Category Archives: Homeowners Insurance

Consumers lack understanding of personal cyber insurance: I.I.I./J.D. Power Survey

Getty Images

By Mary-Anne Firneno, Research Manager, Insurance Information Institute

Americans have embraced the Internet of Things. As consumers own more internet-connected devices and buy more products online and businesses use more electronic data and online storage, cyberattacks continue to occur.

Despite reports of ever-larger data breaches, awareness of the protection available to consumers through insurance has shrunk over the past year, according to a survey from the Triple-I and J.D Power.

The 2020 Consumer Cyber Insurance and Security Spotlight Survey℠: Consumer indifference is still a challenge for personal cyber insurers, found that only about one in 10 American consumers who have connected devices in their homes or vehicles say they have insurance to help them recover from a cyberattack. And close to half do not know whether they have this protection. Fewer connected device owners say they have cyberrisk insurance than when the Triple-I and J.D. Power polled them in 2018.

Yet consumers are interested in cyberrisk insurance. More than half of connected-device owners (56 percent) said they believed homeowners or auto policies should offer cybersecurity coverage.

So why don’t more consumers buy cyberrisk insurance? The 2020 Consumer Cyber Survey found that three-quarters of connected consumers are reluctant to pay more for cyberrisk coverage – despite the fact that cyber coverage is relatively inexpensive: about $10 from a package policy and about $40 for a separate one.

Persistent attitudes that cyber coverage is a not a product consumers are willing to purchase is an opportunity for insurance professionals to explain the value of personal cyber coverage.

Proposing on Valentine’s Day? Get Insurance for That Ring and You’ll Be a Cut above the Rest

Nothing is more romantic than a marriage proposal on Valentine’s Day! The first step after giving a valuable engagement ring—well, maybe the second, after the “Yes!”—should be a practical one: call your insurance agent.

While you can’t insure the sentimental value of such a gift, having the right amount of insurance will provide financial protection.

Jewelry losses are among the most frequent of all homeowners insurance claims. Taking these four steps will ensure adequate protection for your new ring:

1. Contact your insurance agent immediately.

Find out whether you will need additional insurance. Most standard homeowners and renters insurance policies include coverage for personal property such as jewelry; however, many limit the dollar amount on jewelry to $1,000 to $2,000. With the average engagement ring costing nearly $6,000, according to The Knot, that’s unlikely to be enough.   

To properly insure jewelry, consider purchasing a floater or an endorsement policy. In most cases, these add-ons to a homeowners or renters policy would also cover you for “mysterious disappearance.” This means that if a ring falls off a finger, is flushed down a drain, or is lost, you would be financially protected. And, unlike a homeowners policy, floaters and endorsements carry no deductibles, so there is no out-of-pocket expense to replace the item.

2. Obtain a copy of the store receipt.

Forward a copy of the receipt to your insurer—so your company has a record of the ring’s current retail value —and keep a copy for your own records. It’s also a good idea to get a copy of the item’s appraised value.

3. If you received an heirloom piece, have it appraised.

Antique jewelry will need to be appraised for its dollar value. You can ask your insurance agent to recommend a reputable appraiser.

4. Create a home inventory list

A home inventory is a list detailing information about personal property and items like jewelry. An up-to-date inventory can speed up the claims process in the event of loss.

For jewelry, we recommend including the following information in your list:

  • Item description (include metal type, stones, carats etc.)
  • Evaluations and appraisal information
  • Date of purchase
  • Location of purchase

More information on homeowners coverage: What is covered by standard homeowners insurance?

Individuals Should Not Rely on Insurance to Protect Their Cryptocurrency Holdings

By Michael Menapace, Esq. 

Michael Menapace

Many individuals and businesses hold some amount of cryptocurrency.  According to a recent survey, nearly 10 percent of Americans have invested in cryptocurrency since the first Bitcoin was “mined” in 2009.  And, along with the rise in prevalence of virtual currencies in recent years has come a surge in cryptocurrency theft, with one Ponzi scheme defrauding cryptocurrency investors out of $2.9 billion dollars in 2019.  Those who invest in, use, and hold cryptocurrency should protect their assets.  While individuals can purchase insurance to protect themselves if certain types of assets are destroyed or stolen, such as a house, car, or personal property, individuals may have difficulty obtaining coverage for their cryptocurrency.

Bitcoin is just one cryptocurrency built on the technology called the blockchain.  Other virtual currencies include Ethereum, Ripple, Litecoin, Monero, and ZCash.

Homeowner’s insurance protects an insured against the loss of certain property.  For example, if a thief breaks into your home and steals your television, that loss will likely be a covered loss of property under a standard homeowner’s policy.  For an overview of what homeowners insurance typically covers, see here.

Is theft of cryptocurrency covered under homeowners insurance?

Getty Images

But, is an owner of cryptocurrency insured if a thief hacks their computer and steals virtual currency?  Part of the answer relates to the question – what is cryptocurrency?  Are these virtual currencies a security, money, property, a commodity, or something else? As discussed below, it seems unlikely, and inappropriate, for the loss of cryptocurrency to be a covered loss under a homeowners policy.

The Securities and Exchange Commission takes the position that cryptocurrency is, or at least can be, a “security” and cautions that “issuers [of virtual currencies] cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token.”  On the other hand, the IRS has issued Notice 2014-21, identifying cryptocurrency as “property” for federal income tax purposes. Still a third possibility is that cryptocurrency, which can be used to purchase goods and services, is properly classified as money.

As the above demonstrates, the same word, or virtual product, can have different meanings depending on the context.  Here, we are considering how cryptocurrency is interpreted under an insurance policy.  There does not seem to be any reason why cryptocurrency must be treated as the same thing by the SEC, IRS and insurers.  Therefore, the pronouncements of the SEC or IRS should be only of limited assistance.

A common homeowners insurance policy states that the insurer will cover the loss of the insured’s dwelling, other structures, and personal property.  Crytocurrency is clearly not a dwelling or structure, so the question is whether cryptocurrency is “property” in the general sense because homeowners policies often protect against the loss of property.  Beyond the IRS guidance discussed above, there is authority for the position that cryptocurrency is property.  For example, an Ohio state trial court held that cryptocurrency was property covered by a homeowners policy.  That ruling is discussed further below.

Not all homeowners policies are the same

Even if cryptocurrency is property in a general way, however, the insurance analysis does not end there because not all property is treated equally under a homeowners policy.  For example, coverage for the loss of personal property often has a $200 sublimit for “money, bank notes, bullion, gold and [other precious metals], coins, medals, scrip, stored value cards and smart cards.”  Likewise, a homeowners policy may have a sublimit of $1,500 for “securities, accounts, deeds, letters, of credit, notes other than bank notes, . . . tickets and stamps.”  When considering these common sublimits, is it more appropriate to apply the $200 limit for money or the $1,500 limit for those items akin to securities?  At least for some cryptocurrencies, like Bitcoin, an analogy to money seems more appropriate because Bitcoin is specifically designed to be an alternative to traditional currency.  Considering an individual’s ownership of Bitcoin a security does not seem to make sense.  After all, when one thinks of a person owning a security, such as a share of stock in Acme Corp, the comparisons with Bitcoin are thin.

Beyond the issue of whether cryptocurrency is insured generic property, money, or a security, there is another fundamental issue to consider under a homeowners policy.  The insuring agreement in many homeowners policies states that personal property is insured for “direct physical loss to the property described” such loss from vandalism or theft.  Because cryptocurrency is a virtual currency, there is nothing to physically lose or destroy.  What is lost or destroyed is the record of ownership or the “key” to demonstrate ownership of the currency.  Cash can be burden by fire – not so for a currency that never exists physically.  A policyholder would have a difficult time explaining how the plain meaning of “direct physical loss” is met when the virtual currency is stolen.

A couple cautionary notes are required for this discussion.  First, not all homeowners policies are the same.  The terms and conditions of each policy will control; therefore, a generalized discussion about homeowners policies is just that – general.  For example, some policies treat money and securities the same, which could change or eliminate the need for the above analysis.

Is cryptocurrency considered property?

Second, individuals should not take too much comfort in the one reported decision on cryptocurrency as property under a homeowners policy.  In the Kimmelman v. Wayne Insurance Group decision from an Ohio trial court, the court ruled that cryptocurrency was generic property, not money, and the policy’s $200 sublimit did not apply.  Whether this decision is persuasive in other courts remains to be seen, but there are reasons why it should not.  The Ohio court did not provide a fulsome analysis of the issues, which limits its usefulness.  For example, there is no discussion on whether the policy’s submits for electronic funds or securities should apply.  In addition, the policy language is at issue in that it was drafted in 1999, years before cryptocurrencies were invented.  Newer policy language may not be the same.  Finally, the court relied heavily on the IRS guidance mentioned above, which states that cryptocurrencies are treated as property.  But that IRS guidance also states that cryptocurrency is treated as property “for income tax purposes.”  While IRS guidance on tax issues is persuasive, that guidance should have no impact on how insurance contracts should be interpreted.

The court was also persuaded that Bitcoin was general property, not money, because it could be exchanged for money, i.e. it is a convertible virtual currency.  But that rationale doesn’t explain that various forms of currency are converted to other kinds of currency all the time, e.g. Euros are converted into dollars.  Indeed, Bitcoin was originally conceived as a currency “akin to cash” by Satoshi Nakkamoto in his whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System.  And outlets such as the Wall Street Journal report Bitcoin value under “Currencies” with the Euro, U.S. Dollar, the Japanese Yen, etc., not under Stocks, Bonds or Commodities.  No one would argue that the Yen is not money but is property that can be converted into U.S. Dollars.

It also bears a mention that the focus on Bitcoin, even if the Ohio decision were correct, does not necessarily apply to other cryptocurrency platforms that have different purposes from Bitcoin.  For example, Ethereum was created for a different purpose from Bitcoin.  Ethereum, while it has a value associated with its coins/tokens, its original and fundamental purpose included providing a platform where one can build out new applications rather than simply being a substitute for traditional currency.  (For an explanation of the different types of cryptocurrencies, see this tutorial (last updated Jan. 2020)).  In all, I believe that Kimmelman was wrongly decided or, at least, of limited persuasive value that other courts should not find persuasive.

What Can Individuals Do?

The bottom line is that individuals should not rely on their homeowners policies to protect them from the loss of cryptocurrencies.  Commercial entities, in contrast, can buy crime policies or cyber insurance policies, which are largely unavailable to private individuals.  What can individuals do?  They must take proactive steps to protect themselves rather than relying on someone compensate them if their assets are lost or stolen.

For example, if an individual is using “hot” storage for their Bitcoin, i.e. having the virtual currency accessible online, the currency is vulnerable to theft by hacking or ransomware attack. The owner might consider, therefore, having a commercial third party hold the virtual token or coin in its digital wallet for the individual.  That commercial entity can be insured under a crime or cyber policy.  If the individual is using “cold” storage, e.g. storing the currency offline on a flash drive, the cold storage is vulnerable to physical destruction or old-fashioned theft.  In that case, the individual should secure the flash drive from theft and physical description by keeping it in a fire-proof safe.  Frankly, these are precautions that individuals should be taking even if the risk of loss were covered by a homeowners policy.  But, until coverage for cybercurrency for individuals is widely available under a homeowners policy, owners would be wise to take steps to protect their digital assets from bad actors and physical accidents.

Michael Menapace is a Non-Resident Scholar of the Insurance Information Institute, a partner at Wiggin and Dana LLP, and a professor of Insurance Law at the Quinnipiac University School of Law.

Florida’s AOB Crisis:
A Social-Inflation Microcosm

Never heard of “social inflation”? It’s a fancy term to describe rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.

The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000.

While there’s no universally agreed-upon definition, frequently mentioned aspects of social inflation are growing awards from sympathetic juries and a trend called “litigation funding”, in which investors pay plaintiffs to sue large companies – often insurers – in return for a share in the settlement.

Less discussed are state initiatives that inadvertently invite costly abuse. Florida’s assignment of benefits crisis is an excellent example.

Assignment of benefits (AOB) is a standard insurance practice and an efficient, customer-friendly way to settle claims. As a convenience, a policyholder lets a third party – say, an auto glass repair company – directly bill the insurer.

Easy.

In Florida, however, legislative wrinkles have spawned a crisis.

The state’s “David and Goliath” law was meant to level the playing field between policyholders and economically powerful insurers. It lets plaintiffs’ attorneys collect fees from the insurer if they win their case – but not vice versa. If the insurer wins, the plaintiff owes the insurer nothing.  This creates an incentive for attorneys to file thousands of AOB-related suits because there is no limit on the fees they can collect and no risk. Legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.

AOBs are an efficient, customer-friendly way to settle claims…. In Florida, however, legislative wrinkles have spawned a crisis.

This type of arrangement is unique to Florida. And, despite efforts to contain it through reforms to the state’s personal injury protection (PIP) program, the abuse has spread beyond its origins in the southern part of the state and to other lines than personal auto and homeowner’s insurance. More than 153,000 AOB suits were filed in Florida in 2018 – a 94% increase from about 1,300 five years earlier.

Contributing to the crisis is the ease with which unscrupulous contractors can “find” damage unrelated to an insured incident or overbill for work done and file a claim. Florida statutes let policyholders assign benefits to a third party without insurer consent – which limits the insurer’s ability to monitor a claim to make sure costs aren’t inflated.

A measure signed into law by Gov. Ron DeSantis earlier this year aimed to curb AOB litigation by putting new requirements on contractors and letting insurers offer policies with limited AOB rights, or none at all.  However, it excludes auto glass repairs. The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000.

Florida’s experience provides an ongoing study into how hard it can be to stuff the social inflation genie back into its bottle.

For more details, see I.I.I.’s white paper, “Florida’s Assignment of Benefits Crisis: Runaway Litigation Is Spreading, and Consumers are Paying the Price”.

Managing your insurance claim after disaster

Lynne McChristian

By Lynne McChristian, I.I.I. Media Spokesperson and Non-resident Scholar 

If Hurricane Dorian left its imprint on your home or business, you’ve likely already started the claims process with a call to your insurer. Knowing what happens next will be helpful as the recovery begins.

The insurance claims process is indeed a process. There are steps involved and requirements from both the policyholder and the insurance company. Most people have never had to file an insurance claim of any sort. And if they had, it might have been an automobile accident claim, which can be far less complex that one that involves damage to something as large and costly as a home and whatever is inside it.

After a widespread natural disaster, insurers take a triage approach to claims handling, and that means those people who suffered the most damaging losses are seen first. Obviously, everyone with damage wants to be seen promptly, yet taking care of people in order of damage is what serves those most in need.

After you report a claim, someone will be sent out to appraise the damage. You might have more than one insurance claims professional visit, as there is separate expertise involved – depending on the damage you reported. You might have someone look at the structure, an additional claims adjuster for the contents damage, and then a flood damage claims expert visit your property, if you have flood insurance protection. Some of these insurance professionals may work directly for your insurer, while others are hired as independent contractors to give your claim faster attention. Tip: Get a business card and cellphone number for every person who appraises the damage, so you can follow up.

If your home is so badly damaged that you cannot live in it, you may get a check on the spot from your claims adjuster. This is not a settlement check. It is coverage that is part of a standard homeowners policy, called Additional Living Expense. It covers the extra expenses you’ll have if you must live elsewhere while your home is repaired or rebuilt.

Above all else, keep organized and retain all your receipts. Temporary repairs you made to prevent further damage are covered under your policy. You will want to keep the process rolling to return to normal – and insurers want that, too.

 

The evacuation dilemma: stay or go?

As of Saturday evening, Hurricane Dorian is making a big right hand turn, moving the storm’s threat north.
So now it seems Georgians and South Carolinians are facing the evacuation dilemma: stay or go?
I’ve been there. In 1992, Hurricane Andrew was heading arrow straight for the border between Broward and Miami-Dade counties. We lived a mile north of that.
We boarded the house up as best we could, moved our valuable stuff (a lamppost, a stereo, a rocker we bought on our honeymoon) into the downstairs bathroom, where it would be best protected. And we sat on our couch and cried. We knew what we owned was junk, but it was our junk. It was everything we had, and we knew we would never see it again.
Then we left.
Too many people take the chance and stay behind. Travelers Insurance surveyed people living in hurricane-prone states. The survey found:

  • Men (23%) were more likely than women (11%) to ignore a mandatory evacuation order.
  • Millennials (21%) were more likely to ignore an order than Gen Xers (16%) or Baby Boomers (11%).
  • People in the most cane-prone states (Florida, Louisiana, Texas’ Gulf Coast) were the stubbornest. Georgians, Alabamians, Mississippians, Virginians and North Carolinians were most likely to heed the order.

Back in 1992, my wife and I were lucky. Hurricane Andrew drifted south, and we returned to a home intact.

Even so, we made the right decision, and I’d urge anyone in the same position now to leave. After all, insurance can help you recover the stuff you’ve lost. But no one can replace you.

I.I.I. has some tips for what to do when a hurricane threatens.

NICB: Top 5 states for hail claims

The National Insurance Crime Bureau (NICB) recently released a three-year analysis of insurance claims associated with hail storms in the United States.  According to the NICB review of claims data from ISO ClaimSearch®, there were a total of 2.9 million hail loss claims in the United States from 2016 through 2018.

The top five states for hail loss claims were:

  • Texas (811,381)
  • Colorado (395,025)
  • Nebraska (163,336)
  • Missouri (153,403)
  • Kansas (146,206).

The top five cities for hail loss claims during that period were:

  • San Antonio, Texas (75,187)
  • Colorado Springs, Colorado (67,920)
  • Omaha, Nebraska (52,803)
  • Denver, Colorado (48,357)
  • Plano, Texas (42,659).

Over the three years covered by the report, May had the highest monthly average for hail loss claims with 203,296. June was next with 178,881. April (164,232), March (153,716) and July (96,947) round out the top five.

Of the five policy types providing hail loss coverage, Personal Property-Homeowners was the most affected with 1,657,663 claims or 57 percent of the three-year total. It was followed by Personal Auto with 898, 500 claims and Personal Property – Farm with 149,215 claims.

“Hail damage fluctuates year-to-year, but what seems to be consistent is the number of unscrupulous contractors ready to swoop in promising a quick fix, which is why NICB encourages policyholders to use caution when selecting a contractor or other workers to help repair your property or replace your windshield following a storm,” said Brooke Kelley, NICB vice president of communications. “Always check first with your insurance company or agent before signing any documents presented by a contractor whom you did not request to appear. It’s why we say, “If you didn’t request it, reject it.”

The following tips are also helpful:

  • Get more than one estimate
  • Don’t be pushed into signing a contract right away
  • Get everything in writing
  • Require references and check them out
  • Ask to see the contractor’s driver’s license and write down the number and the license plate on his or her vehicle

The I.I.I. has facts & statistics about hail here and here.

 

Earthquakes: More links from Insurance Information Instititute

We posted this look at insurance coverage and earthquakes earlier today. More important links about earthquakes and insurance:

 

What a Shocker: Florida Tops the List for Lightning Claims

By Loretta L. Worters, Vice President – Media Relations, Insurance Information Institute

Authorities believe a lightning strike caused a home to go up in flames in the Riverview area of Florida on Friday, June 14, ironically just days before Lightning Safety Awareness Week (June 23-29) commenced.

Often referred to as the lightning capital of the nation, it is no revelation that Florida ranked first for lightning caused homeowners insurance claims in 2018, with 7,108 claims, followed by Georgia (5,539) and California (4,909), a new addition to the line-up. Texas, which had ranked second in 2016, fell to fourth place (4,559).

The number of lightning-caused homeowners insurance claims decreased in 2018—the third straight year it has done so—yet the average cost per claim has soared since 2016.  The I.I.I. findings, based on national insurance claims numbers, determined that more than $900 million in lightning claims were paid out in 2018 to nearly 78,000 policyholders.  The cumulative value of claims caused by lightning rose six percent between 2016-2018.

With increased labor and construction costs as well as a consumer appetite for smart home products, it’s not surprising that lightning-related homeowners insurance claims costs have risen.  The average cost per claim rose eight percent from 2017 to 2018. However, the average cost per claim between 2016 and 2018 increased 21 percent – a veritable bolt from the blue!