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In recent years, severe weather has dramatically increased beachfront homeowners' premiums and reduced their carrier options, ultimately making it more challenging than ever to secure luxury retreats.
High-net-worth clients hate watching the insurance bills for their second and third homes skyrocket as much as any other clients do.
Even if you never handle property or casualty coverage, and you refer all requests for that kind of coverage to colleagues, having a minimum level of property insurance literacy is critical.
Understanding this issue is especially important for financial advisors with high-net-worth clients who have beachfront property in Florida, for example.
Now, the tides are starting to turn. Due to recent legislation in the state, the hard property market has now softened. A new law created by Florida Senate Bill 2-D — SB 2-D — took effect earlier this year. The new law is stabilizing the insurance market, lowering policyholder premiums and making property insurance more affordable for Florida homeowners.
The bill allocates state funds to help with backup coverage for insurers, reduces lawsuit abuse and exorbitant legal fees, and targets fraudulent practices to reduce the amount of insurance losses caused by costly scams.
Most notably, it eliminates assignment of benefits. Policyholders using assignment-of-benefits arrangements often signed their benefits over to roofers or other contractors. The contractors would then handle the insurance claim and all repairs on the policyholder's behalf. These repair teams would often disappear after being paid or inflate the costs of their repairs.
SB 2-D also bolsters policyholder protections with stricter claims payout deadlines, access to hurricane retrofitting grant funds and increased transparency into claim denials.
SB 2-D made the Florida property insurance market more attractive, lucrative and secure for insurance companies, and the market is responding.
Homeowner's rates have plunged by as much as 30%. Underwriting guidelines have broadened.
Eleven new carriers recently entered the Florida property insurance market. They're open and hungry for business.
Not All Smooth Sailing
With a softer Florida property insurance market, premiums are leveling out. Homeowners have more options to choose from. But moving from a hard market to a soft one isn't a free-for-all.
Here are some ideas to think about.
1. Be wary of "limited water damage" clauses when evaluating a new carrier.
Non-weather-related water losses are the leading cause of property damage.
If your client's current carrier provides unlimited water damage up to the policy limit, the client should consider whether or not switching to another carrier with limited water damage is worth saving a few premium dollars.
Limited water damage policies typically offer $10,000 for homes 30 years or older. That may not cover the full cost if your client experiences a pipe-driven leak in the kitchen with $40,000 in restoration costs.
Given the high occurrence and cost of water damage claims, a carrier without a water damage limitation is a significant asset.
2. Mitigate wind-related risk and understand what the policy covers.
Severe storms and hurricanes are a part of coastal living, but not every carrier covers damage caused by wind-driven rain. Start by finding out whether your client's policy provides "wind-driven rain" coverage.
If not, this may be an ideal time to explore other policy options.
Consult with your client's broker to schedule a wind mitigation inspection to assess the opening protection of your roof, shutters, windows and doors. If the roof isn't properly secured, work with a construction professional to retrofit a solution.
This proactive effort can reduce your client's annual premiums for the life of the policy while also keeping your client's homes better protected against the harsh elements.
3. Consider the stability of the current carrier as you help a client evaluate less proven options.
Newer carriers to the market may be offering coverage at enticingly lower rates, but don't encourage a client to jump ship too quickly.
A client should stick with a carrier that the client can rely on when storms blow in and after the damage is done. When new carriers enter the coastal market without experience, they are more likely to fail to renew or increase prices the following year.
4. Be diligent about property protection, especially if a client is right on the beach.
Most carriers will not provide coverage for a home that's located within 1,000 feet of the coast if it lacks the proper opening protection.
All doors and windows — even small ones — must be impact-rated or be fitted with code-approved shutters to qualify for coverage.
Ryan Ballard, CPRIA, is the chief sales officer for personal lines at HUB Private Client in Melbourne, Florida.
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