Category Archives: Homeowners Insurance

The dog ate my couch: animal damage and insurance

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?).

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

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.

Water damage is costing homeowners billions. Could IoT help?

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.

I.I.I. Study: Florida’s assignment of benefits crisis is spreading – and is costing consumers billions of dollars

Ah, Florida. Home to sun-washed beaches, Kennedy Space Center, the woeful Marlins – and one of the costliest tort systems in the country.

A significant driver of these costs is Florida’s “assignment of benefits crisis.”

Today the I.I.I. published a report documenting 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.

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.

Florida’s Department of Financial Services has published a “red flag” checklist for spotting fraudulent or abusive AOB solicitations. But the most important thing you can do is to talk to your agent before you sign anything!

To learn more about the crisis, download our report: “Florida’s assignment of benefits crisis: runaway litigation is spreading, and consumers are paying the price.”

Assignment of Benefits and Hurricane Loss Creep

We’re putting the finishing touches on a major research project on the assignment of benefits problem in Florida, a phenomenon in which a quirk in that state’s laws becomes a lever with which the less-than-scrupulous can supersize a claim settlement.

Our paper looks at how the problem has spread across lines of business – from no-fault insurance to homeowners to auto physical damage claims – and across the state – what started in South Florida has metastasized into the Interstate 4 corridor. Even far west on the Panhandle,  Escambia County (Pensacola) has had 346 assignment of benefits lawsuits this year through November 9. Five years ago it had 20.

Our research focused on the growth from one line of business to another and the spread of the problem over time. Artemis.bm has an interesting take on the knock-on effect from the way the problem is rolling through Hurricane Irma claims. Artemis is a website that is expert in alternative sources of insurance capital like catastrophe bonds, collateralized reinsurance and industry loss warranties.

That marketplace is fretting, in part, because after one major event, the capital that insured (or reinsured) that event is locked up. It can’t be used to insure against a second event until it is clear that it won’t be needed for the first.

And losses from Irma, a 2017 storm,  keep rising. In August, four insurers raised their loss estimates more than $1 billion.  The total  this month passed $11 billion, according to Florida’s Office of Insurance Regulation. More than 76,000 remain open.

What is causing the creep? Assignment of benefits issues are a prime suspect. Unscrupulous contractors dupe policyholders into letting the contractor settle directly with their insurance company – without letting the insurance company know. The insurer gets the news in the form of a bill to pay – never having had a chance to ensure the repairs were appropriate or done competently.

Disputes often go to court, where if the insurer loses, it must pay the plaintiff’s legal costs as well as its own.

As Irma’s loss estimates grow, reinsurers and alternative capital sources worry that the same thing will happen to Hurricane Michael claims. Michael struck six weeks ago, but the number of claims is accelerating.

Artemis cautions against overreacting to Irma’s situation, but notes that reinsurance markets may need to price for loss creep (read: charge more for reinsurance), which ultimately pushes homeowner premiums higher.

 

 

Halloween is less scary with insurance

As we put the finishing touches on our costumes, here is a short roundup of interesting and spooky Halloween-related news from around the web.

  • Inc. magazine published some good tips for business owners on how to prevent getting burned by liability claims stemming from Halloween-related events at work.
  • I.I.I.’s own Michael Barry provided CNBC with advice for consumers on how to review their insurance policies for potential gaps to help avoid any financial shock from holiday mischief and mishaps.
  • Franz Kafka’s career in insurance is illuminated in this Contingencies article. The writer, famous for his surreal and arguably scary worldview, worked as an insurance agent at the Workers’ Accident Insurances Institute of the Kingdom of Bohemia in Prague from 1908 to 1917. He is described as a successful and valued employee who cared deeply about his work.
  • And speaking of writers, Edgar Allen Poe’s poem “The Bells” was once used in an ad for fire insurance.

The I.I.I. has tips for safeguarding your home against Halloween mishaps.

Pot is now legal in Canada. What could it mean for homeowners insurance?

As of today, recreational pot is legal across Canada. Two weeks ago, we looked into how pot legalization could impact Canada’s road safety. 

Now let’s talk a little bit about homeowners insurance and marijuana. 

Except for Manitoba and Quebec, all Canadian provinces will let people grow a small amount of marijuana at home – usually up to four plants.  

Unfortunately for the aspiring bud-growers out there, growing pot isn’t as easy as growing basil. Marijuana is a fickle weed and needs a lot of care to grow into a viable plant. It can be grown outside or on the window-sill, but a healthy and vibrant marijuana especially likes a hot, light-intensive, steamy environment – not exactly an accurate description of Canada’s climate.   

Which is why a whole industry has grown up around providing home-growers with hydroponic, lighting, and climate control systems to grow pot indoors, safely tucked away from the blinding snows and sub-zero temperatures of a Canadian winter.  

How will home-grown marijuana affect homeowners insurance?  

Higher risks. Well, for one, these grow systems are definitely not risk-free. High-intensity heat lamps can mean a strung-out electrical system, which can lead to fires. Humid temperature controls mean lots of moisture, which can damage your house with mold and fungi growths. 

Higher premiums. Higher risks mean that an insurance company will probably ask for more premium to make up the difference. A spokesperson for the Insurance Bureau of Canada has been quoted as saying that insurers asking about home-grown pot may become routine: “[insurers] just want an accurate idea of what you’re doing and any risk factors that should go into determining your premium […] they’re going to underwrite your policy based on a number of factors. It’s just another factor that gets consideration when setting an insurance premium.” 

Coverage questions. It’s also important to know what your insurance does and does not cover. For example, some damage caused by mold or fungi is often excluded by a standard homeowners policy. And most policies limit the amount of money an insurer will pay for damaged plants. This limit might not always be high enough to reimburse for marijuana plants, which can be pretty valuable.  

So if you’re a Canadian planning to use a marijuana grow system at home, talk to your insurer – especially if you’ll be installing complicated equipment.

Before you sign anything, talk to your agent

is this guy legit?

Were you well-prepared for Hurricane Michael? Good. Hurricanes are extremely dangerous.

But if you’re not careful, what happens after the storm can be just as harmful as the hurricane itself.

Beware the shady contractor. It’s a terrible story: someone’s home is damaged from a hurricane. A contractor shows up at their property and offers to complete immediate emergency repairs. All the homeowner needs to do is sign some paperwork and, the contractor assures them, their insurance company will pay for the repairs – easy as that!

Wrong. Shady contractors are not your friend. If you live in Florida, then the paperwork they want you to sign is often an “assignment of benefits” (AOB), a document that gives the contractor the right to receive payouts from your insurance company directly for repairs. (You can read all about how it works – or doesn’t work, as the case may be – on the Florida state website.)

Fraud is real and rampant. In the worst-case scenario, the shady contractor makes minimal or no repairs to the person’s home at all, but they’ll file a large claim with the insurance company anyway. If the fraudster is lucky, they’ll get the insurance payout and skip town. Meanwhile, the house is still ruined, and the homeowner didn’t get help to fix it.

Your home could go unrepaired for weeks, even months. Or the shady contractor will do unnecessary repair work, like ripping apart the kitchen because of “potential mold damage.” He promises to re-install the kitchen – but in the meantime, he bills the insurance company and the insurer pays. Sometimes, the contractor won’t reinstall the kitchen, often on some pretext or other.

This has especially been a huge problem in Florida. You can read some AOB abuse horror stories on the Consumer Protection Coalition website.

There are a lot of scams out there. Not all shady contractors are using AOBs. The Florida Department of Financial Services has also issued warnings about fraudsters who offer to provide repairs for cash – and then never provide repairs.

Talk to your agent before signing anything. Never, ever sign anything before you talk to your insurance company. Especially not if a contractor is putting up red flags, like pressuring you into signing an AOB or demanding large repair deposits up front. Contrary to what the contractor might say, you do not need to sign an AOB to get your home repaired or your insurance claim processed.

Instead, call your insurer. Many insurers will dispatch approved companies to complete emergency repairs on your property. And you’ll still be in control of your insurance policy, which hopefully will make you whole again. No shady contractors needed.

Hurricane Florence – property losses and insurance implications

Approximately 758,657 homes in North Carolina, South Carolina and Virginia with a reconstruction cost value (RCV) of approximately $170.2 billion are at potential risk of storm surge damage from Hurricane Florence, according to a Corelogic® release.

As we continue to keep a close watch on Hurricane Florence, we’ve put together a list of our content to help understand the insurance implications of storm related property losses.

E-scooter sharing programs: are you covered?

Move over, ridesharing, there’s a new urban mobility player in town: dockless electric scooter (e-scooter) sharing programs are growing in popularity in cities across the U.S. They operate like bike-sharing programs, but they introduce some interesting insurance issues.

scooting into the future
Man riding an electric scooter

The concept is pretty simple: you download an app from companies like Lime and Bird that lets you find and unlock an e-scooter nearby for a small fee, often just $1. You can then, well, scoot off wherever you want to go, paying per mile of riding. These rented devices are “dockless,” so once the trip is completed, you can park your e-scooter anywhere that local ordinances permit – they can’t block public paths, for example.

We’re not talking about mopeds or Vespa-like scooters, which allow drivers to sit, can reach relatively high speeds, and often require a driver’s license. These are battery-powered Razor-like scooters, which require a you to stand, often can’t go faster than 15 or 20 mph, and usually don’t require a driver’s license.

You can cause a lot of damage at 15 mph, though – trust me, I’ve seen a person step in front of a fast-moving road bike. It wasn’t pretty.

So if you cause an accident, are you covered? That’s where things get a bit murky.

First off, in most cities, the company renting you the scooter probably won’t cover your liability – that’s part of the multipage user agreement you endorse by clicking the ‘I Agree’ button. You’re basically riding at your own risk. This may change, though, as scooting sharing spreads. San Francisco’s new permitting process, for example, requires these companies to have “adequate insurance” for each of their users.

As for your own insurance, whether you’re covered depends on the specific terms and conditions of your policies. You should speak to your insurer or agent. When they were created, the typical homeowners and personal auto policies didn’t really consider whether they’d cover a motorized scooter you just picked up off the curb. Expert opinion and wording are critical.

Homeowners: Under a standard homeowners policy (for example, the HO-3), motor vehicles are usually understood to be any self-propelled vehicle and aren’t covered. That is what an auto policy is designed to do. It’s pretty much the same for renters insurance.

Personal Auto: The standard personal auto policy excludes liability coverage for a vehicle with fewer than four wheels. The scooters we’re talking about have two wheels.

Personal Liability Umbrella:  Personal liability umbrella policies (PLUP) offer an extra layer of protection that kicks in when you reach the limit of your underlying homeowners or auto policy. They can also give coverage for things that are excluded from your other insurance policies. For example, unlike an auto policy, a standard PLUP does not usually exclude vehicles with fewer than four wheels.

The bottom line is: check with your insurer or agent about your coverages.