The Property Insurance Blog

Condominium insurance has five coverage areas. Dwelling coverage refers to the interior structure, including paneling and wallpaper. Personal property insurance is separate. Add jewelry, antiques, collectibles and art to the coverage amount. As some items depreciate, the replacement value is higher than the actual cash value. Loss of use coverage is for expenses in case you need to move out of the condo because of damage. Personal liability coverage is for medical and legal costs for bodily injuries or property damage on others while on your property. Medical coverage is for injuries sustained on your property, regardless of your legal responsibility for the injury. No “Fault” Insurance is for natural disaster not covered by standard condominium insurance: earthquakes, floods, and hurricanes. There is rarely any insurance coverage for damages caused by pets, pests, termites, and rodents, or for war and nuclear accidents.

Insurance schemes for condo owners are different from regular homeowners. This is because the condominium association usually has insurance to cover common areas such as building exterior and walkways. Condo owners still have to protect themselves from losses and damage. The condo owners’ insurance policy includes insurance for their units. Before purchasing one, find out the association’s coverage, which parts of the building are not insured. Ask if you need flood insurance, what protection you have against liability claims, what medical expenses are covered if guests are accidentally injured on your premises, what additional insurance you need for valuables, and if additional living expenses can be reimbursed if the unit is not livable for any reason.

According to a fact sheet from the Insurance Information Institute, a number of studies show that Americans are underinsured against natural disasters. Millions of homeowners are said to have inadequate cover. Here are a number of statistics from the RAND Corporation, the Chubb Group of Insurance Companies, and the Mason Dixon poll:

Only 14 percent of the nation has flood insurance.

Only half of the most vulnerable homes have flood insurance.

One third of American homeowners have not reviewed their homeowner’s insurance policy in more than three years.

Half of all American homeowners incorrectly believe they are automatically covered against flood.

Only 20 to 30 percent of flood-vulnerable homes in the Northeast and Midwest purchased the required insurance.

One quarter of NFIP claims paid originate from non-Special Flood Hazard Areas, but only one percent of non-flood zone homes are covered despite risk.

Even after the destruction caused by Hurricane Katrina, flood insurance has not increased considerably. This is alarming, as more and more people have moved to coastal counties over the past three decades. The good news is that the additional flood insurance is well within the reach of most homeowners.

With casualties from the magnitude 7.9 earthquake in Sichuan, China continuing to rise, the reported 99% probability of a magnitude 6.7 or greater earthquake in California within the next 30 years is cause for preparation. These earthquake forecasts, called Uniform California Earthquake Rupture Forecasts, or UCERF, are sponsored by various bodies such as the U.S. Geological Survey, the California Geological Survey, and the Southern California Earthquake Center. The southern San Andreas fault is being eyed as most likely to generate a strong quake magnitude 6.7 or greater on the Richter scale. As scientists predict a 46% chance of a quake with magnitude 7.5 or higher in the same timeframe, most likely in Southern California, planners, officials and citizens can start working on safety precautions before the next big one hits the state.

A white paper from risk and financial management firm Towers Perrin released soon after the disaster predicted a number of outcomes. These included the rise of insurance prices in catastrophe-prone areas, effects on the reinsurance market, the pressure on insurance companies to raise capitalization, and new insurers being repelled from entering the market. Aside from these, there is an even greater impact on society in general: the need for better preparedness, planning and response to such large-scale risks. Another point raised in the paper highlighted the contentious separation of wind and flood damages, and the complex issue of mold growth. These factors do not only matter in the billions of dollars lost from Hurricane Katrina but also define the future of policy.

More than two years after Hurricane Katrina, its effects are still very much visible. The impact of the disaster on the insurance industry has likewise been unprecedented. In an online interview with Carolyn Gorman of the Insurance Information Institute, she mentioned that this was the “worst natural disaster” the industry has had to face. Ms. Gorman enumerated three common mistakes made by homeowners: not getting flood insurance, not insuring a house to its full value and not having a home inventory. With 60 percent of U.S. homes underinsured because of renovations which the insurance companies were not alerted of, many homeowners do not have enough insurance for rebuilding.

Image by Bart & Jill