All posts by Lucian McMahon

Flood Insurance

You need flood insurance: “ice jam” edition

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like space jam, but with ice

So you live in Wisconsin, far away from any hurricanes and ocean storm surges. You don’t need flood insurance, right?

Wrong. The big thaw spreading across the Midwest is a perfect lesson for why you do, in fact, need flood insurance.

The Wall Street Journal reported that in Lone Rock, Wisconsin, temperatures rose 80 degrees in three days, from minus 39 to 41. That kind of temperature swing is a recipe for floods.

Most obviously, melting ice and snow can swell rivers. But especially worrisome are “ice jams,” which form when frozen rivers melt into large ice chunks that can lodge together and block the river’s flow. In the worst cases, these artificial dams cause serious flooding in the area around the river.

This happened last year in Vermont and upstate New York when a rapid thaw followed a deep freeze. In Swanton, Vermont an ice jam on the Missisquoi river flooded a state highway for over a mile and inundated several homes, forcing many to evacuate.

Here’s the bad news: standard homeowners insurance policies don’t cover flood damage. If you don’t have flood insurance for your home, you probably aren’t covered under your homeowners or renters policies because flood risks used to be considered uninsurable.

To address this lack of coverage, the National Flood Insurance Program (NFIP) was created back in the 1960s. The NFIP is a federal program that provides flood insurance to participating communities. If your community participates in the program, you can often purchase insurance through a private insurer that handles policies and claims on behalf of the NFIP.

Private insurers have also recently begun offering flood insurance outside of the NFIP, as new modeling techniques have helped them get a better handle on the risks and costs.

Flood insurance will usually cover physical losses to your home caused by floods or flood-related events, like erosion – with some limitations (trees and fences aren’t covered, for example). You can also buy coverage for the contents inside your home, making flood insurance a crucial tool to help you get back on your feet.

Make sure to talk to your insurance agent about the right flood policy for you. Yes, even you Wisconsinites out there.

Homeowners Insurance

Polar Vortex: It’s Back – Let’s talk about frozen pipes

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It’s hard to imagine pitchers and catchers reporting in a mere 12 days while another polar vortex rips through the Midwest.  Arctic blasts plunging the thermometer to 27 degrees below zero in some states? It’s safe to say our friends in Minnesota won’t be throwing the baseball around in the backyard this week.  

But a baseball-less future is probably the least of your worries right now. Extreme cold is dangerous – and expensive, if the pipes in your house freeze and burst. Water damage could cost you as much as $5,000, if not more.  

Prep your pipes to prevent freezing 

There’s a lot you can do to prep for the worst. Consumer Reports has tips for keeping pipes unfrozen and how to thaw them out if they do freeze.

The I.I.I. also provides a checklist and a survival guide for winter weather prepping your home.  

How does insurance handle burst pipes? 

But if the worst does happen, your homeowners insurance will probably offer some coverage. Damage from burst frozen pipes is usually covered – as long as you’ve taken reasonable steps to prevent the freezing in the first place. Stay warm out there!

Auto Insurance, Homeowners Insurance

The dog ate my couch: animal damage and insurance

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always scheming

You may have read the recent story featured in the I.I.I. Daily about raccoon damage and homeowners insurance. The gist: raccoons got into a house and caused $80,000 worth of damage. The homeowners were surprised to learn that their insurance wouldn’t cover any of it.

So what’s the deal with animal damage and insurance?

Homeowners insurance

Let’s start with the easy stuff. If your dog Fido rips through your couch or pees all over the wall, you’re out of luck. Standard homeowners policies won’t cover any damage to your house or personal property caused by a pet. And”pet” is a pretty broad term. Doesn’t matter if it’s a Shih Tzu or a Clydesdale horse, pets are any animal you own.

What about animals that aren’t pets, like deer or birds or – God forbid – rats? That’s where things get interesting.

Building damage: You probably aren’t covered for any damage to the building caused by birds, rodents, insects, or vermin. There also probably won’t be coverage for any nesting or infestation. Insurance policies can vary widely, however, so make sure you ask your agent what is and isn’t considered a rodent or vermin (some insurers will say raccoons are vermin, some will say they’re not). The specific details of your policy will determine your coverage.

Damage to the building from other wild animals could be covered, though. If a moose runs through the sliding door to your deck, the damaged door would be covered.

Personal property damage: Unfortunately, your personal property is probably not covered no matter what kind of animal does the damaging. If a moose runs through your sliding door and wreaks havoc on grandma’s china, then you’re covered for damage to the door, but not the china.

Liability: You go to your friend’s house and bring Fido for a dog playdate. Fido then rips through your friend’s couch. Are you covered? Yes. Homeowners liability protection will cover the damage to other people’s property caused by your pets. Just not your property. Friendship saved.

Personal auto insurance

A squirrel chews through the wiring in your car. Fido dents your door chasing after a squirrel. A moose rams your car in a fit of rage, smashing the windshield. (Why do I keep thinking of moose scenarios?)

Does personal auto insurance cover animal damage? Yes, if you have optional comprehensive coverage. If you only have collision coverage, then you’re not covered.

Collision only covers damage when a car overturns or hits another car or object. Comprehensive covers…more or less everything else: damage from falling objects, fire, explosions – and birds and animals.

So if you paid the extra premium for comprehensive coverage (like most Americans do), then you’re covered for damage from chewing squirrels, incautious Fidos, and rampaging moose (meese?).

Cyber Risk, Technology

Reminder: your smart home security system is hackable

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Doors that can be locked remotely with a smartphone app. Facial recognition cameras that alert you when certain people arrive at your front door. Motion sensors that trigger video recordings when someone steals your Amazon packages.

If we’re being honest, smart home security systems sound extremely creepy to me.

But I understand the sell: smart home security devices can keep people safe and offer peace of mind – did I remember to lock the door? Doesn’t matter, my phone can lock it.

Nothing in this world is perfect, though. Unlike smart home security systems, you can’t use a computer to hack into and unlock a standard deadbolt.

The Insurance Journal recently ran a piece describing yet another experiment where researchers easily hacked into someone’s smart home security system. In one scenario, a researcher hacked into a person’s phone using a coffee shop’s free WiFi. Once inside, he accessed their smart light switch app, and then jumped from there into the smart home’s security devices. Voila, smart door unlocked. All that’s missing is a red carpet to welcome thieves as they waltz in the front door.

This shouldn’t be news. Here’s a video from 2016 of researchers hacking into a smart lock:

Everything is a trade-off. As informed consumers, we can’t assume that a solution to one security problem (forgetting to lock our doors) will solve every other security problem – or that it won’t create new ones (hacking into our front doors). It’s important to weigh the risks and benefits of smart home security, and to conduct due diligence in researching the cybersecurity protections of each system. It’s also important to consider additional protections, like purchasing cybersecurity insurance coverage, just in case.

If that sounds onerous, it’s nothing compared to dealing with a robbed house.

Auto Insurance, Homeowners Insurance

Florida’s assignment of benefits crisis: PowerPoint slides now available

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On December 11, 2018 the Insurance Information Institute (I.I.I.) published a report documenting Florida’s assignment of benefits crisis – what the crisis is, how it’s spreading and how it’s costing Florida consumers billions of dollars.

You can download and read the full report, “Florida’s assignment of benefits crisis: runaway litigation is spreading, and consumers are paying the price,” here.

Today we also published PowerPoint slides accompanying the report. We hope the slides will help illustrate the depth and breadth of the abuse. You can download the slides via this link.

An assignment of benefits (AOB) is a contract that allows a third party – a contractor, a medical provider, an auto repair shop – to bill an insurance company directly for repairs or other services done for the policyholder.

The process is innocuous and common throughout the country. But as our report notes, Florida’s unique legal systems richly rewards plaintiff’s attorneys and vendors when they submit inflated bills to insurance companies and then file lawsuits when those bills are disputed.

Not just a few lawsuits. Lots of lawsuits. The numbers are staggering. There were roughly 1,300 AOB lawsuits statewide in 2000.  There were more than 79,000 in 2013, and nearly 135,000 through November 9, 2018, a 70 percent increase in just five years.

Inflated claims and massive volumes of lawsuits have the predictable result of driving up insurance companies’ legal costs. Insurers are forced to then pass those costs on to consumers. In the study, we estimate that Florida’s auto and homeowners policyholders have paid about $2.5 billion more for insurance over the past dozen years to cover the increase in legal costs.

That doesn’t even count the billions more in excess claim settlements that are at the heart of the problem.

Many of these inflated bills and lawsuits are driven by a select number of contractors and their attorneys. Florida insurance customers can protect themselves – and their fellow citizens – by being very cautious when signing away their benefits under an AOB.

Health & Safety

Sidewalk liability: are you covered?

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A friend of mine likes to say that New York City is so expensive that just leaving your apartment will cost you $20. It cost me $100 to leave my apartment the other day – in fines for leaving a piece of furniture by the curb on a day not designated for “bulk trash removal.”

I get it: leaving bulky trash all over the sidewalk for days on end is an antisocial thing to do, especially in a crowded city. I wouldn’t have felt great about myself if a kid had somehow tripped and hurt herself on my discarded garbage.

My landlord could also have landed in legal trouble had that happened. That’s because NYC law makes property owners responsible for keeping sidewalks “reasonably safe” and clear of debris (with some exceptions). “Reasonably safe” also includes shoveling snow and ice – something I’m always grateful for after the occasional NYC blizzard.

New York is not alone. Many jurisdictions across the country put the onus on property owners for maintaining sidewalks, including clearing snow and ice (even if the sidewalks are city property).

If you’re a property owner, it’s important to check your city or homeowner’s association codes to see who is responsible for what. If you rent, you should also check your lease. Some leases make tenants responsible for clearing snow from sidewalks.

Let’s say you do live in a city where you’re responsible for keeping the sidewalk safe. What happens if someone slips and suffers injuries on your sidewalk?

Homeowners insurance could provide some coverage. Depending on the case, there could be coverage for liability and for some medical payments to the injured person. But an insurance company could deny coverage if the homeowner knew about an unsafe sidewalk and did nothing to fix it.

And liability payments can get expensive quickly. That’s why some people will also buy optional “personal umbrella liability coverage,” which has a higher payment cap than standard homeowners.

Renters insurance also provides liability coverage. But whether the tenant or landlord is responsible for a slip and fall on a sidewalk would depend on the terms of the lease and local ordinances.

The upshot is: check if you’re responsible for the sidewalks outside your home. It’s also a good idea to chat with your insurance agent to see if you have the appropriate coverage to protect you from liability costs.

Health & Safety

How Insurance Covers Skiing Accidents

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If you’re skiing like this guy, you should have health insurance

The holidays are over. It’s time to exercise. If you live in snowy climes, that means it’s time to go skiing.

But flying down a mountain at high speeds on a pair of sticks is…not safe. Between 2006 and 2016, an average of 38 people died skiing or snowboarding each year in the U.S.

And ski injuries are much more common than deaths. So how does insurance cover skiing accidents?

Health insurance: If you are injured in the U.S., your personal health insurance should cover your medical expenses, depending on the specific details of your policy. What if you need to get airlifted out because of a medical emergency? Your health insurance might help cover that, but you should check with your insurance company.

Travel insurance: Your personal health insurance may not cover all your medical expenses if you get injured abroad. (Again, it depends on your policy, so call your health insurer to make sure). That’s where travel insurance can come in handy. Make sure your travel insurance covers emergency medical assistance. This could cover situations like being airlifted off the mountain after a ski accident.

Homeowners insurance: What if you accidentally injure someone else on the slopes? Your homeowners insurance may kick in to cover some of the liability you incur. Ditto renters insurance. But different states determine ski accident liability differently, and your homeowners insurance doesn’t cover everything, so talk to your agent to find out what your coverage is.

Personal umbrella liability: Liability payments can be expensive. That’s why some people will buy a personal umbrella liability policy, which is basically extra liability insurance. It will cover some types of liability your homeowners insurance excludes – and will also cover higher payments, sometimes up to $1 million (homeowners is often limited to $300,000).

What about the ski resorts themselves? They will typically have a commercial insurance policy to cover their liability and property damages. Ski resorts could face liability claims from injured skiers for poor slope maintenance, ski lift accidents, or accidents in, say, the ski lodge.

Stay safe out there!

Homeowners Insurance, Technology

Water damage is costing homeowners billions. Could IoT help?

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Pop quiz: what’s one of the most common types of homeowners insurance claims? (Hint: it’s not fire.)

It’s water damage. Maybe that’s not surprising – it rains a lot in many places. But what may surprise you is that things like pipe bursts and broken appliances are increasingly the main causes of water damage in homes.  

In insurance-speak, these are called “non-weather water damage claims.” Worryingly, these claims are happening more often and are getting a lot more expensive. A Best’s Review article reports that the average homeowners water damage claim is now over $6,700. Large losses (over $500,000) have doubled in number over the past three years. Non-weather water damage is now costing insurers (and their policyholders) billions in losses every year.

This is happening for several reasons. Our housing stock is aging, as is our infrastructure. More houses are being built and they’re getting bigger – many houses now have extra bathrooms and second-floor laundry rooms, which means more piping. (The story is probably different in Florida. You can read why that is here.)

But the worst part is that many – if not most – water damage claims are preventable. Inspecting pipes or conducting routine maintenance can go a long way. That’s where the internet of things (IoT) comes in. Smart devices and connected sensors installed on piping can detect leaks before they occur or before they cause too much damage. They’re basically smoke detectors, but for water.

And they work. Best’s Review noted that installing IoT devices can reduce water losses by up to 93 percent.

The Review quoted an IoT company CEO who claimed that leak detection devices could save insurers and their customers $10 billion every year.

Homeowners have admittedly been slow to install IoT to help detect leaks. But insurers are hopeful that raising awareness about the issue, offering policyholder incentives like premium discounts, and encouraging IoT installation during home construction will begin to turn the tide.

 Update: Of interest, Washington state adopted a rule in 2018 that specifically mentions water monitors and water shut-off systems as permissible tools for an insurer’s risk reduction program.