High Net Worth

Own a House on the Beach? Chances Are You’re Underinsured.

Whether high net worth homeowners take up sufficient excess flood coverage is a point of concern.
By: | April 9, 2018 • 5 min read

From the Hamptons and Malibu to Miami and Palm Beach, America’s high net worth class likes building lavish homes on the water.

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Yet these multi-million dollar estates are exposed to growing risk from sea level rise and increasingly powerful storms.

The fact that these structures are generally non-primary residences makes them even more vulnerable, and their big price tags can make them expensive to fully insure. Many of these homeowners are turning to excess flood insurance policies while others are carrying bare-bones coverage and keeping their fingers crossed.

Flood Risk on the Rise

Coastal areas have always been at a greater risk of flood. Those risks are rising. According to the National Oceanic and Atmospheric Administration, sea levels rise at a rate of an inch every eight years.

This pushes storm surges farther inland than they once did and is creating more frequent nuisance flooding. Research from Zillow estimates that 1.9 million homes worth more than $800 billion are at risk of being underwater by 2100 due to climate change. The biggest risks are in Florida, New Jersey, Massachusetts, California, South Carolina, Hawaii and North Carolina.

Lisa Lindsay, executive director, PRMA

The Private Risk Management Association (PRMA) surveyed agent and broker members in 2017 about their high net worth clients and found nearly 54 percent were unprepared for flooding.

And while more than 60 percent said catastrophic weather events like hurricanes and floods kept their clients up at night in 2017, nearly three-quarters said they wouldn’t increase their preparedness levels.

“Many still think it’s not going to happen to them. It’s just a mindset that people continue to have,” said Lisa Lindsay, executive director, PRMA.

In recent years, weather events have flooded areas previously not considered high risk. The U.S. has now experienced more than two dozen 500-year flood events since 2010, including Hurricane Matthew in 2016 and Hurricane Harvey in 2017, which caused $125 billion in damages and catastrophic flooding in Houston.

In 2012, Hurricane Sandy flooded thousands of homes in the Northeast that previously were never considered at risk for flooding.

Going strictly off FEMA flood maps to gauge risk is an “outdated way of thinking,” Lindsay said. A study in Environmental Research Letters found more than 41 million Americans live in a 100-year flood zone, more than three times as many as the FEMA estimate.

Some FEMA flood maps are years outdated and don’t account for how buildings are constructed, rapid rain accumulation and population growth. Larry Larson, senior policy adviser and director emeritus, the Association of State Floodplain Managers, told Bloomberg the maps “will always be obsolete the day they come out.”

Moving to Excess Flood Insurance

PRMA is working with the industry and high net worth homeowners to promote better ways to assess individual risk exposure. The PRMA survey found half of homeowners living in high-hazard areas didn’t take steps beyond purchasing basic flood insurance, and less than 20 percent purchased excess flood insurance.

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This often leaves a big gap in coverage for high net worth homeowners because NFIP limits are only $250,000 for structures and $100,000 for contents.

“That’s obviously not going to cut it if you have a $10 million house,” said Will Van Den Heuvel, senior vice president, personal lines, Cincinnati Insurance Companies.

Excess flood insurance is available in most areas, Van Den Heuval said. Cincinnati offers high value home insurance customized for high-end properties with deductible options up to $500,000. Many excess policies cover flood and multiple risks for primary and vacation homes with coverages up to $5 million for structures and $2 million for contents.

Despite the availability of coverage, high premiums and low perceived risks can still leave some questioning the value of their policies, said Charles Williamson, CEO, Vault Insurance. High net worth individuals can be just as price sensitive as general consumers, and many have raised their deductibles, lowered coverage or even gone without coverage at all.

“The discussions are the same, the numbers are just larger. They might wonder why they’re paying $100,000 per year for hurricane insurance when they haven’t had one in years,” Williamson said.

Moving Beyond Insurance

Many municipalities update building codes after major events to reduce the risk of damage in the future. Dade County in Florida imposed significant building codes in 1994 after Hurricane Andrew, and the rest of the state followed suit between then and 2002.

While those codes are some of the most rigid in the country, they’ve been credited with reducing damage in subsequent storms. Yet in parts of the Northeast, such as Long Island, there aren’t any particular hurricane building codes.

“Ultimately, the closer you are to the water, the more expensive it becomes to the point where customers may do the calculation that it’s just not worth it,” — Will Van Den Heuvel, senior vice president, personal lines, Cincinnati Insurance Companies

“It’s very much market by market depending on elevation and how the home is built,” Williamson said.

Flood policies are usually based strictly on flood zones and elevation of the home, but other variables can come into play in the private market. Most high net worth homeowners buy a FEMA policy first and then purchase excess coverage in place to fill the gap, Williamson said.

Increasingly sophisticated mapping and pricing technology is enabling excess coverage carriers to better price risks depending on elevation and design, meaning many policies can be priced on a house-by-house basis.

“But ultimately, the closer you are to the water, the more expensive it becomes to the point where customers may do the calculation that it’s just not worth it,” Van Den Heuvel said.

High net worth homeowners are also taking measures beyond flood insurance.

New construction is putting homes higher above sea level. Mechanical equipment, such as HVAC units and hot water heaters, are being placed on higher floors. And in Florida, many beachfront coastal homes now have “floodable” first floors used for parking and patio space with livable space placed high enough that most storm surges can run beneath the home.

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There are also inflatable water barriers that can be used to keep out floodwaters up to three feet high. Innovative yet expensive designs can also reduce risk. In “dry floodproofing,” walls, doors and windows are made watertight to keep water entirely out of the building.

With “wet floodproofing,” the building is designed to let water flow through the building and minimize damage by moving power outlets up the wall. Whereas flood risks can’t be fully eliminated, homeowners can reduce the cost of potential damages.

“There are so many things that people can do. We’re trying to change the mindset that all they can do is buy insurance. There’s plenty to do to minimize the losses, and it’s necessary given the frequency of disasters,” Lindsay said.  &

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]