Friday, May 23, 2014

Flood Insurance Update

The July 2012 Biggert/Waters Flood Reform was modified by Congress in March 2014 with new rules and rates effective May 1, 2014.

This will reduce the size of flood insurance rate increases to an 18% per year maximum.

It will also remove the requirement for an elevation certificate for most homes.

The legislation only affects the government run F.E.M.A. national flood insurance program.

We have a new private flood insurance company that will offer qualifying homeowners flood insurance at up to 50% lower rates with no elevation certificate required.

Relief is on the Way

The new Act repeals the Biggert-Waters provision which introduced fresh rates to older homes after the new flood maps are issued, even if they had been built in compliance with the then current flood maps. Prior to the repeal, property owners newly mapped into high risk areas would have had to either elevate their homes or face a phased 5 year increase in their rates. The new law also allows most properties to continue with their subsidized premiums instead of having to face massive rate increases when the property is sold or an existing policy lapses. Annual rate increases are there, but these are limited to a large, but hopefully bearable, 18% per year.

Another benefit of the March 14th law is that FEMA is now required to refund to policy holder who overpaid their premiums under the pre-March 14 law. Additionally, FEMA is required to minimize the number of polices where the annual premium exceeds 1% of the total cover that the policy provides.
So when is all this going to happen? As one insurance professional said “At the leisure of Congress.” That is the big uncertainty on the relief that the new Act promises.

But what about Flood Protection?

The new Act does give lawmakers time to work out a more equitable way of financing flood insurance. And it gives homeowners time to prepare for the inevitable increases in rates. But that is not enough. Under both the old and the new laws, standard flood insurance policies will only pay for physical damage to the property cause by rising wear. Coverage for the contents of the home and personal belongings needs to be purchased separately. Many older policies have contained archaic and unfair rules like one that states that in the kitchen, only the lower cabinets are covered against damage, not the upper ones. Preventing or, at least, controlling flooding is where a permanent solution lies.

In the long term, there is a need for finding a solution to the problem of water direction in the event of future flooding. The San Francisquito Creek Joint Powers Authority (JPA) has been in negotiations with the Regional Water Quality Control Board regarding flood control and protection plans. A couple of months ago, the Board denied the JPA permission to begin the project. The JPA is now trying to have the decision overturned. Until a viable solution to the flooding issue is found, delaying the inevitable flood insurance rate increases is only fighting a holding action.

And for those who think that finding a solution is not all that urgent, given this year’s drought, all that can be said to them is to recall the El Nino storms of 1998, and remind them that this year is predicted to be another El Nino year.

If you have questions about your flood/homeowners insurance policy or about insurance in general, call Insurance by Allied Brokers. We have been serving the Bay Area for over 50 years, and have been closely watching the industry and government policy changes long enough to find the best solutions for you among any given scenario. Call us now at (650) 328-1000.

Tuesday, May 20, 2014

Do you trust your bookkeeper?

Does your small business or home owners association policy have Employee dishonesty coverage?  Most policies include a token amount of coverage. Make sure you have enough insurance for your business to survive an embezzlers theft. Almost every day you can read an article about some business's bookkeeper getting caught stealing money from their employer, ususally over a long period of time.

American Greed on CNBC has a weekly series on the Madoff’s and Stanford’s of this world of crime. According to the ACFE employee dishonesty causes up to $400 Billion in losses. But every day smaller thefts are taking place. For a few hundred dollars you can buy $250,000 of coverage to protect yourself.

As more executives get access to company assets and the technology that manages the company assets, employee dishonesty is the new pandemic. While earlier, dishonesty largely meant embezzlement or theft, now employees are finding newer and smarter ways to cheat their employers. 

Executives who work in the Administration, Finance and Asset Management departments of a company can commit forgery or manipulation of company documents, cheques and agreements. They can get access to the company’s cash reserves and initiate illegal fund transfers. Employees who work in Banks, Insurance and Financial Service companies are known to frequently indulge in computer or credit card fraud.

However, these are more common means of fraud and employee dishonesty which are covered by standard or standalone policies by most insurance companies.

It’s high time you asked yourself - does your business insurance have enough coverage for employee dishonesty?

Most policies cover a trivial amount automatically of $20,000 or less. It’s extremely inexpensive to add $200,000 or more. Stories like this are commonplace locally. The crooks are almost always caught after years of stealing and all the moneys gone. Think of Fry’s electronics whose millions of dollars were stolen by an executive recently. A local nursery was put out of business by an embezzler. Countless other examples of victims bilked by people they trusted.

If you are on the board of directors of a homeowners association or a commercial condo association you better make sure you have enough coverage to cover the total reserves in the association’s bank account. We have just reviewed 2 clients recently that have 0-$50,000 when they should have $250,000. As a board member, you can be held liable for this oversight.

Some companies include employee dishonesty insurance as a part of their other insurance contracts. The coverage can be added either by the base policy or by endorsement. The AICPA accountants program adds employee dishonesty coverage by endorsement.

However, this approach has its own disadvantages. The employee dishonesty component has its own limits, and this may not be adequate to cover new and unique kinds of frauds that are unearthed every day. For example, Business owner’s policies (BOP's) usually limit employee dishonesty component to $10,000, and this again covers only the first party committing the act of dishonesty.

Further, typical AICPA endorsements for employee dishonesty only factor acts committed by employees. Non employees such as agents, third party agencies such as Security companies who routinely transport or handle cash and securities are not factored. Also, these terms and conditions are outdated and do not factor computer fraud which is emerging as the number one choice for fraudsters and dishonest employees.

All this implies, you need to quickly evaluate your business insurance policies today.

Call Carlos or Mimi at Insurance by Allied brokers at (650) 328-1000 for a free insurance review.