If you own a second home in a high-risk area, you have no doubt seen premium costs soaring and even the availability of insurance in question. There is finally some action in Congress to address these thorny and complex issues.

Legislative battles over how to improve property and casualty insurance availability in disaster-prone areas have been ongoing since the catastrophic 2005 hurricane season. The latest chapter in this continuing saga is the passage by the House of a new Federal Disaster Insurance program. The legislation would result in the Federal Government entering the insurance business in a big way. The legislation now heads to the Senate, where it is seen as having substantial support from, among others, influential Senators Hillary Clinton (D-NY) and Bill Nelson (D-FL).

In addition to creating a significant new federal program, the bill expands on an idea already in use in Florida and some other states; the creation of insurance funds and the sale of special bonds to provide capital to pay for disaster losses. Such state-sponsored funds and bond sales could increase the availability of property and casualty insurance at a lower cost, especially in high-risk areas. Even though there is no federal money involved, the legislation is seen as providing at least an implicit guarantee that the federal government backs them.

The fate of the House bill in the Senate is uncertain, but hopeful. If a similar bill it passes in the Senate, there is one almost certain outcome: a Presidential veto. The margin in the House was not veto proof, so it’s likely there are many more chapters in this saga and bills to be written before a way out of the disaster insurance crisis is agreed to.

For more on the House bill, click here for a detailed article from the New York Times.

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Firms report record profits despite unprecedented loss claims

In an October 15 posting, Bloomberg News quotes an insurance watchdog group about emerging indications that property and casualty firms have been reaping huge profits despite ballooning loss claims from policyholders.

“Property-casualty insurers, which cover damage to homes and cars, reported their highest-ever profit of $73 billion last year, up 49% from 4.9 billion in 2005, according to Highline Data LLC, a Cambridge Massachusetts-based firm that compiles insurance industry data…. Property Insurers systematically deny and reduce their policyholder’ claims, according to court records in California, Florida, Illinois, Mississippi, New Hampshire and Tennessee.”

In the wake of huge claims resulting from hurricanes, tornados and wildfires across the U.S., the insurance industry faces numerous lawsuits from claimants based on outright denial of claims or for offering unreasonably low settlements to policyholders after catastrophic losses.

In what appears to have been concerted efforts by major insurance firms to increase profits and limit payouts, policyholders all over the U.S have leveled accusations of fraud against, among others, the State Farm and Allstate insurance companies.

Allegations lodged against these two companies involve changes instituted by both firms following recommendations from the New York-based consulting firm McKinsey and Company. Plaintiffs in numerous pending lawsuits accuse State Farm and Allstate with having adopted policies recommended by the consulting firm that were intended to lower loss claim payouts and boost profits.

For the complete article from the Sun Herald, click here.

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A recent story in The Record (New Jersey) stated that:

“For current and potential second-home owners, making sure your property is adequately insured can be a less-than-straightforward process. Second homes can be inherently more expensive to insure, primarily for two reasons: You’re not there as much, and they are often rented out (some insurance companies deny coverage if the home is regularly rented).”

Insurance for second homes are increasingly more scrutinized by underwriters, and as a result, second home insurance costs are rising, if not being denied, because of perceived unacceptable risks (by insurance companies).

However, there are a few things second home owners can do to mitigate their insurance costs. Among them are:

• choose an area for your second home that is not located in the flood zone (see FEMA maps for identification of these areas), or is not susceptible to frequent/regular hurricanes and/or tornados;
• consider the security that a ‘gated’ community would offer, with the associated warning to stay out of known high crime areas;
• rethink your plans to rent your second home for part of the year, which puts you in a sometimes higher risk category with the insurance company…with the associated thought of having a property manager that might help to lessen the perceived risk.

Not to mention more insurance when trying to make your current policy less expensive, but you might want to consider an ‘umbrella’ policy which is designed to offer you greater liability/accident coverage than what you have in your home owner’s policy.

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If you are second home shopping this fall, think about insurance issues as you do property tours. The recent upheaval in the mortgage markets has a corollary set of issues and complexities in the property and casualty insurance business.

In the wake of the bankrupting of the National Flood Insurance Program (NFIP) by Katrina and other ’05 storms, many insurers have stopped writing new business in some storm-prone areas. Others have simply left the market entirely. These pressures have resulted in fewer choices for those seeking coverage for vacation homes and in some cases much higher prices for adequate coverage.

The Congress is still at work on a revamping of the NFIP, following a 23 billion dollar financial bailout of the program voted in 2006. Part of the proposed changes to the NFIP includes re-drawing the lines that identify flood zones. The maps currently in use are hopelessly outdated and in many cases wildly inaccurate. It’s likely that many more homes will be eligible for NFIP coverage when and if new legislation is passed. The legislation under consideration would increase availability of insurance, raise premiums and might reduce or remove subsidies for vacation homeowners that exist under current law.

The uncertainty about what companies are going to continue writing policies for second homes and at what cost has been made more murky due to the lack of definitive action by the Congress to settle the outstanding issues.

The long and the short of it is, you have to make obtaining insurance a primary deciding factor when shopping for your vacation getaway. If the legislative standoff continues, it’s likely that insurance costs will climb even higher and that policies offering adequate coverage might be unavailable at any price. In some areas

For a good overview of other issues surrounding property insurance, you can check out this article over at the New York Times.

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AOL’s real estate portal has a great recent article on insuring your vacation home. Especially important is checking out what your rates are going to be before you buy.

Because of Hurricane Katrina, insurance rates have soared in certain coastal areas. Unfortunately those coastal areas are just the sort of place that people are likely to be drawn for a vacation home.

For more, visit RealEstate.AOL.com.

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