Insurance Quotes & Advice

A flurry of major storm systems over the past few weeks have caused widespread flooding along the swollen Mississippi river.  Although there was a slight lull in in storm activity late last week, the river remains dangerously high.

The severe flooding has already caused over a billion dollars in estimated damages with the figure expected to rise considerably after all the damage has been tallied.  Millions of acres of fertile farmland are underwater and the loss of all the crops are pushing up food prices further in the already inflationary commodities market.

Many families have lost everything by placing their trust in outdated levees certified by the Federal Emergency Management Agency.

After all, local officials had assured townspeople in 1999 that the levee was sturdy enough to withstand a historic flood, and FEMA had agreed. In fact, some relieved homeowners dropped their flood insurance, and others applied for permits to build new houses and businesses.

Then on Tuesday, the worst happened: The levee burst and Gulfport was submerged in 10 feet of water. Only 28 property owners were insured against the damage.

If a levee is certified as being strong enough to withstand a “100 year” flood, the area is not considered a flood plain and property owners are not required to purchase flood insurance in most cases.  A recent insurance survey estimated that only 17% of Americans have purchased flood insurance through the National Flood Insurance Program.

Those without flood coverage will have to rely on federal disaster relief assistance in order to help with the rebuilding costs.  However, unlike an insurance pay out, the federal aid comes in the form of interest free loans which will eventually need to be repaid.

For bond insurers, maintaining the highest of credit ratings is of the utmost importance in order to attract new business. So what do troubled bond insurers do when they don’t like their credit ratings?  They fire the ratings company apparently.  Bloomberg reported that Ambac Financial has terminated it’s contract with Fitch Ratings in what has become a disturbing trend.

The second-largest bond insurer is reevaluating its ratings needs as it realigns its business, New York-based Ambac said today in a statement. “As part of this review, we have asked Fitch to remove its ratings on Ambac and all its subsidiaries effective immediately,” the company said.

Ambac’s request follows one by larger rival MBIA Inc., which in March asked Fitch to stop providing a financial strength rating on its insurance unit. In September, Radian Group Inc., which owns mortgage and financial guaranty companies, asked Fitch to stop issuing ratings and said it would no longer provide information to the unit of Paris-based Fimalac SA.

Fitch has been much quicker to the gun than it’s counterparts, S&P and Moody’s, in downgrading  credit ratings for troubled firms in the industry.  Do theses companies think they can hide from their financial difficulties by killing the messenger?

In what amounts to acts of petulant children, a number of firms have announced they will cease raising new capital since they believe there is no point anymore with the loss of the their highest ratings.  I’m sure that is thrilling news for their clients especially communities who have had debt service payments in some cases triple because of the industry’s forays into the disastrous subprime bond market.

Public officials within these communities haven’t stood still while this is all happening and have put increasing pressure on ratings agencies to end the double standard of credit ratings between municipal and corporate bonds.  Municipal bond insurance could become a dinosaur in the financial services industry but it will depend if investors are willing to purchase new issues without insurance.

Despite the fact that the government subsidizes flood insurance and that it is much cheaper than if it were offered by the private market, many Americans have yet to take advantage of the relatively low cost insurance.  A survey conducted by the Insurance Information Institute states that only a small percentage of homeowners have purchased flood insurance.

Record widespread flooding across the Midwest has once again highlighted the catastrophic damages that flooding can cause. Yet a survey conducted for the Insurance Information Institute (I.I.I.) reveals that only 17 percent of Americans have a flood insurance policy.

The proportion of Americans with a flood insurance policy is relatively unchanged from a year ago when 14 percent said they have flood insurance.

The Federal Emergency Management Agency, which runs the National Flood Insurance Program, made a concerted effort to inform homeowner’s of the dangers of flooding prior to the beginning of the hurricane season but met with little success.  As the Midwest flooding shows, one does not have to live along the coast to be susceptible to flooding.

One would think that after Hurricane Katrina, residents living in hurricane prone areas would be more likely to purchase flood insurance but that has not been the case.  If you want to put your fortunes into the fickle hands of a jury over the wind vs. water debate just be warned that insurers are quickly taking that out of the equation by cutting back on wind damage coverage.

Unless you pretty much live in the desert, flood insurance is definitely something every homeowner should look into.  Just because home values have been in decline in the past year doesn’t mean that cost of rebuilding is getting any cheaper, with inflation heating up it’s quite the opposite.