obtain a single aggregated risk profile of the residents. Now the insurer has the entire picture, which includes a risk score, average age and tenure to weigh into the model.

Determining Insurance Risk

A property usually displays a complex combination of insurance risks. A multi-resident property can include good insurance risks, poor insurance risks, or any mix of the two. Unlike personal credit lines that rely on a single report, the system must account for the overall mix of residents in determining the insurance risk. For example, 90% of the residents in an apartment building could have excellent credit-based insurance scores and 10% could have poor credit-based insurance scores compared to a property where all residents produce average scores. When comparing the risk factors for both, the question becomes – which of these apartments is riskier? A habitational risk score can segment these two different properties and provide a clear assessment of the insurance risk.

Based upon an internal analysis, policies scoring in the riskiest 10% score group have loss ratios approximately 50% higher than an average loss ratio, and they are two to three times higher than policies scoring in the best 10% score segment. The loss ratio results will vary by region and carrier depending on their overall rate adequacy and loss peril mix.

A habitational risk score is most effective at pricing for what appears to be similar properties on the outside but have wholly different risk factors on the inside.

An Example Of Hidden Risk

While the apartments pictured on the previous page appear to be very similar in age, construction and rental value, they present very different risks based on the resident data. The apartment that scored 840 has the best risk and could qualify for the best rate. If all three apartments were rated about the same, the insurer using the habitational risk score would be able to better price these risks, particularly if the benchmark pricing was being used previously. The insurer not using the habitational risk would write the insurance for the poor insurer scores, resulting in adverse selection.

How often do scores change? For renewal scores, three in four properties do not change radically year over year. The properties that are more likely to be subject to changes in scores are generally smaller properties.

A Comprehensive Picture Of Risk

Commercial residential property insurers have attempted to use loss control inspections as a means to assess risk caused by the behavior of occupants, but inspections are ineffective at measuring the total insurance loss potential. Residential data, flowing from improved technology tools, has a significant impact in the commercial residential market, in line with the impact that insurance scores had on personal lines in an earlier era. This trend allows insurers to more accurately price commercial risk, a substantial win for the industry and the customers they serve.

 

Source: Property Casualty 360

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No Comments July 18th, 2017 Commercial Property, Latest News

A New Era In Commercial And Specialty Insurance

When people hear about property and casualty (P&C) insurance, they often think of the highly-marketed personal lines brands like State Farm, Geico, Allstate or Progressive.

The reality is that commercial lines have the edge in P&C dominance. In the U.S. Market, 2015 P&C commercial lines direct written premium (DWP) was $295B, representing 50.6% of the total P&C market. The Insurance Information Institute expects overall personal and commercial exposures to increase in the 4.0% to 4.5% range in 2017, but cautioned that continued soft rates in commercial lines could cause overall P&C premium growth to lag behind economic growth. These numbers reflect to a great extent the range of “traditional” P&C products that have been in the market for years or decades.

But disruption and change is reshaping industries and the businesses within them that use “traditional” P&C products. It is creating both challenges and opportunities. As a challenge, just consider insurers with personal and commercial auto. Pundits are predicting a rapid decline in personal auto premiums and questioning the viability of both personal and commercial auto due to the emergence and adoption of autonomous technologies and driverless vehicles, as well as the increasing use of alternative options (ride-sharing, public transportation, and so on).

Finding alternative growth strategies is “top of mind” for CEOs. Opportunities for alternative growth strategies can be captured from the disruption and change within commercial and specialty insurance. New risks, new markets, new customers, and the demand for new products and services may fill the gaps for those who are prepared.

Majesco‘s new research, A New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption, highlights how changing trends in demographics, customer behaviors, technology, data and market boundaries are creating a dramatic shift from traditional commercial and specialty products to the new, post-digital age products redefining the market of the future.

Growth Opportunities

New technologies, demographics, behaviors, and more, will fuel the growth of new businesses and industries over the next 10 years. Many of these businesses will grow within completely new industry types, setting the stage for new insurance market expansion. Commercial and specialty insurance provides a critical role to these businesses and the economy — protecting them from failure by assuming the risks inherent in the production and delivery of goods and services.

Industry statistics for the “traditional” commercial marketplace don’t yet reflect the potential growth from these new markets that may still need tra­ditional insurance, but also may need new types of insurance. It is a diverse group that embraces new technologies, social shifts, demo­graphic shifts, new economies, and more, focused on narrow segments that will increasingly demand niche, personalized products and services. Many do not fit neatly within pre-defined categories of risk and products for insur­ance, creating opportunities for new commercial insurance products and services.

Small and medium businesses are uniquely at the forefront of this change and at the center of new business creation, business transformation and growth in the economy.

By 2020, more than 60% of small businesses in the US will be owned by Millennials and Gen Xers — two groups that prefer to do as much as possible digitally. Furthermore, their views, behaviors and expectations are different than those of previous generations, and will be influenced by their own personal digital experiences.

The sharing/gig/on-demand economy is an example of the significant digitally-enabled changes in people’s behaviors and expectations that are redefining the nature of work, business models and risk profiles.

The rapid emergence of new technologies and the explosion of data are combining to create a magnified impact. Technology and data are making it easier and more profitable to reach, underwrite and service commercial and specialty market segments. In particular, insurers can narrow and specialize various segments into new niches.  In addition, the combination of technology and data is disrupting other industries, changing existing business models, and creating new businesses and risks that need new types of insurance.

New products can be deployed on demand, and industry boundaries are blurring. Traditional insurance or new forms of insurance may be embedded in the purchase of products and services.

InsurTech is re-shaping this new digital world and disrupting the traditional insurance value chain for commercial and specialty insurance — fostering the creation of new products and new channels. They are already helping small business owners to find and purchase unique, specialty protection for a new era of business.  Just consider InsurTech Startups like Embroker, Next Insurance, Ask Kodiak, CoverWallet, Splice, and others.  Not being left behind, traditional insurers are creating innovative business models for commercial and specialty insurance like Berkshire Hathaway with biBERK for direct to small business owners; Hiscox, which offers SBI products directly from its website; or American Family, which invested in AssureStart, now part of Homesite, a direct writer of SBI.

The Domino Effect

We all likely played with dominoes in our childhood, setting them up in a row and seeing ‘hands on’ how we could orchestrate a chain reaction. Now, as adults, we are seeing and playing with dominoes at a much higher level. The domino effect, or chain reaction between events, is being played out in today’s fast-paced, ever-changing world.  Every business has or will likely be impacted by a domino effect.

What is different in today’s business era, as opposed to even a decade ago, is that disruption in one industry has a much broader ripple effect that disrupts the risk landscape of multiple other industries and creates additional new risks. We are compelled to watch the chains created from inside and outside of insurance. Recognizing that this domino effect occurs is critical to developing appropriate new product plans that align to these shifts.

Just consider the following disrupted industries and then think about the disrupters and their casualties: Taxis and ridesharing (Lyft, Uber), movie rentals (Blockbuster) and streaming video (NetFlix), traditional retail (Sears and Macys) and online retail, enterprise systems (Siebel, Oracle) and cloud platforms (Salesforce and Workday), and book stores (Borders) and Amazon. And consider the continuing impact of Amazon with their announcement of acquiring Whole Foods last week and the significant drop in stock prices for traditional grocers. Many analysts noted that this is a game changer with massive innovative opportunities.

The transportation industry is at the front end of a massive domino-toppling event. A report from RethinkX, The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries, notes that by 2030 (within 10 years of regulatory approval of autonomous vehicles (AVs)), 95% of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model called “transport-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the automotive industry, but also many other industries including public transportation, oil, auto repair shops, gas stations, and many others. The result is that not just one industry could be disrupted … many could be affected by just one domino … autonomous vehicles. Auto insurance is in this chain of disruption.

And commercial insurance, because it is used by all businesses to provide risk protection, is also in the chain of all those businesses affected — a decline in number of business, decline in risk products needed, and decline in revenue.  It will decimate traditional business, product and revenue models, while creating new growth opportunities for those bold enough to begin preparing for it today with different, unique risk products.

Transformation Plus Creativity Equals Opportunity

Opportunity in insurance starts with transformation. New technologies will be enablers on the path to innovative ideas. As the new age of insurance unfolds, insurers must recommit to their business transformation journey and avoid falling into an operational trap or resorting to traditional thinking. In this changing insurance market, new competitors don’t play by the traditional rules of the past. Insurers need to be a part of rewriting the rules for the future, because there is less risk when you write the new rules. One of those rules is diversification. Diversification is about building new products, exploring new markets, and taking new risks. The cost of ignoring this can be brutal. Insurers that can see the change and opportunity for commercial and specialty lines will set themselves apart from those that do not.

For a greater in-depth look at the implications of commercial insurance shifts, be sure to download, A New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption.

 

Source: Property Casualty 360

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No Comments July 11th, 2017 Commercial Property, Latest News, Storm Preparation

Three Insurance Coverages You Shouldn’t Overlook

With hurricane season upon us, property managers should sit down with their agents and review each policy. So says Jason Wolf, a shareholder at Koch Parafinczuk Wolf Susen in Fort Lauderdale.

Specifically, he says, property managers and insurance professionals should total the dollar amounts on the main policy and other policies that address windstorm, flood, storm surge and wind-driven rain.

GlobeSt.com caught up with Wolf to get his take on these facets of commercial real estate insurance.

GlobeSt.com: When it comes to policies, are flood, storm surge and wind-driven rain the same?

Jason Wolf: No. They are treated differently. The distinctions become important when a property owner or manager files a claim. (Here’s how you can prepare for the next Hurricane Wilma before it hits).

When Hurricane Katrina hit and litigation ensued, a federal appeals court ruled that the flood exclusion in insurance policies applied. That cost owners billions and billions of dollars. By excluding flood damage, owners were hit with astronomical costs in reparation.

Insurers put storm surge, which is water pushed ashore by hurricane winds, into another category. Wind-driven rain isn’t covered unless the property suffers damage that is already covered, which gets to two important points: proper maintenance and impeccable recordkeeping.

GlobeSt.com: Why are these coverages so important?

Wolf: An insurer can push back on a claim if there’s evidence that the property wasn’t kept up. For example, if wind-driven rain comes through a building opening that could have been sealed, an adjuster can argue that the damage resulted from inadequate maintenance and shouldn’t be covered. Property owners that skimp on maintenance to cut costs will find that the next hurricane will cost them a lot more than the bill for sealing windows and doors.

GlobeSt.com: And the recordkeeping?

Wolf: It’s critical to document improvements and renovations. Many developers and managers don’t know when their roof was last replaced or repaired.

When a claim is filed, the insurance company can say that a roof was in bad shape before the storm and therefore it won’t pay for a new one. Without proof, the insured will have a difficult time collecting the full amount.

Before a named storm makes TV news, property owners and managers should inventory everything, create diagrams, and take lots of video and photographs. To file an effective claim, they must be able to re-create the condition of the property before the hurricane hit.

 

Source: GlobeSt.

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No Comments June 27th, 2017 Commercial Property, Latest News, Storm Preparation

Preparing For The Next Hurricane Wilma Before It Hits

Almost a decade has passed since a devastating hurricane has hit the Southeast, memories still haunt many commercial real estate owners. Now, hurricane season is upon us again.

Globest.com caught up with Jason Wolf, a shareholder at Koch Parafinczuk Wolf Susen in Fort Lauderdale how property owners and managers whose careers began in the region in the past 10 years should prepare for the storm season. We also asked him about the repercussions that are totally unfamiliar.

GlobeSt.com: Hurricanes in 2004, 2005 and 2008 wreaked havoc on the Southeast. How bad was it?

Wolf: Katrina, Rita and Wilma were Category 5 hurricanes and Dennis was a Category 3 storm that together caused $153 billion in damage in 2005. Those figures blew past a record set the year before, when four hurricanes tore through Florida and headed north, causing $57 billion in damage. In 2008, damage from Ike totaled $37.5 billion.

GlobeSt.com: What was the effect on insurance companies?

Wolf: The storms created dire consequences on many insurance companies. Insurers stopped writing policies in states such as Florida and Louisiana, premiums skyrocketed, and restrictions proliferated. Although for the most part, the market has recovered, property and casualty policies now have multiple exclusions and higher deductibles.

GlobeSt.com: How has that affected property owners and managers?

Wolf: The impact has made it nearly impossible for property owners and managers to know what’s covered and what’s not without sitting down with their insurance agent. This applies to everyone, by the way. For anyone who has survived, there may be a tendency to get a little smug, thinking “I know what to do” In fact, the insurance industry has changed significantly in the past 12 years, and so has property coverage.

GlobeSt.com: What are the first steps a property manager or develop should take?

Wolf: Property managers should sit down with their agents and review each policy. Find out the basics: What’s covered and what’s not? What’s the deductible? Are hurricanes explicitly covered?

For example, in some coverage for hurricanes, the deductible can be up to 7% of total. On a $10 million property, that’s $700,000. Property managers and insurance professionals should total the dollar amounts on the main policy and other policies that address windstorm, flood, storm surge and wind-driven rain. But policies have different types of exclusions. Read your policy! And if you can’t understand, it, talk to your agent or your insurance company.

 

Source: GlobeSt.

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No Comments June 13th, 2017 Commercial Property, Latest News, Storm Preparation

Four Steps To Prepare Your Small Business For Hurricane Season

While Hurricane Matthew may still be fresh in the minds of many local small business owners, forecasters warn this year’s hurricane season may be worse than normal.

The National Oceanic and Atmospheric Association predicts five to nine hurricanes, two to four of which could be Category 3 or higher. Hurricane season lasts from June 1 through Nov. 30.

Small business are particularly vulnerable to the high costs of weather damages. Almost 40 percent never reopen after a disaster, according to the Federal Emergency Management Agency.

Ed Bides, information security officer and disaster recovery team member at Florida Capital Bank, offers four practical ways to ensure your business is prepared for Mother Nature.

1. Know What You Have

Catalog computers, equipment and other property as well as files and important documents. Keep a digital copy of this list, photograph important equipment and back up your documents using a cloud service.

2. Check Your Insurance Policies

Do you need business interruption coverage? Will your insurance pay what your old equipment is worth now or what it will cost you to buy new equipment? Carefully consider what your policies will do for you, and make sure you have all the coverage you need.

3. Plan Ahead

Develop a plan for how to prepare your business and personnel for severe weather. Remember that your employees will need time to prepare their homes and pick up children from school in the case of an evacuation. “There’s always room to improve,” said Bides, noting that Florida Capital Bank modifies its plan every year. Communicate your plan, so everyone is on the same page when you need them to be.

4. Know Your Disaster Recovery Options

Check the Small Business Administration website after a disaster to see if your business is in a disaster relief zone and eligible for funds.

 

Source: SFBJ

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No Comments June 6th, 2017 Commercial Property, Latest News, Storm Preparation

New Hurricane Advisories To Give Storm Preparation Deadlines

Some coastal residents always put off emergency preparations until storm clouds loom on the horizon.

The National Hurricane Center is going to try giving those people a deadline this year, issuing experimental advisories showing when tropical-storm force winds may hit particular communities to help them understand when it’s too late to put up storm shutters or evacuate.

The forecasters’ advisories will be fueled by more data than ever, thanks to new weather satellites and an expanded network of underwater gliders.

To help people understand when storm preparations should be completed, the hurricane center will experiment with advisories showing the times when sustained tropical-storm force winds are estimated to hit land. If a tropical disturbance nears shore, forecasters also could post advisories or warnings before it develops into a tropical depression or named storm.

 “The new advisories could help validate evacuation orders for people who complain about hype around approaching storms,”’ Florida’s emergency management director,” Bryan Koon, said “We can say, listen, this is when things are going to get bad in your area. We can also use that to say, a few hours ahead of that, stores are going to close, roads are going to get jam-packed with people, we might have to shut down power substations.”

Storm surge watches and warnings will be issued when U.S. coastlines are at risk for life-threatening flooding.

Shrinking Cone

The “uncertainty cone” showing a storm’s projected path shrinks again this year, with continued improvements in track forecasts. It’s still the best-known advisory released by the hurricane center, but forecasters continue to emphasize individual hazards away from the center of a storm.

On his last day as hurricane center director before returning to The Weather Channel, Rick Knabb said better data and better computer models help create a narrower cone. But that can give a false sense of security to areas outside the cone.

“Hurricane watches and warnings can extend well outside the cone. In fact, the hurricane itself can be much larger than the width of the cone,” Knabb said. “So clearly a hurricane is not just a point on the map. Forecasters will add an outline of a storm’s wind field to the graphic to help people see hurricane impacts beyond the cone.”

Intensity Forecasts

Predicting the intensity of a storm remains a challenge. Apart from improving public communications about storm hazards, the hurricane center also has been working to improve its forecasts predicting when and how much a storm will strengthen.

“It’s difficult to measure what’s happening around a hurricane’s eye – where the strongest winds swirl – or how it interacts with the ocean and the atmosphere, and that affects the accuracy of storm intensity forecasts,” said Dan Brown, a senior hurricane specialist at the Hurricane Center in Miami. “It’s a combination of everything, but oftentimes, it’s understanding what the structure of the storm is and getting that right when the computer models are first run.”

Forecasting Technology

More and better data will be streaming into those models this year, which forecasters hope will help improve their predictions for a hurricane’s intensity.

NASA launched eight mini-satellites in December to measure surface winds deep in the hearts of hurricanes. Unlike other weather satellites, the $157 million Cyclone Global Navigation Satellite System can give scientists a clear look into a hurricane’s eye even through walls of clouds and rain.

Forecasters said the $1 billion GOES-16 weather satellite, launched in November, is as significant an upgrade as switching to high-definition television, with more detailed images and more channels looking at storms.

To keep up with higher resolution forecast models, the National Oceanic and Atmospheric Administration has upgraded the Doppler radar on its hurricane hunter aircraft to give scientists a more detailed look at hurricane winds.

NOAA again will launch four underwater gliders from Puerto Rico and the U.S. Virgin Islands to collect ocean data, and this summer the agency will expand its data pool by collaborating with universities and research institutions in the U.S. and Bermuda that have up to 20 their own gliders in the Gulf of Mexico and the Atlantic.

 “Glider data has helped improve the models’ understanding of the ocean,” said Gustavo Goni, director of the physical oceanography division at NOAA’s Atlantic Oceanographic and Meteorological Laboratory. “We want to put all these efforts together to make a better analysis.”

 

Source: Claims Journal

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No Comments May 30th, 2017 Commercial Property, Latest News, Storm Preparation

Here’s What the House Has In Mind For Revamping The National Flood Insurance Program

A much-anticipated House subcommittee proposal on flood insurance promises to reauthorize the National Flood Insurance Program (NFIP) for five years beyond its September 30 expiration date.

The proposal would introduce reforms to put the NFIP on stronger financial footing; provide aid for those unable to afford coverage; improve flood mapping, mitigation efforts and claims handling; and encourage greater private insurer participation in the market.

Rep. Sean Duffy (R-Wis.), chairman of the House Financial Services Subcommittee on Housing and Insurance, said the draft was being released so that all stakeholders could provide “input into protecting the program integrity of the NFIP.”

The schedule for consideration of this or other flood insurance proposals has not yet been announced. The far-reaching draft incorporates ideas from Republicans and Democrats, advocates for consumers and taxpayers, as well as ideas from the insurance, banking and real estate industries.

“The ideas stemming from this open process will ensure that everyone who needs flood insurance will have access to it while ensuring that the NFIP does not fall further into debt,” Duffy said, referring to the $24.6 billion the NFIP owes the Treasury.

In late April, U.S. Senators Bill Cassidy (R-La.) and Kristen Gillibrand (D-N.Y.)  released their draft legislation reauthorizing the NFIP for 10 years. The Cassidy-Gillibrand legislation addresses flood insurance affordability, coverage limits and solvency issues while encouraging increased mitigation and gradual private sector involvement. It also seeks to strengthen flood mapping and claims handling.

The House measure gives the Federal Emergency Management Agency (FEMA), which administers the flood insurance program, more responsibility and authority for the program’s financial stability and operations. The House blueprint incorporates several other House proposals dealing with various aspects of the flood program. Key provisions of the Duffy draft include:

Financial Issues

Independent Actuarial Study. Require FEMA to provide for an annual independent actuarial study of the NFIP to analyze the financial position of the program based on its long-term estimated losses and transmit the results to Congress. Additionally, require FEMA to submit quarterly reports to Congress on the changing policyholder composition and risk profile of the NFIP.

Risk Transfer Requirement. Require FEMA to use risk transfer tools, such as reinsurance, catastrophe bonds, collateralized reinsurance, resilience bonds, and other insurance-linked securities, to reduce direct taxpayer exposure to insurance losses. (FEMA has already begun buying reinsurance.)

Changes To Surcharges. Increase annual surcharges from $25 to $40 for all primary residences; reduce the annual surcharge from $250 to $125 for non-owner occupied residential properties that are currently subject to preferred risk premium rates; and increase the annual surcharge from $250 to $275 for all other non-primary residences.

Reserve Funding. Increase the current National Flood Insurance Reserve Fund assessment rate by 1 percent each year until the NFIP achieves its statutorily mandated reserve ratio phase-in requirement of not less than 7.5 percent.

Multiple Loss Properties. Enhance the managing and tracking of properties with a history of multiple claims by defining a new “multiple-loss property” term to cover all at-risk properties.

Properties With Excessive Lifetime Claims. Prospectively prohibit the availability of NFIP coverage of any multiple-loss property with lifetime losses so excessive that the aggregate amount in claims payments exceeds twice the amount of the replacement value of the structure.

High-Risk Properties. No longer make available NFIP coverage for certain high-risk properties after January 1, 2021, that have other available private flood insurance options. These would include any new structures added to today’s high-risk special flood hazard areas, as well 1-4 unit residential structures where the replacement cost of the building (exclusive of the real estate upon which the structure is located) exceeds $1 million.

Allowance For Write-Your-Own (WYO) Companies. The allowance paid to companies participating in WYO Program shall not be greater than 25 percent of the chargeable premium for such coverage.

Mandatory Purchase Requirements. Increase the civil money penalties on federally regulated lenders for failure to comply with the NFIP’s mandatory purchase requirements from $2,000 to $5,000.

All-Peril Policies. Provide for the satisfaction of the NFIP’s mandatory purchase requirement for those properties located in a state that adopts a state-based requirement for mandatory “all-perils” coverage that includes flood insurance.

Additionally, reiterate that nothing in the law prohibits states, localities and private lenders from requiring the purchase of flood insurance coverage for a structure that is located outside of an area designated by FEMA as a special flood hazard area.

Private Market

In terms of encouraging a private flood insurance market the draft includes provisions to clarify that a private carrier policy outside of the NFIP satisfies mandatory purchase requirements and eliminates the restriction that currently prevents insurers participating in the NFIP’s Write Your Own (WYO) Program from also selling private flood insurance policies. It would also open the government’s flood insurance rate making and loss information to insurers and the public. Private policies would be assessed to help pay for flood mapping as NFIP policies are.

It would allow refunds to policyholders who cancel during a policy term in order to obtain a private market policy — just one of the provisions designed to encourage the private insurance market.

Affordability

Rate Increase Cap. Lowers the cap on annual rate increases from 18 percent to 15 percent and limit the chargeable risk premium of any single family residential property to $10,000 per year.

State Affordability Program. Authorizes states to voluntarily create a state flood insurance affordability program for eligible owner-occupants of single family 1-4 unit residences who are unable to pay their chargeable risk premium due to family income. Assistance can be in the form of either capping the amount of chargeable risk premium paid, or limiting the amount of premium increase on an annualized basis. The program’s cost would be recouped through an equally distributed surcharge on all other policyholders within that state.

Commercial Exemption. Eliminate the NFIP’s mandatory purchase requirement for all commercial properties, while preserving the eligibility of commercial properties voluntarily to purchase NFIP coverage if they so choose.

Replacement Cost. Require the FEMA Administrator to incorporate up-to-date replacement cost, by structure, when calculating annual chargeable premium rates, as opposed to the current practice that relies upon a national average.

Coast vs. Inland. Require the FEMA, when calculating annual chargeable premium rates, to consider the differences in properties located in local coastal and inland areas.

Mitigation Credits. Authorize FEMA to provide policyholders with credits for actions to mitigate the flood risk of their property.

Flood Mapping

Community Mapping. Allow localities to elect to use their own resources to develop their own alternatives to NFIP flood maps subject to minimum standards developed by FEMA.

Beyond Mapping. Require FEMA to use other risk assessment tools, including risk assessment scores, in addition to applicable flood rate maps when determining annual chargeable premium rates.

Map Appeals. Create a new appeals process for states, local governments, or the owners or lessees of real property who want their maps updated.

Mitigation Credits

Community Mitigation Plans. Require covered flood prone areas to develop a community-specific plan for mitigating continuing flood risks if they have 50 or more repetitive loss structures or 5 or more severe or extreme repetitive loss structures.  Communities that fail to develop or make sufficient progress in executing their plan would be subject to certain sanctions.

Community Credits. Provide communities that have joined its Community Rating System program with appropriate credits in calculating their annual chargeable premium rates when those communities implement or benefit from measures that protect natural and beneficial floodplain functions.

Property Acquisition. Authorize a pilot program to provide financial assistance for states and local communities to purchase properties located in participating communities from eligible low-income owners that have incurred substantial damage from a flood event.

Claims Handling

Fraud Penalties. Require FEMA to prohibit false or fraudulent statements connected to the preparation, production, or submission of claims adjustment or engineering reports.

Policyholder Appeals. Codify the due process protections for policyholders established after Superstorm Sandy by FEMA for individuals wishing to appeal a full or partial denial of their NFIP claim by their insurance company, and require FEMA to provide policyholders with a written appeal decision that upholds or overturns the decision of the insurer.

Deadline For Claims. Require FEMA to make final determinations regarding the approval of a claim for payment or disapproval of the claim within 90 days of the claim being made.

Write Your Own (WYO) Company Litigation. Provide FEMA with additional authorities and responsibilities for overseeing litigation conducted by WYO insurance companies acting on behalf of the NFIP. Ensure that WYO litigation expenses are reasonable, appropriate, and cost effective. Give FEMA the authority to direct litigation strategy as necessary.

Underpayment Of Claims. Align penalties for WYO insurance companies that knowingly underpay claims for losses covered to be commensurate with the NFIP’s penalties applicable to overpayment of such claims.

Technical Assistance Reports. Restrict the use of outside technical reports by WYO insurance companies and the NFIP direct servicing agents.

The draft bill follows some of the recommendations in a flood insurance report by the Government Accountability Office (GAO).

Reinsurers’ Report

On the same day that the House proposal was unveiled, the Reinsurance Association of America (RAA) released a report claiming more private sector involvement in the flood insurance market could save billions in taxpayer dollars.

RAA’s findings are based on a comparative analysis between the NFIP and Florida Citizens Property Insurance Corp., a government-subsidized property insurer that has been following a “depopulation” strategy of having private insurers assume blocks of its business, while also increasing rates and investing in reinsurance.

According to the analysis, if the NFIP took actions similar to Citizens, it could reduce taxpayer exposure by 31 percent and would decrease the additional Treasury financing required to pay losses on floods that have a 1 percent chance of occurring by 91 percent over the next four years.

“Increased competition from the private sector would not only reduce the NFIP’s size and debt, but would ensure that the federal program remains sustainable for years to come,” said Frank Nutter, president of RAA.

 

Source: Insurance Journal

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No Comments May 16th, 2017 Commercial Property, Latest News

What’s Next After ‘Massive Disruption’ From Latest Cyber-Attack? A View From The Trenches

As the cyber-attack continues to spread around the globe causing massive disruption and damage for universities, hospitals, automakers and many other businesses including FedEx, only one thing is certain: It won’t be the last.

That’s because the cyber criminals are running a multibillion-dollar enterprise with the help of ultra-sophisticated tools, said Yuri Frayman, co-founder and CEO of Aventura-based cybersecurity company Zenedge. The company, which launched in 2014 after two years of development, helps companies worldwide protect their web applications and networks against cyber-attacks with its proprietary technology.

“If this was not a wake-up call to the corporate world, I don’t know what needs to happen next,” said Frayman, offering his view from the trenches. “About 220,000 companies have been hit, and this is just what we know. We are seeing a massive disruption in the network operations across the globe.”

A screenshot of the warning screen from a purported ransomware attack, as captured by a computer user in Taiwan, is seen on laptop in Beijing on Saturday. Thousands of companies were hit with a huge ransomware attack over the weekend that locked up computers and held users’ files for ransom in hospitals, companies and government agencies. (PHOTO CREDIT: Mark Schiefelbein AP)

None of the firms his company protects have reported any disruptions from the so-called “WannaCry” ransomware virus, he said. But as the attack has unfolded, Zenedge has been talking with industry security specialists around the globe about how they are mitigating the damage and seeking to stabilize large infrastructure companies.

What really worries Frayman is what comes next in this attack, and ones to follow. Companies such as FedEx will throw everything at this problem in the next three or four days at an unbelievable cost, said Frayman, who has himself been expecting a FedEx delivery for the past two days. But less-sophisticated firms may may not even know a virus lurks in their system.

 “A second problem is the massive shortage of cyber-security experts. The enemies are hackers who are years ahead, Frayman said.  “Telecommuting also creates risk. Ninety-eight percent of the world population doesn’t know if their home has been hacked. If I have your home, I can hack your corporate environment. Many people around the world work from home, and that is another black hole that is ready to explode.

The solution – beyond turning off the internet – is commitment to vigilance. Generally, the largest financial services companies are very proactive, appropriating the proper budget, staff and training and putting key processes in place. But take a step outside of that and you will see across the board that corporations have not taken this seriously. Hiring a chief security officer is not enough. It’s not about buying cyber insurance and hiring a couple of people – it’s about discipline. Having a dedicated staff and/or vendors whose single task is to secure and protect the company is key. So is continual staff training. You can’t just be clicking anymore…. Hackers are using very sophisticated tools to mimic regular emails you get every single day. If you click on one that downloads a virus, it eventually could discover the system administration credentials. Once the hackers know those, they can do whatever they want.”

Zenedge currently has about 250 clients spanning the financial, ecommerce, gaming, healthcare and manufacturing industries worldwide and also protects large internet service providers, said Frayman, who previously helped lead and sell four other companies. Zenedge raised $6.2 million in September to finance its global expansion; in total, it has raised $13.7 million in venture capital funding.

“Every single attack, every single malware, we take it apart, and we train our algorithyms to be able to pick up the behavior of an attacker,” Frayman said. “If you train a computer to think like a human, then you can protect as many customers as we do without a need for a human interaction.”

 

Source: Miami Herald

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No Comments May 9th, 2017 Commercial Property, Latest News

What To Do About Insurance Sticker Shock

Owners and buyers of multifamily housing are experiencing sticker shock when they refinance, sell or purchase properties.

Insurance premiums have jumped as much as 25% because of the broadened insurance requirements set forth by lenders.

GlobeSt.com caught up with Ryan Cassidy and Evan Seacat, both senior directors at Franklin Street Insurance Services, for a deeper understanding of why lenders have changed their standards and what owners and buyers can expect in part one of this exclusive interview.

GlobeSt.com: What caused originators and buyers of multifamily mortgages to change insurance requirements on multifamily properties?

Ryan Cassidy: They were caught by surprise just as much as the rest of us by events of the past decade. Their overall requirements have become stricter, causing panic from multifamily owners. The government-sponsored enterprise also will not accept into its network multifamily properties with policies that limit or exclude from coverage natural causes of damages such as flood, hail, hurricanes and wind. Loss of rental income as a result of the before mentioned perils has become one of the most sought after coverages. The cost to add this specific item is one of the most expensive for owners. Freddie Mac has similar requirements.

GlobeSt.com: Aren’t those kinds of coverages to be expected even though we have not had a major terrorist attack like 9/11 or a hurricane like Wilma in more than a decade?

Evan Seacat: First, owners are having trouble finding standard policies that include these provisions, for a reasonable price. On top of the overall expense for the added coverage, this can be a very time-consuming exercise. Therefore, national and local proprietary programs are becoming more common and the level of interest has risen for property owners.

GlobeSt.com: Fannie Mae and Freddie Mac are the biggest financers of multifamily housing. But there must be alternatives.

Ryan Cassidy: Yes, but we have found that lenders providing financing for private portfolios are adopting similar rules, giving owners and buyers fewer ways to avoid the requirements. And most banks are making it harder to meet the insurance requirements.

 

Source: GlobeSt.

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