Nix Bits

That Insurance companies have been playing games with claims on the Gulf Coast is fairly well known and widely reported. Of course this is making rebuilding a real challenge. And if you’re trying to buy a house, obtaining homeowner’s insurance is also proving difficult and expensive. Private insurers may be writing one day and not writing the next. They often make decisions based on zip codes though flood damage often varies widely across a single zip code. Most are referred to the Louisiana Citizen’s FAIR plan, the state-sponsored insurer of last resort that, by statute, is more expensive than any private insurer.

This is one interesting wrinkle. Homeowner’s carriers are refusing to write coverage for residences with flooding in the living area. Now everyone knows that homeowner’s insurance doesn’t cover flood anyway. In all likelihood, the insurance companies fear future mold claims. Of course, in always-humid south Louisiana, mold is not exactly uncommon — with or without past flood damage. They’re also eliminating wind coverage, forcing many homeowner’s to carry three separate polices — a traditional homeowner’s policy for fire and the like, a separate windstorm policy from the FAIR plan, and a federally-backed flood policy.

I haven’t really talked about this before, but we decided to sell our Mid-City shotgun. I’m not going to go into all the details yet but it is a decision that makes sense for us. Everything was going quite smoothly. We received multiple offers immediately after listing. We accepted an offer from a local couple; she is a real estate agent and he is a contractor. This is apparently their first investment purchase and they should do well on the deal. They lined up all their ducks and their insurance agent had them provide various pieces of documentation so they could secure a builder’s risk policy.

Builder’s risk insurance provides coverage that is similar to homeowner’s. Anyone who is working on a substantially damaged (unlivable) property needs to get builder’s risk first. It’s required by the lender. It’s time-limited and (I believe) is somewhat less risky for the insurance company than a long term homeowner’s policy When the job is complete, they would then have to seek out a homeowner’s policy. So the buyer jumped through all the necessary hoops and just days before closing was told, “sorry, we’re no longer writing builder’s risk policies in that zip code”. In fact, according to my real estate agent, they could find no one writing builder’s risk in the New Orleans area at the moment. They had to go to the insurer of last resort, the Lousiana Citizen’s FAIR plan. This is a recent development. LA Citizen’s previously was not in the business of writing builder’s risk. They had to pick up the slack again as the private insurance companies bail out. The (local) lending company our buyers used was not even aware that LA Citizen’s wrote builder’s risk. Neither was the title company.

So the question is, if individuals can’t even get a reasonably priced builder’s risk policy from a private insurer, how on earth are we supposed to rebuild? Looks like Nagin’s “plan” to reduce the city’s geographic footprint through “the market” is going swimmingly.

Today’s Essential reading links:

• John Barry’s 8/29 editorial in USA Today.
• The Myth of Mississippi’s Recovery and this related post from bayoustjohndavid
• Michael Homan’s piece on Allstate’s effort to, uh, “reduce their exposure” and the related article from today’s T-P.  If you carry a homeowner’s policy with them, but don’t carry your auto with them, they drop your wind and hail coverage.