Mother Nature is in Charge!

Americans are getting a little disaster weary.  From the horrific wildfires out west to torrential rains and flooding all summer in the east, it has been quite a year.  And in the south and east, we all know what August means…hurricane season is upon us!  Mother Nature is getting on our nerves in 2018!

How can we protect ourselves to minimize the risks to our homes, our property and our livelihoods?  Mitigating risks from catastrophic events starts with prevention and planning by both government and individuals.  Prevention can start with using damage-resistant building materials, having elevated home designs, enforcing safe building codes, developing flood plain management systems, securing or removing hazards ahead of storms and by having evacuation or escape plans in place.  FEMA has an 81 page guide of Mitigation Ideas to deal with earthquakes, landslides, floods, hurricanes, hail, lightning, tornadoes, severe winter weather and more.  https://www.fema.gov/media-library-data/20130726-1904-25045-2423/fema_mitigation_ideas_final_01252013.pdf  There are many threats coming from our environment, but many things that can be done to lessen some of the painful aftermath of these occurrences.

We certainly can use property & casualty insurance to plan and prepare for the worst.  In hurricane-prone areas, for example, we have riders for “named storm” or “wind and hail” coverage that comes with our homeowner’s insurance.  The costs of the insurance can be reduced by increasing the amount of a deductible you want to have or, in other words, how much you can afford to pay out of pocket for repairs after a storm.  We also look for extra coverage for those circumstances when there is a widespread event like a hurricane that may drive costs up with higher demand for labor and materials.  Homeowners may want to have an extended coverage rider built in to help with those higher costs.  It is important to evaluate what your risk tolerance is for these situations and how much you want to pay to transfer some of the risk to the insurance company.  If your home is destroyed or badly damaged, do you have a comfortable level of protection for you and your family?

There has been much discussion on the 50 year old National Flood Insurance Program, as well. President Trump recently signed the legislation to extend the debt-ridden program until November 30th.  That means not dealing with necessary reforms until after hurricane season and mid-term elections.  The federal program, which is some $20 billion in debt to the U.S. Treasury, offers subsidized flood insurance to coastal or flood-prone areas where private insurers have pulled out or made it unaffordable.   As it is, the NFIP provides coverage with caps on claims for homes at $250,000 and on property at $100,000.  Many higher-value property owners may choose to also carry “excess” flood insurance to bridge the gap between the federal program caps and the value of their homes and property.

Unfortunately, the reduced premiums from about 5 million NFIP flood insurance policies nationwide cannot adequately support the claims that have come from recent events, including storms like Sandy, Katrina, Harvey, Maria, Irma and Matthew.  And hurricanes aren’t the only cause of flooding.  We have seen some of these epic rainstorms cause significant inland flooding and damage.   As the head of the SC Department of Insurance said recently, “our entire state is in a flood-zone.”  And this may be true for many areas in the South, East and Midwest.  It is clear there is a need for a flood program that can provide support for affected residents after a storm, especially as we see changing climate conditions and rising sea levels. Lawmakers thus far have been unable to find a bi-partisan fix to the financially strained system.

As homeowners and members of our communities, we should certainly do our share to prepare for these natural events and make sure we have a solid plan in place for our families and our property.  We can maintain our property, keep our own emergency fund and can participate in the insurance coverages available to help protect us.  And we should hope and expect that our legislators – local, state and national- will compromise to find solutions to reform existing programs and to prepare disaster plans that can assist all of us in the event of a catastrophic event.

At DWM, we use a holistic approach to evaluating your financial plan, including risk management.  We will help you review all of your property & casualty insurance policies to ensure that you have appropriate coverage for you and your family.  Let’s hope Mother Nature stays peaceful for the rest of the year!

HURRICANE SEASON 2017: SPOTLIGHT ON FLOOD INSURANCE

Water seems to be everywhere right now.  Hurricane season lasts until November 30th, but many of us in the coastal areas of the United States are already weary from this year’s active storm season.  Texas, Florida, Georgia and the Carolinas have seen widespread damage from Hurricanes Harvey and Irma and those in the East and Northeast are closely watching Jose and Maria to see what kinds of impacts they will bring.  As we watch the news and see the photos of flooded homes, streets turned into waterways and communities working to recover from the mess, the reported costs of these two storms seems almost unfathomable – estimates of the total economic cost for both storms range from $115 billion to $290 billion!  Many of those in need of assistance appeal to FEMA, the Federal Emergency Management Agency, and, while FEMA can provide small assistance payments as a safety net, much of the flood damage assistance must come through FEMA’s National Flood Insurance Program (NFIP) – and you must have a flood insurance policy to receive anything from them.

Premium rates for flood insurance policies are partially subsidized by the federal government and, without these subsidies, the cost for this type of insurance could be exorbitant.  Complicating the matter is that most banks won’t loan money to build or purchase homes in flood-prone areas without it.  Currently, flood insurance claims, partially paid-for by those premiums, will cover replacement costs for property of up to $250,000 and up to $100,000 for contents.  The average NFIP claim payment is around $97,000.  According to a September 10th Post & Courier article, in SC it is estimated that 70% of properties in the high-risk areas are insured.  Also, high-risk areas have a 1 in 4 chance of flooding during a 30-year mortgage, according towww.southcarolinafloodinsurance.org.   However, 30% of flood losses occur in flood zones that are not at high risk.  As the head of the SC Department of Insurance said, “our entire state is in a flood zone.”

The NFIP is now reportedly close to $25 Billion in debt, even before these most recent storms, and the program was set to expire on September 30th.  Last Friday, PresidentTrump signed legislation reauthorizing the National Flood Insurance Program until Dec. 8, 2017 and providing federal disaster assistance for the nation’s hurricane recovery.  This buys more time for Congress to consider reforms to the program, which, by all accounts, is drastically needed.  Reportedly, program costs overrun annual premium income, even without the catastrophic losses from natural disasters.  While a lot of communities have flood mitigation programs in place, there is much discussion that it is time for stronger flood-proofing standards – like making sure that all flood-prone properties are reinforced or elevated and redrawing outdated flood maps to properly assign risk to those properties.  Critics have claimed that the NFIP has wasted money rebuilding vulnerable homes when it would be cheaper to help homeowners move to higher ground.  There is also concern that “grandfathering” certain properties allows homeowners to pay subsidized rates based on outdated flood maps.

The National Flood Insurance Program was created in 1968 when private sector insurance carriers stopped offering the non-profitable coverage.  The idea was to transfer some of the financial risk of property owners to the federal government and, in return, high risk areas would adopt flood mitigation strategies to reduce some of that risk.  Some are now arguing that these subsidies mask the true risk of living in these high flood-prone areas and full actuarial rates for flood insurance premiums should be phased in, subsidizing only those truly in need.  In a Bloomberg article from September 18th, U.S. Rep. Sean Duffy (R-WI) and U.S. Rep. Earl Blumenauer (D-OR) are appealing for reform and suggest that “…the NFIP’s subsidized rates make flood-prone properties more affordable… and that for “ the sake of people’s health and safety”, it’s critical that we “stop paying to repeatedly rebuild flood-prone properties.”  They hope to encourage Congress to reform NFIP and to make bi-partisan recommendations to protect future flood victims.

At DWM, we recommend that you annually review all of your insurance, including property & casualty and flood insurance.  There are many ways coastal or flood-prone homeowners can mitigate their own risk with upgrades to roofs, windows, landscaping, hurricane shutters etc.  You should find out your home’s elevation and evaluate your risk.  You may also want to check on your flood zone and consider a flood insurance policy for added protection.  Flood insurance has a 30-day waiting period, so once there is a hurricane en route, it is too late to sign up and be covered in time.  For most policies not in high-risk flood areas, annual premiums range from $400-$700 under the current regulations – high-risk flood zones will be more.  We will continue to monitor the legislation as it approaches the next deadline of December 8th.  Luckily, our DWM office did not have to contend with any direct flooding issues, but we will most certainly be keeping an eye on the weather!

Please let us know if we can help review any of your insurance policies to make sure you have affordable and appropriate coverage on all aspects of your life and property.

Hurricane Matthew

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Hurricane Matthew was a scary time for DWM as it approached the US. For one, we know how devastating natural disasters can be to people’s lives, businesses, homes, and general well-being. Secondly, Matthew could potentially have directly affected our DWM family as it was expected to first touch the US in South Carolina, where half of our team and many DWM clients are located. It was an unsettling experience as our Charleston team/clients, along with much of the southeast coast, were instructed to evacuate to safety.

As Hurricane Matthew first formed as a category 5 hurricane and started its approach toward the US, analysts from JP Morgan projected it to be the second most costly US hurricane on record for insurers, behind Hurricane Katrina in 2005. To earn this devastating title, Matthew would need to reach a total of $25 billion in insured losses. While still devastating, the most recent projections from CoreLogic (a real estate data provider) estimated around $10 billion in total losses, making insured losses between $4-6 billion. If these totals are confirmed, it would make Hurricane Matthew the 22nd most devastating storm since WWII, according to a recent estimate by Goldman Sachs. By the time Matthew made landfall in the US near McClellanville, South Carolina, it was reduced to a category 1 hurricane.

Even with Hurricane Matthew having inflicted significantly less damage than originally projected, Goldman Sachs still estimates it may cost about 5,000 US jobs in October. When storms like Matthew hit, jobs in the restaurant, hotel, and education sectors normally suffer the most. For example, 30,000 jobs were lost in those sectors when Hurricane Sandy struck, however, 40,000 jobs rebounded (mainly in construction) during the rebuild of the 2012 catastrophe.

While businesses almost always suffer and sometimes risk closing their doors when catastrophes like Matthew strike, homeowners can typically expect a higher burden. “These days homeowners who live close to the coast tend to opt for a 5% deductible on the hurricane wind damage portion of their policy,” said Bob Hunter, Director of Insurance for the Consumer Federation of America. Meaning: a homeowner, whose $500,000 house was fully destroyed, would have the obligation to pay $25,000 of repair costs before the insurance company covers the remaining $475,000.

While it is good news Matthew did not strike the East Coast with the force we originally expected, that reinsurers will likely be able to cover all insured losses, and that only .003% of all jobs in the US will be affected; it all pales in comparison to the 34 lives that were lost in the US and over 1,000 lost in Haiti. DWM’s thoughts and prayers go out to all families affected during this awful natural disaster.

P.S. Our new Charleston office at Church and Broad streets came through unscathed with no damage.  And, Les, Ginny Wilson, and our newest team member, Grant Maddox, and their families evacuated and all were safe and dry.  Grant, by the way, is a recent College of Charleston graduate in finance who has had some very interesting internships.  These included a stint as deputy finance chairman for the successful campaign of Charleston’s current mayor, John Tecklenberg.  Please join us in welcoming Grant to the DWM team.