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Charging Fees to Place Insurance | Perpetuation Points to Ponder | Citizens Depopulation Redux | A Solution to All the Uninsured Vehicles in Florida? | Tech trends | Tech Tip | Convention 2008

Mandatory Purchase Guidelines

Question: I am trying to find something in writing to tell a bank that they cannot require an insured to increase flood coverage to the $500,000 maximum on a building which has a replacement cost of $120,000. The loan amount is $645,000. Can you help me find something to send them? (Jenifer Duncan, Clearwater, Florida. Name and question used with permission.)

Answer: It's an issue that will never die isn't it Jenifer? As an insurance professional, you know that an insurance policy does not cover the land, yet at times some lenders fail to understand this concept and want the amount of insurance to be at least equal to the loan balance. The National Flood Insurance Program (NFIP) "Mandatory Purchase of Flood Insurance Guidelines" publication (with the audience being lenders) addresses this issue. These guidelines state very clearly, "Where the outstanding principal balance of the loan exceeds the insurable value of the building, the insurance amount should be the insurable value of the building rather than the outstanding principal balance of the loan." In your case, the amount of flood insurance should be $120,000, not $500,000, which is the maximum amount available under NFIP.

We have an article on this issue, which cites the appropriate wording found in the Mandatory Purchase Guidelines. You may view that article by clicking here. Good luck with your lender!

Rebating

FAIA staff members have received numerous phone calls and e-mails asking, "Is it legal to rebate flood insurance? A company is advertising they will rebate commissions on flood policies to consumers. I thought rebating was illegal in Florida."

Rebating, even flood insurance premiums, is legal in Florida as long as the rebate complies with Florida Statutes. Our Florida Insurance Research Library (FIRL) has an article dealing with rebating, which can be seen by clicking here.

Evidence of Insurance

In the past, the National Flood Insurance Program (NFIP) Flood Insurance Manual stated that the NFIP did not recognize a Certificate of Insurance or binder. The manual stated that lenders were required to accept a copy of the declarations page or a copy of the application and premium payment as evidence of insurance.

Effective May 1, 2008, the manual (page GR-8) has been changed to allow the use of a Certificate of Insurance for a renewal policy. The new language is shown below.

A. Evidence of Insurance
A copy of the Flood Insurance Application and premium payment, or a copy of the declarations page, is sufficient evidence of proof of purchase for new policies. The NFIP does not recognize binders. However, the NFIP recognizes Certificates of Insurance for renewal policies.

Condo Owners Qualify for the PRP

Effective May 1, 2008, changes will take place under the National Flood Insurance Program (NFIP). Rates will increase an average of eight percent, the federal policy fee will be $35, and the Preferred Risk Policy (PRP) fee will increase to $13.00. The most significant change though involves eligibility for the PRP.

Prior to the May date almost no condominium risk qualified for the PRP. Under the revised guidelines, condominium unit owners, both residential and non-residential, will now be eligible for the PRP. Of course, all the normal underwriting and eligibility guidelines will apply.

A residential condominium dweller whose condominium unit is located in a residential building (one where 75 percent or more of the floor space is used for residential purposes) may purchase the PRP with building limits of up to $250,000 and contents limits of up to $100,000. If a residential condominium unit is located in a non-residential building as described above, they may purchase the PRP, but may only purchase contents coverage. Non-residential condominium owners (such as a commercial office condominium) may buy the PRP with only contents coverage of up to $500,000. Residential condominium associations are not eligible to purchase the PRP and must be insured under the Residential Condominium Building Association Policy (RCBAP) if they qualify. If they don't qualify for the RCBAP they must be insured under the General Property Form, subject to a maximum coverage of $500,000 for building and $500,000 for contents.

In a vast majority of cases, the PRP offers substantial premium savings over the Standard Flood Policy (SFP). Condominium unit owners (residential and non-residential) who now qualify for the PRP may cancel their current SFP and re-write it under the PRP.

Can an agency charge a fee to write insurance, even if they waive their commission? In a word, no. All remuneration for the placement of insurance must be approved by the OIR in the rate filing process and clearly printed on the DEC issued by the carrier. This applies for standard and E&S policies.

There are several times when charging a fee is ok, but it is never legal to do so for the simple placement of insurance. Simply put, fees can be charged for services beyond the simple placement of insurance, but to protect your agency you should have a separate legal agreement or contract in place with the insured which defines exactly what you are doing to earn the fee. (You can even charge a fee for other services and still keep your commission on the policies you sell, if you do it right.)

For more about how this works, including the statutory references, please see the article in our Education Library: FEES.
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It is never too early to start planning for agency perpetuation. It's a topic that most agency owners need to know about — but they might be afraid to ask! To help you, we've pulled some articles from IIABA's website and we'll highlight them here over the next few months in 2008.

Getting to the basics of "who" — one young agent wisely started very early in his perpetuation plan.
Read how.

I Died on the Way to My Next Appointment — Now What?



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Citizens Depopulation Redux
By Steve Hirst, CPCU

Just when you thought you had the whole depopulation thing figured out, along comes a new twist in the form of an OIR Order. This order reasserted the "consumer" in Consumer Choice, requiring that notice be sent by Citizens to policyholders affected by your decision to decline a depopulation offer. The order, its genesis, and Citizens' instructions have all been reported in an FAIA bulletin, but might bear your review. It's enough to make your head spin!

Based on calls and emails, it seems a refresher in the depopulation process is in order.

• Accepting a Citizens policy effectively means that the policyholder will be subjected to depopulation efforts. While they always have the option to remain with Citizens, it is not possible for a policyholder to wholesale "opt out" of depopulation.
  Consumer Choice provisions must be met:
  

  -Agent/Agency's approval or declination of the takeout carrier's offer must always be given. A review of the appointments contract, coverage forms, commission schedules, and the like should be undertaken prior to the making the decision. Remember the agent's response to the offer is required.
  -With the agent's acceptance, the policyholder is provided notice and an opportunity to individually opt out of leaving Citizens for this specific offer. The policyholder must complete and return the rejection form to the takeout carrier.
  -With the agents' declination of the takeout agreement, the policyholder will now receive a letter from Citizens explaining that the agent declined and offering an opportunity to elect to be placed with the carrier without their current agent. To effect that change the insured must contact the takeout carrier directly.
  Following the receipt of an assumption notice (also sent to the agent and lien holder), the policyholder is extended another 30-day period to reject the assumption. The insured should directly contact the Citizens' TRC at (888) 685-1555 to reject the assumption.

  
  
  
• Eligibility to remain with Citizens remains until the end of the assumption period when the policy is renewed with the new carrier. If the 30-day period has expired and the new replacement policy has not been issued, the insured may still remain eligible for Citizens. A reversal request should be made in all cases as soon as possible. Once the Citizens policy has expired, a new application and eligibility qualification will likely be required.

The depopulation process has inarguably evolved into a confusing and complicated process. If agents are dazed and confused, just think of the look of bewilderment on your clients' faces as they and try and untangle and understand letters and information from you, Citizens, and the takeout carrier du jour. So, where do we go from here?

As the OIR and Citizens continue to place the onus of responsibility for depopulation success on agents, the call for shifting some of the load onto carriers is shifting. The same opportunity for vetting a carrier offering you a voluntary contract should be afforded to you when a take-out carrier comes calling. Your client deserves to know that the carrier will be able to meet their claim and service needs. You deserve to know that the needs of your agency will be met and you also need the ability to review the agency contract and to insist on a fair commission rate. Carriers must be diligent in seeing that you get ample lead time to consider their offer and that information is readily available for you on websites that are fully operational or from company personnel trained and available to answer your questions when you call.

Has Citizens and its assessment possibilities grown too large? Absolutely. Is it in all our interests to shrink Citizens by returning exposure to a healthy, competitive private market? Positively.

Depopulation and Consumer Choice is a responsibility that must be shared by all parties from the insured, the agent, and including insurance carriers and those who govern and regulate them in order for true Consumer Choice to happen.

For those who need to be reminded, independent insurance agencies wrote the book on Consumer Choice.

From time to time in a class someone asks me, "Why doesn't Florida do something about all of these uninsured vehicles on the highways? They should get tough on these folks who ignore the law and don't carry insurance."

On a recent pleasure visit to London, I was returning from an evening meal and noticed the police pulling over cars. Not until the next day, when speaking with a broker who spends a lot of time at Lloyd's, did I get all the details. (Don't ask how "pleasure visit" and Lloyd's go together; if you know me, you know they do!) What he told me (and what I read in a trade publication over there) was that if a motorist is stopped and can't show proof of automobile insurance, the police seize the vehicle. The owner has a certain amount of time to show that insurance was in force at the time of the incident. The inability to produce this documentation results in...get this...the government "crushing" the car. The trade publication stated that in the first nine months of 2007, the government seized 100,000 vehicles and 45,000 were crushed. To see an article about this, you can click here.

I'm not saying that Florida should adopt such law, but if you think they should perhaps it's time to write your state representative! Talk about "playing hardball!"

Resetting Your Password On www.FAIA.com
By Daniel Francis

If you choose to reset your password on the FAIA.com website you should take the following steps:

1. Click on the "Login" link (located in the upper right hand corner of the FAIA.com website)
2. Click on the "Reset Password" button. This will take you to a screen which will prompt you to enter your email address.
3. Enter your email address and hit the "Submit" button. You should receive an email with your username and a randomly generated password.
4. Upon receiving the email, return to the login page, by clicking the "Login" link once again.
5. Enter the username and password that was provided in the email.
6. If you have successfully logged in, you should then locate and click the link in the upper right corner of the site that says "Profile for Your Full Name."
7. Upon clicking the "Profile for Your Full Name" link, you will be taken to an "Account Management" screen.
8. While on the "Account Management" screen, locate and click on the "Login/Password" link.
9. You should now be looking at screen in which you will be able to update both your username and/or password accordingly.

Dear Member,

FAIA's Young Agents Council's preparations for FAIA's 104th Anniversary Convention and Education Symposium are underway. Please see the schedule below for all the YAC activities. We hope to see you at all of the events. YAC Golf Tournament: The YAC Golf Tournament was such a success last year, that we're doing another one this year. And...we've opened it up to all FAIA members. We encourage you to set up your foursome and send in your registrations! Golf registration forms will also be mailed to all YAC members to post in your agencies. If you've not yet registered for the YAC Golf Tournament or Convention, there's still time to do so. Click here to go to FAIA's website and register online.

Wednesday, June 11

Thursday, June 12

Friday, June 13

Do you have questions? Contact Melissa Champany at mailto:melissac@faia.com?subject=AE 0408 or 850-893-4155, x. 344.