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    Geoffrey Gordon

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    Fallout of Private Flood Insurance Market and Effect on NFIP Policyholders

    Posted by Geoffrey Gordon

    Thu, Aug 11, 2016 @ 01:58 PM

    IMG_0595.jpgA private flood insurance market is beginning to emerge for homes and businesses in existing flood zones. The effect of this development on the NFIP's monopoly on flood coverage here in the United States will be significant.  If you are able to transition from NFIP to one of our private flood markets, read on!

    A private market will provide innovation and cost savings for many consumers in flood prone areas.  Ultimately this will lower costs for many property owners.   But for others, watch out.

    Rates used today by the National Flood Insurance Program (NFIP) have little relationship to actual risk.  This is a program designed by Congress, so political factors influence many characteristics.  For example, consider two houses side by side, same age, same size and value, same exposure to a flood.  But one is a ‘primary’ home where the family lives full time, the other ‘secondary’, a vacation home.  The primary home pays less because a secondary homeowner presumably can afford higher prices.   Affordability is not a risk factor with catastrophe insurance.  Thus some properties are subsidized, while others are priced to subsidize other properties.  Until now, the NFIP has had a monopoly on pricing: take it or leave it.  Private insurance challenges all that.

    The private flood insurance market will be most competitive where they can underprice insurance for properties subsidizing others, that is, overpriced relative to actual risk.  They’ll do this by applying true  risk based rates, rather than those devised by the NFIP or Congress using factors such as homeownership as rating mechanisms.

    The effect on the NFIP program is already evident.  Losing policyholders who subsidize other policyholders is chipping away at the foundation of National Flood subsidized rates.  NFIP likes its comfortable monopoly, and is not eager to give it up.  If properties priced to subsidize others leave the program, prices will have to increase, perhaps substantially.

    NFIP isn’t making transitions easy for its customers.  We recently had a homeowner customer change from NFIP to a private program, saving about 50% or $2,000 in their case.   We sent the customer’s signed request to cancel the NFIP policy prior to the renewal date.  Unfortunately the bank (mortgagee) paid the NFIP premium from the escrow account.   NFIP would NOT cancel the policy, since they do not yet officially recognize the private market  (this may change with another act of Congress, but don’t hold your breath).   Thus, once the policy is paid, the premium won’t be returned, even with a signed request to cancel.   An appeals process is available, but again, don’t hold your breath. Careful coordination with your bank (to prevent payment) is important.   The bank must also recognize the private flood insurance.

    The main lesson is in the payment details: If you switch to a private carrier and the flood insurance is part of the bank’s escrow for taxes and insurance, notify the bank in writing NOT to pay the NFIP bill.  If they pay it, you probably won’t get your money back from NFIP.

    In addition, if you leave the National Flood insurance program and decide private flood isn’t for you, expect to need an elevation certificate and possibly higher prices when you do return.

    The long-term economic issue is this: as private insurance offers lower prices to overcharged properties, subsidized insurance in high risk, loss prone areas must rise.  We have long predicted that the economics of the National Flood Program were precarious, and believe that the private markets' disruption of the existing program will hasten the national program’s decline.

    The current program is today about $24 billion in debt to the U.S.  Treasury and Congress has been struggling with making the program revenue neutral for years.  With subsidized policies under threat from private insurance markets, this job just became harder.

    Look to Gordon Insurance for guidance on this ever changing and fluid insurance program.

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    Tags: home, insurance, flood insurance, new england, private flood insurance

    Auto Insurance Rates on the Rise in MA

    Posted by Geoffrey Gordon

    Wed, Jul 13, 2016 @ 10:25 AM

    The Boston Globe recently ran an article about automobile insurance rates in Massachusetts increasing between 6% and 9% on average this year.   The article outlined some of the reasons behind these increases including:

    1. Lower gas prices mean people drive more.

    2. More drivers on the road mean more accidents.

    3. Even though newer cars are getting safer, even small accidents now cost a lot more to fix.

    4. Investment income, traditionally part of an insurance company’s economic calculus, is so low today that it no longer contributes much to an insurance company's bottom line numbers. That difference is made up for with additional costs for consumers. 

    Additionally, according to the Globe, traffic fatalities nationally were up nearly 7.7% last year.  This affects costs for bodily injury, the coverage used when someone gets hurt.  Thus, it isn’t just that new cars cost more to fix, medical costs for injury caused by auto accidents are also on the rise.  In the settlement of an auto claim, adjusters use values assigned to the damaged vehicle, but the cost to treat the injured can exceed the policy limit.  

    Ultimately auto insurance rates are derived from four primary factors:

    • the kind of car you drive,

    • the amount of insurance or how much insurance you buy,

    • where you live, and

    • your driving record.

    Massachusetts prohibits the use of credit scores in pricing auto insurance, but these are used in most other states because credit scores are predictive.   To address this, Massachusetts carriers use proxies for credit such as home ownership or group / association memberships.   This is why package credits – insuring the home and car with the same company - are so meaningful today.

    Naturally more expensive cars cost more to insure for collision and comprehensive coverages.   On the other hand, liability costs are less affected by the kind of car you drive.  It doesn’t matter whether you’re driving an expensive car or an old beater: if you hit someone else, it’s the cost to fix their car or make them well again is the same.

    auto-insurance-rates-on-the-rise-ma

    The next factor, where you live or more accurately where your car spends the night, is another rating factor.  Cities have higher congestion, meaning higher accident frequency; this affects insurance rates for everyone in your city or town.    The Globe article mentioned that the average annual premium in Massachusetts was $1080 in 2013.  Most suburban drivers pay less than this, and urban drivers a little more.

    Finally the biggest factor in auto insurance costs is your driving history. Good defensive driving will lead to lower auto insurance costs for everyone, but mostly for you.

    Gordon Insurance represents most of the top companies in Massachusetts so we always try to find the right company for you.   For more on automobile insurance in general, visit our website at www.agordon.com/auto, or call us at 800-649-3252.

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    Tags: auto, rates, insurance, massachusetts, boston globe, rising rates, andrew g gordon insurance

    Lightning Insurance

    Posted by Geoffrey Gordon

    Mon, Aug 24, 2015 @ 10:00 AM

    protect_your_home_against_lightning_Andrew_G_Gordan_Inc_Insurance-052476-editedLightning is caused when warm and cool fronts meet, and as they cross each other, just like rubbing a balloon on a wool sweater, positive and negative electrical charges become out of balance.  Streamers find a pathway up from the ground (a tree, a rock…a house), and the lightning comes down. 

     

     

    Did you know that the thunder clap is the air collapsing upon itself after the lighting, which turns the air to plasma because of the high heat, leaving a vacuum along the lightning strike. 

    A lightning strike is generally only about a centimeter (1/3 inch) wide, averaging about 3 miles high, and unleashes anywhere from 1 billion to 10 billion joules of energy. That’s enough to boil sap in a tree and make it explode from the immediate heat: like popcorn, but inside a tree.

     

    Since lightning is so powerful and dangerous, always be wary of it when there are storms. When a storm is approaching or is present in your area, always make sure that you are inside somewhere. You will be much safer inside a building than outside in an open area. Make sure that you are never near a body of water either; water is a good conductor of lightning so you should always stay clear of water in a storm. For more lightning safety tips, check out our website

     

    Browse our website for more storm insurance. Contact us if you have any questions!

     

    Top 10 Things to Know about Homeowner's Insurance

     

    Geoff

    Earned Premium

    Posted by Geoffrey Gordon

    Fri, Jun 26, 2015 @ 10:45 AM

    Earned Premium
     
    Earned premium on an insurance policy is the premium for coverage provided, and this may be for less than the full term (usually a year) when a policy is canceled mid-term, or other than on the expiration date or renewal date.  The remaining amount, the amount that accounts for the period after the policy cancellation, is the unearned premium.
     
    Here's a simple example. Let's assume a policy runs for exactly half a year. Under normal circumstances, the earned premium would be 50% of the annual and the unearned premium would be the other 50%.  In this example; you get half a year coverage for half of your premium.

    All this makes sense.  But welcome to the world of insurance where administrative and underwriting costs may be accounted for as well.   The distinction is important whenever we see the term "minimum earned premium".   Policies for professional liability and many unusual coverages include a 25% or higher minimum earned premium.
     
    Here's how it works: let's assume it's a $10,000 policy to insure a building has a 25% minimum earned premium (MEP).  One month into the policy, the owner decides to cancel the policy, thinking he's only used up $813.33 of the insurance, expecting roughly $9,166  - a pro-rated portion - returned.   Not so fast.   Because the policy has 25% minimum earned, 25% or $2,500 in this example was 'earned' the day the policy was issued so the owner gets $7,500 back as "unearned" premium.

    What_is_an_earned_premium_Andrew_G_Gordon_Inc_Insurance

    Using the same time metric as above, 50% earned is shown below.  No problem if you keep the policy for more than half the expected term, but expensive to cancel earlier.    

    Whats_a_minimum_earned_premium_insurance_Andrew_G_Gordon_Inc_MA

     

    Some policies that insure more difficult properties or operations stipulate 100% earned premium. 100% earned means you pay for the whole policy up front; even if you cancel the next day; there is no unearned premium to return.  These are common with vacant properties such as homes or offices which have nobody living or working there. These properties are generally for sale or in such condition that insurance carriers will dictate terms that nobody in more competitive circumstances would agree to.  These kinds of situations generally take a disproportionate amount of underwriting attention up front so the underwriter offering terms is making sure they get paid. 

     

    100_minimum_earned_premium_Andrew_G_Gordon_Inc_InsuranceShort rate vs Pro rated
     
    Many policies have insurance cancellation provisions that bypass the minimum earned provisions while still recognizing the underlying initial costs of underwriting and producing a policy.  This method is known as short rate and is most effectively described with an example. Let's use the same example as above with the $10,000 policy to insure the building; we'll cancel the policy halfway through the year. We'll expect $5,000 back as our unearned, right? Not quite. The short rate provisions provide a sliding scale throughout the policy term whereby 60% is earned, meaning only 40% is unearned and returned.  This has the same effect as a 10% cancellation penalty, so it's worth paying attention to when the need for protection remains, but you decide to change carriers.

    What_is_short_rate_prorata_prorated_cancellation_earned_premium_insurance_Andrew_G_Gordon_Inc 
    Billing
     
    Bear in mind that billing arrangements are independent of these policy provisions. While monthly billing programs generally track pretty close to the earned / unearned cross-over, because of statutory cancellation notice requirements and other delays, it is possible to have a policy cancel for non-payment, and still owe money after the cancellation. As bizarre as this sounds, it still can happen under some circumstances. 

    Contact us to start a conversation about your insurance!

    Geoff

    Outdoor Wood and Brush Burning Tips

    Posted by Geoffrey Gordon

    Mon, Apr 27, 2015 @ 01:29 PM

    Before you even think about brush burning, call or go online with your local fire department for local department rules and regulations. In addition to the regular safety precautions you already know,  these rules are worth re-reading every year, both to understand the responsibility you are accepting, and to be reminded that fires can be incredibly destructive. In Norwell we need a permit number. 

    Be_prepared_for_brush_burning_with_your_hose_Andrew_G_Gordon_Inc_InsuranceSetting up:

    Have a hose turned on and ready to go. Test it before lighting a match.

    Have all the tools you will need including a steel rake, regular leaf rake, and your garden hose.

    Have a look downwind of your fire.  Is there anything valuable of yours downwind?  Is there anything of value to your neighbor downwind that you don’ t want to pay for?  Fire is an indiscriminate consumer of anything it can get, so treat it with the healthy respect it deserves.

    If your fire is in the woods (as opposed to over an area where you know the dirt underground is clean fill), pay particular attention to any underground roots, especially dead roots from dead trees. Smoldering roots can take days to extinguish, carrying a several days risk of a pop-up fire.

    Fire_safety_brush_burn_in_Massachusetts_Andrew_G_Gordon_Inc_InsuranceStarting the fire:

    Starting the fire can be tricky if it has rained a lot and the wood is all wet: but don't fear! Start a small fire with newspaper up a stack inside the burn pile. The stack will become its own chimney. If this doesn't work, create a kindling pile at the base of the brush pile, with dry newspaper underneath it. Use good dry kindling that you would use to light a woodstove, including fire starters available in many home improvement or stove stores. Just create a little campfire in the bottom of your burn pile, and even a wet pile will begin to burn with enough interior heat. 

    Ashes will carry, especially on a windy day, so focus your garden hose attention on the area down wind.  

    While you are hosing down the area downwind of your fire, just let the fire do its work. Eventually you will have a gray line with loose sticks in a circle that defines where the hot fire was.

    When the fire first gets going hit the area around the fire  again with the hose. Generally you can let the fire do its work, but don't ever leave it unattended.

    Remember to have a look around and see if there is anything that you value downwind from where you will have your fire.

    Brush_burning_fire_safety_tips_Andrew_G_Gordon_Inc_MAKilling the fire:

    When you kill your fire at the end of the day, be sure to soak it thoroughly and stir the water into the ashes thoroughly. The water should mix into a nice black and charcoal soup.

    Underground fires are a particularly dangerous hazard.  As remarked in the set-up section above, if you’re in the woods, be on the lookout for smoke emerging from under the area where your fire is.  Smoldering roots should be well watered until steam and smoke stop completely.

    Contact us with any insurance questions and for fire insurance info!

    Homeowner's Checklist  Download

    Geoff

    Total Loss Tips: What to Do If Your Car Is Totaled

    Posted by Geoffrey Gordon

    Tue, Jul 29, 2014 @ 11:25 AM

    Cover yourself in case of total loss with auto insurance from andrew g gordon inc maWhat to do if your car is totaled.

    Having an accident resulting in a total loss can be a big disruption.  But for most people, a total is way better than major repairs which can take weeks.  In this blog we will give you some guidance on getting you into a new car or truck with as little disruption to the rest of your life as possible.

    Replacement vehicle:

    The first thing to consider is what you will drive until you replace your old car, and who will pay for it. The answer hinges on two things: first do you buy substitute transportation coverage? And, who was at fault?

    If you buy substitute transportation coverage, that will be available for a replacement vehicle until the total loss is paid, plus a few days. It’s important to note that they don’t pay forever while you negotiate a new car; starting that process right away will work to your advantage. 

    If you do not buy substitute transportation, and we don't*, then the next question is, who is at fault? 

    If you were not at fault in the accident, the insurance company for the at-fault driver will pay for a replacement until the total loss is paid, plus a few days. Contact the other driver’s company directly (and we at Gordon Insurance will help you get started, but can’t represent you legally). The other company’s inside adjustors will help you coordinate a rental company such as Enterprise or Alamo, and often pay them directly. 

    Learn what to do if your car is totaled with auto insurance from andrew g gordon inc

    If you were at fault in the accident, or if fault is disputed, and you do not buy substitute transportation, you’ll have to decide whether you wish to pay for a rental or work things out with other resources.   

    (*Our family doesn’t buy this coverage since there are still kids and an extra vehicle at home. In the case of this accident, the other party was responsible, so we got paid by their company. )

    Start looking for a replacement car right away.

    As soon as you think your car might be declared a total loss, start the car buying process.   I was surprised at how long it took to buy our new car.  Our totaled vehicle was a 2009 Toyota Tacoma. There are plenty of Tacoma's on local dealers’ lots, but we prefer a manual transmission: this single selection made the process finding a new vehicle take several days longer than we expected. Because the rental vehicle mentioned above is only paid for until the total is paid (plus a few days), make every effort to decide on the new vehicle before the rental runs out.

    Settlement process on your old car.

    Different insurance companies have different processes for determining the value of your old totaled vehicle, but each are remarkably close with today's information based marketplace.   Most companies use a combination of on-line quotes and contacting dealers for actual cars on the lot to ensure quick agreement and completing the claim. The amount they offer also includes the sales tax of 6.25%, something not expected, but which does represent the real cost of getting a new car.

    Because we were not at fault, we asked both our company, Plymouth Rock, and the company of the at fault driver to provide us with a total loss estimate. Plymouth Rock offered more than the other company, so naturally we took the higher value and settled with them. 

    Cover your car for total loss damage with andrew g gordon inc insuranceReleasing your beat up car:

    After your total car has been towed from the accident scene, it sits on a garage lot until it can be towed to the salvage yard. The garage lot collects storage fees every day your broken car sits on the lot. Naturally the insurance company is eager to get the vehicle moved to the salvage yard as soon as possible to minimize storage costs. They do need the car or truck’s title to complete the transaction, so coordinate getting the title from your bank, or if you own the car free and clear, locate the title. 

    Tip: as soon as you know your vehicle has been totaled, make your way to the garage lot and get your personal stuff out of and your plates off that vehicle. You’ll need the plates and registration for your new car. 

    Total losses and salvage value:

    Salvage vehicles have increased in prices over the past few years for two solid economic reasons. The first is that new car parts cost more, making use replacement parts rise in value as well. The second arises from the fact that today's better made vehicles stay on the road longer. Repairs to these older vehicles are made with used parts…which come from salvage yards. The salvage value for a 2009 Tacoma in 2014 was remarkably high: aside from the broken axle, our 2009 Toyota Tacoma had excellent bodywork all the way around, seats, electronics, and a great engine; we expect that truck to become parts to many of its brethren.  Because the insurance company uses this residual salvage value to lower their overall cost on a total, the amount of damage triggering a total loss has become an easier bar to reach.

    In our case, the high residual book value of our wrecked Tacoma allowed us to get into a new Tacoma for relatively short money.  Because we begin replacement vehicle purchase process early, we had our new Tacoma just before the rental ran out.   The disruption to life with a total loss cannot be totally avoided, but aside from retrieving the title, retrieving our stuff, and the somewhat tedious process of buying a new car, we’re in a new truck for short money, and nobody got hurt.

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    Tags: auto, insurance, quote, total loss, vehicle damage, crash damage, total loss settlements

    Flood Insurance Changes in MA: 2014

    Posted by Geoffrey Gordon

    Thu, Nov 14, 2013 @ 02:25 PM

    In July 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 to address problems with the existing national flood insurance program. The program had been subsidizing over 1 million flood insurance policies around the United States and was running multi billion dollar deficits, with the current deficit at approximately $28 billion.

    The combination of regular losses exceeding premiums collected, the specter of rising seas, and pressure of continued coastal development is not sustainable. The changes in Biggert-Waters meant ending subsidies for approximately 450,000 policies in flood zones, particularly for secondary homes, businesses, and properties with repeat claims. In addition, reduced subsidies on about 700,000 policies will happen upon sale of a house or business.

    Removal of these subsidies has had a devastating impact on the real estate market in many coastal areas. The reality of real estate ownership is that affordability is measured to a great deal in monthly payments made up of PITI: principal, interest, taxes and insurance. To illustrate, imagine you are thinking about buying a beach house and you can afford a $300,000 mortgage at 5% over 30 years. The principal and interest payments for this would be approximately $1610 your budget for principal and interest. Insurance is separate, and we will leave out taxes for this discussion. If flood insurance costs on the property increase by $3000 per year, that's $250 per month. To compensate, the amount of principle that meets your monthly $1610 budget drops from 300,000 to approximately 250,000; this means the market value of this house has effectively just dropped by about $50,000. Many projected flood insurance costs are higher. A flood insurance cost increase of $6000 per year, or $500 per month, equates to a principal loan amount of $175,000, implying a decrease in market value of $125,000, over 42% in this same example. Clearly, removing subsidies that have existed since 1968 is extraordinarily painful for many people who have enjoyed these rates for decades.

    Prepare for 2014 flood insurance changes in ma with andrew g gordon incThe chief architect of Biggert Waters, California Congresswoman Maxine Waters recently appeared on CBS news indicating that these increases were ‘unintended consequences’ of the legislation. Political pressure to delay the effects of Biggert-Waters has built particularly from southern states including Florida, Mississippi, and Louisiana where many properties with subsidies were being phased out. News reports late in 2013 indicated that a bipartisan deal had been reached to delay the implementation of Biggert-Waters.  In January 2014, the Senate voted to delay changes for another two years.  This would allow FEMA to review their plans and implement other changes.  Leaders from the House of Representatives have indicated that legislation has not been filed, nor when it might be filed. We will continue to watch developments in this proposed legislation closely. 

    The proposed delay in changes will apply mostly to properties located in Zones A and V. Properties located in zones B, C, and X are still eligible for the Preferred Risk Policy at a cost of under $500 annually! If your property is expected to be rezoned in the A or V zone, we strongly recommend purchasing a Preferred Risk Policy now. Under current PRP Extension guidelines, you may keep this Preferred Risk Policy when your property changes to an A or V Zone in 2014. This is provided you maintain continuous coverage, do not have repetitive losses or the guidelines change.  The Preferred Risk Policy could still increase 20% annually each and every year after that, but it's set at a great starting point.  

    There is a separate trend happening within flood insurance: mapping. New maps were expected to take effect here on the South Shore in June 2014, but have also been delayed by proposed "undo" legislation.  Mapping technology has advanced much faster than flood insurance maps have been able to keep up with, and the changes would have been more accurate.  The new maps will reflect available digital GPS technology, as well as recognize that new flood patterns emerge after every storm.

    But flood maps aren't perfect. Often, the best thing a homeowner can do is to engage a qualified engineer to provide a certificate of elevation specific to their home. Our office is closely dialed in to the best engineers on the South Shore, so if you have not had an elevation certificate completed, call us for a list of qualified engineers at 800-649-3252. Learn more about flood insurance here.

    INSURANCE QUESTION?

    Geoff Gordon

    Tags: Biggert-Waters, Flood Insurance Changes MA, Flood insurance on the South Shore, Flood changes in MA, flood insurance MA, flood map changes

    Biggert-Waters and Flood Insurance Rate Changes in MA

    Posted by Geoffrey Gordon

    Fri, Sep 13, 2013 @ 05:42 PM

    The Biggert – Waters Flood Insurance Reform Act, inspired by ‘bigger waters’ along the coast (not really), arose out of a desire to make the National Flood Insurance Program (NFIP) economically sustainable, and less dependent upon taxpayer subsidies. The removal of subsidies for about 20% of coastal properties, those in Zone A and Zone V, will be a costly transition for some property owners, though there are important timetables that limit the transition to non-subsidized rates.

    The law passed and was signed by President Obama in 2012 without much fanfare, but now changes are looming (most scheduled for October 1, 2013). While political pressure is pushing to delay the changes, we believe property owners should prepare for these changes to take affect on schedule.  Many changes are beginning on October 1st, 2-13, some won't kick in until 2014.

    Two important facts may help to understand how we got here. First, mapping technology has come a long way in the past several years, and rating precision has followed. The NFIP is able to quantify the chance and severity of future losses, and thus rate more precisely. This technology also means as coastal development and environmental factors (including floods) affect landscapes, flood zone maps can change as often as each year as well.  Mapping improvements are affecting people independently of many of these Biggert Waters changes.

    The second fact is the NFIP is about $25,000,000,000 ($25 billion) in debt to the U.S. Treasury from past losses. The government wants their money back, and they don’t want to subsidize flood insurance rates any longer.  While the new rates aren’t calculated to recoup old losses, they do include the interest on that debt. Thus, subsidies are transitioning out of the flood insurance program, especially for homes built before the early flood maps in the 1970's.

    The result: Rates for about 20% of flood insurance buyers are going up, and more people are now learning they live in a ‘flood zone’ as maps are updated. Scituate and Marshfield MA flood maps affect their towns particularly hard.  The greatest impact will be to property owners who had subsidized flood insurance rates: homes built prior to Flood maps (most South Shore towns, this means early 1970s)

    Non-subsidized (risk based) rates won't happen right away. In and effort to transition to actuarially based rates, increases on existing flood policies will be limited to 25% per year until rates become non-subsidized. Flood policies with substantial increases coming (but subject to 25% / year increase limits) include:

    1. Non-primary homes, meaning vacation or rental homes;
    2. Properties with severe repetitive losses (paid claims greater than the market value);
    3. Non-residential (e.g. business use) property.

    Properties affected by map changes alone will be limited to a 20% annual ceiling on increases, and those won't take effect until 2014.

    There are exceptions to the 25% ceiling increase transition rule, meaning when new fully risk based rates will take effect:

    1. If you let your policy lapse (by not paying on time), fully non-subsidized costs will kick in right away.
    2. Grandfathering’ rules that used to be in place for property sales are phasing out starting in  2014.  In the past you could continue the rates of a prior homeowner; now non-subsidized rates will apply right away when buying a property from someone else.  One important exception: if a substantial upgrade was made in full compliance with local flood ordinances, grandfathered rates will continue (subject to written confirmation from building inspector).
    3. If you make a substantial improvement to an existing property.  Although if improvements include becoming fully compliant with current flood ordinances,

    Maps under the new law now include environmental sensitivity index mapping in an effort to promote green planning and rebuilding. This will include such infrastructure protection as dunes and other natural habitat that proved effective during Hurricane Sandy.

    Some aspects are NOT changing.

    If your town’s rates increased after 2008, you may still be eligible for a preferred risk policy (PRP). Call our office for details. One stated objective of the new law is to broaden the number of people who buy flood insurance, especially those in less vulnerable zones.

    The NFIP has a monopoly on the pricing of flood insurance, but the underwriting, billing, and policy service functions are outsourced to insurance companies. So if you have a flood insurance policy serviced by Commerce, or Hartford or National Grange (to name a few that we use), remember it’s all still NFIP backing it… and writing the rules.

    In spite of the NFIP monopoly on pricing, that doesn't mean there is nothing homeowners can do. One thing every property owner should do is engage a qualified engineer to provide an “elevation certificate” for your home. If your home is higher than the measured grade, the flood maps may not reflect its elevation properly; an elevation certificate can demonstrate the proper elevation above mean high tide (a primary rating factor). While it’s possible the elevation certificate might NOT affect your rate or even increase your rate, we believe it’s better to know this sooner, as you might be eligible for lower rates right away. In fact, the NFIP is requiring many policyholders to provide an elevation certificate to retain existing zone or rates. This is all part of the effort to achieve more precise rates for each property.

    There are also coverage and deductible options for controlling your costs (although you may find your bank or mortgage company will weigh in on these options as well).

    Lastly, as with other insurance, if you have a small loss, talk to us about whether it makes long term sense to file a claim. Repeat claims are a ‘predictive rating factor’, meaning they’ll charge you more going forward of you file a claim.

    One last comment about flood insurance: the coverage is designed by, and the rates are calculated by the NFIP. They have a monopoly. They are not susceptible to consumer driven feedback. Coverage is limited (e.g. no coverage for items in the basement except house mechanicals such as the furnace). Don’t expect a lot from it. Instead plan for taking steps to secure your property as economically or safely as possible.

    Click below for a personal customized conversation with us.

        INSURANCE QUESTION?

    Geoff Gordon

     

    Tags: flood insurance, flood insurance MA, flood zones, flood zone changes, Flood Insurance Changes, flood elevation certificate, flood map changes

    Predictive Modeling

    Posted by Geoffrey Gordon

    Wed, May 22, 2013 @ 07:09 PM

    Andrew G Gordon Inc Insurance answers your questions about predictive modeling and what is itPredictive modeling describes how insurance companies develop rates that match individual risk traits to expected losses. Companies utilizing good predictive models have a distinct advantage over those who don't. For consumers, expect to be asked more questions about homes, cars, and other aspects of your lives; businesses have unique rating characteristics as well. We're headed to a world where rates are unique to every consumer.

    Predictive modeling is the insurance industry's take-away from the data mining work that is occurring throughout a broad cross-section of businesses today. Many industries benefit from data mining: bar coded discount tags from the grocery store, pharmacy, sporting goods store, and other places we shop are providing companies we use more information about our buying habits. Data mining yields benefits to many industries.

    In insurance, the large volume of data today allows actuaries (insurance statisticians) to seek and test new factors for correlation to insurance losses, then weigh these factors in rating algorithms. Insurance companies have always shared some industry data on losses, though larger companies collect and analyze their own data, and now in many new ways. Mining data for factors that contribute to predictability makes sense.

    Whats predictive modeling with Andrew G Gordon Inc auto and homowners insuranceAs an example, "account credits" are a new rating factor here in Massachusetts home and auto insurance, popular since the fix-and-establish system with rates by the Insurance Commissioner changed to a market based system. These account credits provide significant savings off both auto insurance and home insurance. Why? Is it because consumers who buy their home and auto insurance with the same carrier tend to remain customers longer? Or because there are cost savings with billing or other account maintenance items? Or is one indicative of a decent credit score? "Yes" to all of the above. Because it means "yes" to all of these factors, it becomes even more powerful. Mathematically, it's akin to the magic of compound interest. Credits on credits on credits make for deep discounting.

    There are other credits (and charges) that are less obvious but contribute to a final rate. One predictive factor that is NOT permitted for rating Massachusetts auto insurance is credit history. But the owners of homes generally have good credit. The bank already knew that when they lent the money. Companies and their actuaries have discovered other indicators of good credit: including buying higher liability limits, shopping and buying ahead of an existing policy's expiration, and paying in full. These proxies for credit are the industry's way of developing a leaner rate while still following the law. Other rating factors contribute too: if you're a member of a motor club, if you've graduated from college, how long you've lived at your current address, if you've had (even) not-at-fault accidents, and other questions that you'd think have nothing to do with auto insurance rates. Combine these with traditional metrics such as annual mileage, years of driving experience, moving violations and at-fault accidents, and auto insurance rates become unique to every driver.

    What is predictive modeling for home and auto insurance with Andrew G Gordon IncFor homeowners, some of the unexpected rating factors include gun ownership, dog ownership (broken down further to breed), existence of home generators, and credit history (which is permitted in home insurance). Combine those with expected rating factors such as age of home, existence of alarms, and proximity to the ocean, and models become more predictive with every piece of relevant information. Businesses are increasingly subject to additional questions for rate development: what insurance professionals know as 'supplemental applications'. These collect more details to find the most competitive and accurate rate. Companies using these have a distinct pricing and product advantage those who don't, and they know it.

    The old methods of calculating an insurance rate with a pencil and a calculator are out; multi-variant rating is in.

    At Gordon Insurance, we use a library of checklists to aggregate the rating factors from our many companies to ensure you're getting the best rate possible. Many questions we ask will result in: "why do they need to know that?" We don't always know. But some actuary somewhere found a correlation to expected claims. Privacy laws and our national tradition of privacy will push back against this trend. But the trend toward pricing based on multi-variant models is accelerating, as a combination of proprietary calculations and quickly secured public information makes more data available. So to the question, "does it affect me?": Absolutely. By working with Gordon Insurance, you'll find the best fit with the company that likes your profile better than anyone else.

    If you have any questions about how insurance works and how it is determined, feel free to contact us. We love answering insurance questions and helping customers find the best possible rates to meet their insurance needs.

    Top 10 Things to Know about Homeowner's Insurance

    Geoff Gordon

    Tags: home, auto, how insurance is calculated, insurance models, model, Business, predictive modeling, insurance math

    Pure Auto Insurance in MA

    Posted by Geoffrey Gordon

    Thu, May 09, 2013 @ 05:36 PM

    Know about pure insurance in MA with andrew g gordon incPure Insurance, the reciprocal exchange for high net worth customers, now offers auto insurance in Massachusetts. Pure has added this line to its existing members with home insurance as a way to complete their concierge level risk partnering with its members; Pure has been in Massachusetts for homeowners since 2010. Massachusetts has unique automobile regulatory requirements, so the policy tries to combine the best from its nationally offered private passenger auto policy with unique Massachusetts rating and underwriting.

    In order to obtain Pure auto insurance, the auto policy must be written with a homeowner's policy. However, with the joined policies, there is a discount of approximately 10% for the auto policy, and another separate discount also applies to the homeowner's policy. Essentially, you save more, enhancing the overall value of all policies. If you expect to add the auto policy, you may include an upfront account credit when insuring a home. We can expect Pure to be particularly competitive with multiple-vehicle/multiple driver households with good driving records. Pure also does not limit the number of vehicles that can be on the policy, and can include motorcycles and collector cars right on the same policy.

    Highlights of the Pure auto coverage:

    • Worldwide coverage
    • Agreed value- amount remains fixed throughout the year regardless of depreciation
    • Lease gap coverage
    • OEM parts
    • Accident Forgiveness for first incident included
    • Extended transportation up to $5k
    • Unlimited roadside assistance

    Discounts include:

    • More cars than drivers discount
    • Clean loss history
    • Multiple policy discount
    • Seasonal use discount
    • Good student (There is not an away from school discount)

    The policies are issued by Pure, not by an outside vendor. Also, the Massachusetts auto bill is included on the one bill with the home and excess policy. If you have any questions regarding the new Pure auto insurance, contact us or visit our dedicated Pure page.

    Contact Us

    Geoff Gordon

    Tags: pure insurance, pure auto insurance, pure auto insurance in MA, Massachusetts auto insurance pure, pure MA auto, pure Massachusetts auto insurance, pure Massachusetts auto

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