Bipartisan Flood Insurance ‘Modernization’ Bill Boosts Borrowing, Maximum Limits

March 27, 2007

  • March 27, 2007 at 12:33 pm
    Compman says:
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    Call me skeptical. On the outside, this does not look to bad, but anything that Maxine Waters finds good, must not be good for the country. Therefore, I don\’t like this bill.

  • March 27, 2007 at 1:06 am
    Nan says:
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    Maybe the merits of the program proposed should be more imporant than partisan politics if our country is ever to move forward again.

  • March 27, 2007 at 1:12 am
    Nan says:
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    My clients, who were severly affected by the Mother\’s day flooding in 2006 would have been well served to have had the option to purchase business interruption coverage via the flood policy. Although there was building coverage and contents coverage, the loss of income and need to continue paying while adjusting caused several to go out of business. So, even if a business was prudent by purchasing coverage, they could still lose their business due to the limits available to them.

  • March 27, 2007 at 1:51 am
    Linda says:
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    I think the business income and higher limits are a very good thing. However, there will still be those too cheap to purchase flood insurance, even after Katrina, and will have their hands out again next time.

    Even though agents try their hardest to educate their clients,
    the NFIP should do mass TV advertisements stating that flood losses are not covered by homeowners insurance. Maybe then some of the people will finally get it.

  • March 27, 2007 at 2:47 am
    adjusterjoe says:
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    INSURANCE NEVER IN ITS DESIGN WAS SUGGESTED TO PAY ALL LOSSES. It is for catastrophes and to help out. The NFIP was designed to pay for property only and for losses in areas where the loss probability is 100%. To add on additional coverages for those who build in these areas is blatantly stupid. The losses to the federal gov\’t will be compounded 10-20 times what they are now.

  • March 27, 2007 at 3:09 am
    Nan says:
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    Maybe from an adjuster\’s point of view it is not a good idea for expanded coverage but many buildings affected are situtaed in the 100+ year zone and they have been there for over 100 years (New England). For business owners looking to be responsible in purchasing coverage, we should be able to sell them the same protection for flood as other risks.

  • March 27, 2007 at 3:15 am
    Linda says:
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    Joe, flooding is a national peril not just to coastal areas. It also is not limited to tidal surge but to rising water. I guess it never rains where you live.

    The business income is greatly needed by small business. Have you ever tried jumping through the hoops to get a SBA loan?

  • March 27, 2007 at 3:54 am
    don Hester says:
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    secondary home owners continue to be treated as second class citizens. They cant buy replacement cost coverage while primary home ownrrs can. Rational? They must be wealthy so they can afford a second home and depreciated loss. The loss experience for those in a riverine flood plain who have been milking the program for years is miserable.Are they still exempting those home owners who build/rebuild below sea level behind federal levees from having to have a flood policy?It is aggravating thatt we all paid for levees but theyare exempt from having to buy flood insurance while charging seacoast dwellers for their riverine losses? does FEMA propose to eliminate the restriction they have of giving no grant money to pay off deductibles ? Home owners in the northeast are regularly being hit with 5% wind storm deductibles which will require very large out of pocket payouts. I believe in a democracy but I sure am tired of not getting the same treatment as others in higher flood prone areas! The loss ratios of the NE seacoast areas keep subsidizing the gulf and riverine areas. Insurance means spreading the risk,not transferring it to the wealthier who \”can afford it more\” The so called subsidy in many cases is for people who had the foresite to buy flood insurance when it first came out and have the zone change. I question if they should loose their grandfathered rates although I can see justification upon sale of the property to not allow passing the grandfathering onto new purchasers. many of the early flood purchasers who started when the program began are reaching retirement age and removing \”subsidies\” may backfire and cause them to drop coverage instead.
    I wish that replacement cost was offered as an option for all.Actuarily the risk is the same ! I wish that law and ordinance protection was available on the first loss.Why do we need one claim before mitigation costs are covered? I wish that Fema paid their adjusters for their time and skill and not as a percentage of the amount of the claims settled amount. I wonder if those who tout the new laws considered that in their reform

  • March 27, 2007 at 3:58 am
    Mike says:
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    There is no reason why the federal government should be subsidizing vacation home risk. So I like the idea of doing away with insuring such. On the broader issue of insurability in the flood plain I beleive that the NFIP community recommended building codes must be tightened significantly, to the extent of no new building (50% rule)within the 100 year floodplain except in extreme cases.

  • March 27, 2007 at 4:02 am
    adjusterjoe says:
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    The answer is very simple. Locate in a non flood area. Again you make the mistake of assuming that insurance is designed to make everything 1000% as it was before. That is not the disign or purpose. There is a reason that private insurance does not write flood insurance. The best idea to help these flood property owners would be an emergency savings account to cover the diffrence betweeen what flood pays and what they lost. I would not be opposed to including this type savings account into the policy premium (kinda like the Social security privatization suggested). BTW, flood is flood regardless as ot whtehr it is inland or coastal. Your comment about inland vs coastal makes no sense whatsoever!!!

  • March 27, 2007 at 4:45 am
    Andrew says:
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    This article did not really address rates. Are the rates for this coverage sufficient to warrant risk or is the government (taxpayers) subsidizing both the premiums as well as the claim payments? My guess, since they have to raise the debt level, is that the premiums are not as high as they should be. I am just trying to get full picture.

  • March 27, 2007 at 4:55 am
    adjusterjoe says:
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    Andrew, you hit it on the head. They rae losing money hand over fist and the something for nothing Congress wants to give the flood residents something for nothing. Good way to get votes, huh. Spend your money and mine and it doesn\’t cost the politicians anything. But, our society in general expects something for nothing.

  • March 27, 2007 at 5:12 am
    adjusterjoe says:
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    Nan: The problem is the government doesn\’t charge enough premium now, much less when they add coverages. We have enough wlefare in our country already. If the government would use accurate statistical data and charge a premium accoringly, I would support it, but as it is now, they subsidize low permiums with my tax dollars and yours. BTW, I was raised in a flood zone and have experiened flood three times in my life.

  • March 28, 2007 at 7:09 am
    DDT says:
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    There are a couple of NFIP annual reports online, which while long and boring provide a couple of interesting insights.

    1. In areas, only 25% of the properties in a disginated flood zone had purchased Flood Insurance.

    2. Only 20% of the Flood policies are renewed after 5 years. I am doing this from memory, but I beleive the figures are correct.

    Now these are in designated flood zones which should be a mandatory purchase if the owner has a loan that is from a financial institiude that is federally insured.

    Granted there are non-convential loans out there, but somewhere the current system is broken and this doesn\’t appear to fix it.

  • March 28, 2007 at 7:43 am
    adjusterjoe says:
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    The statisices you qoute appear to be from the gulf coast from Katrina. I hvae read similar. It is always telling to see the elevated buildings in flood areas. With new ownership and 5-10 years without flooding, they almost always always make the ground level finished and not coverred and then complain when the finished area is not covered.

  • March 28, 2007 at 8:11 am
    Linda says:
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    Adjuster Joe, I don\’t know if you are new to the business or maybe you work for State Farm, but the whole purpose of insurance is to put you back in the position you were in before the loss. Not to make a profit or put you in a better position but to put you back to where you were. Why do you think policies have co-inusurance penalties for not insuring to at least 80% of replacement cost? The companies want you to be insured to replacement cost.

    My point about coastal vs inland was there are flood prone areas in inland areas where there are lakes, rivers even ponds that when you have very heavy rain fall the water rises and you have flooding. It does not matter where you live you will always have the chance of flood occurring. It might take a hundred years but it will happen.

    I agree the rates need to be adequate but the limits need to be increased because of inflation.

    Our agency offers flood insurance to every client purchasing homeowners or commercial property. If they do not purchase we have a waiver signed. Even if they are not in a flood zone we offer the preferred program. If you do not purchase flood insurance, no matter where you live it is just foolish.

    BTW, I hope you are not assigned to me in the event I have a claim.

  • March 28, 2007 at 8:35 am
    adjusterjoe says:
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    Linda, You should take some insurance coursework. When government steps in, it means that it is not economically feasible for private carriers to write the coverage. Therefore, the GOV\’T SUBSIDIZES IT. The gov\’t already loses billions on flood insurance. Why should we now lose more billions? You apparently have never been taught the economic principles of risk allocation. BTW, the reason for the replacment cost coverage endorsement requiring 80% to value coverage is to get the insured to pay enough premium. The insurnce industry is forced to do many things by the courts and some stupid things they do b/c they are run by bean counters, not insurance professionals. Look at Warren buffet, even though he is a billionaire, he looks at insurance as a tool only to get working capital (to use the premium before it is paid out in claims), which oges agianst the age old risk allocation statistics. Does that make him right? I don\’t think so. No, flood insurance should not be new and improved.

  • March 28, 2007 at 8:39 am
    ML says:
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    Adhustor Joe – you have scared me and verify my point that too many property adjustors don\’t understand the coverage. Many flood zones we find are Zone X. The area hasn\’t been surveyed in years and likely could be flood potential. With increased building these areas could likely be Zone A\’s. You can\’t judge catastrpohe by zones or location to coast. Most floods are not coastalunless hurricane related. Melting nows, heavy rains, loss of flood plaines are the problem. Fed flood limits must be increased -and surveys need to be stepped up

  • March 28, 2007 at 8:42 am
    DH says:
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    A. Joe – As an underwriter I know – 80% com-insurance cost less than 100%. So much for your expertise.

  • March 28, 2007 at 8:45 am
    adjusterjoe says:
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    ML, what are you taling about? You have not a clue as to risk allocation. Your statement is that people should move into flood zones and the gov\’t should subsidize them. Now, that is rich. I usually have respet for agents but you and Linda have shown you don\’t have a clue. But, you are probably one of the people who have health insurance with a $10 co-pay and are upset that it doesn\’t pay 100%.

  • March 28, 2007 at 8:51 am
    Linda says:
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    Are you saying that we should do away with flood insurance all together?

    You were the one that said that the purpose of insurance was NOT to put you back to 100%. What do you think insurance is for then? Why in the world would anyone have insurance if not to put them back to where they were?

    If co-insurance was all about collecting premium dollars, why then don\’t the insurance companies let you purchase any old amount and charge for it and do away with co-insurance? Because the average American would not be able to afford to repair or replace their property and the neighborhoods would look like hell. Take a look at Port Charlotte Fl where 2 years later they still have not finished rebuilding and some neighborhoods look like hell and the property values have declined. I am sure you would not like to live next door to a house that is not put back together and your property values decline because of it.

    BTW, my CE credits are up to date.

  • March 28, 2007 at 8:51 am
    adjusterjoe says:
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    DH: What in the world are you talking about. There is no co-insurance clause in a HO policy. There is no choice on a HO policy as to the % used in the replacement cost calcualtion. It is always 80%. If you are an underwriter, please explain what the premium must be to insure a risk with a 100% probability of los by a covered peril!!!!

  • March 28, 2007 at 8:59 am
    djusterjoe says:
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    Linda:
    I repeat, there is no mention of CO-INSURANCE anywher in a HO policy. Insurance and the theory behind it are not to put you back 100%, but to asist in a catastrophe. Does this mean that the consuming public and agency staff like you don\’t know any better? Apparently so. Insurance is an elementary concept, yet so many fail to grasp it.

  • March 28, 2007 at 9:24 am
    adjusterjoe says:
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    just a few basic principles that we all should be able to agree upon.
    1. Insurance is based upon statistical data.
    2. Insurance is designed to \”spread\” or disburse the risk over a geographic area as well as over social and economic areas.

    Now let us examine flood insurance.

    1. Flood insurance is written in an area where flood is iminent, therefore by design and practivcal application, it meets neither of the criteria noted above with insurance, therefore, it is not in a true sense insurance, but governemt welfare. Now, why is it wrong to oppose the escalation of government welfare programs.

  • March 28, 2007 at 9:59 am
    Linda says:
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    I agree with ML, you are very scary.

    I suggest you take out a HO policy and read Section 1 – Conditions, Item 3 Loss Setttlement – Covered property losses are settled as follows: item B: Buildings under coverage A or B at replacement cost without deduction for depreciation, subject to the following: 1) If, at time of loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of deductible, and without the deduction for depreciation, but not more than the least of the following amounts: a) The limit of liability under this policy that applies to the building; b) the replacement cost of that part of the building damaged for like construction and use on the same premises or c) the necessary amount actually spent to repair or replace the damaged building.

    2) If, at any time of loss, the amount of insurance in this policy on the damaged building in this policy is less than 80% of the full replacement cost of the building immediately before the loss, we will pay the greater of the following amounts, but not more than the limit of liability under this policy that applies to the building: a) the actual cash value of that part of the building damaged; or b)that portion of the cost to repair or replace, after application of deductible and without deduction of depreciation, that part of the building damaged, which is the total amount of insurance in this policy on the damaged building BEARS TO 80% OF THE REPLACEMENT COST OF THE BUILDING.

    That Mr. Adjuster just stated that co-insurance does apply to a HO policy.

    I wonder just what you think a policy should pay out in say a fire loss where a house burns down. Should the company only pay 25% or 50% or 75% of the loss?

    You really should rethink another career because you certainly do not know anyting about insurance.

  • March 28, 2007 at 10:12 am
    adjusterjoe says:
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    Linda:

    Please read your HO policy and QUOTE TOI ME VERBATEM where CO-IINSURANCE is mentioned. It does not exist. You answer questions from insurance 101 with the wrong answer. Premium is based upon the REPLACEMENT COST CLAUSE, not co-insurance, and it is designed to get more premium from the insured\’s pocket to the insuror\’s bank account. It is designed to ensure that adequate premium is collected. Only in your scenario where insured\’s could buy whatever they wanted in coverage would the carrier not get enough premium. Another simple question. How many times has the cost calculator the agent used to value to dwelling over value the dwelling? This is a premium increase without going before the commissioner. And in a non-valued policy state, there is no increased risk for the carrier. We need to educate our industry so we don\’t get such a bad reputation

  • March 28, 2007 at 10:15 am
    adjusterjoe says:
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    Linda:

    Please explain the difference between CO-INSURANCE and the REPLACEMENT COST CLAUSE found in an HO policy. And yes, you can go ans ask your supervising agent as obviously you are clerical only.

  • March 28, 2007 at 10:24 am
    Linda says:
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    Our agency does not use cost calculators because they are not accurate. We use appraisals from licensed real estate appraisers.

    Your comments about premium collections just does not make sense.

    Okay, the HO policy does not use the verbage Co-insurance but if that is not the entent then why even bring up the 80% to replacement cost? The intent of co-insurance is to be a penalty for not carrying the proper amount of insurance and I consider being paid actual cash value vs replacement cost a penalty.

  • March 28, 2007 at 10:29 am
    LL says:
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    Linda:
    Citizens does not require an appraisal for a personal wind-only policy.
    I too object to NFIP using my tax dollars to pay for people who rebuild in flood-prone areas. In my area of Florida, a homeowner just rebuilt, for the 4th time, the same home in the same spot, after it was flooded by its 5th hurricane. Yes, he had that many flood claims.

  • March 28, 2007 at 10:40 am
    adjusterjoe says:
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    Linda:

    You show your lack of knowledge. However, you finally have now learned there is no CO-INSURANCE in a HO policy. Just relax and think. If you can buy whatever amount you want without regard to value, you could buy $50,000 on a $200,000 dwelling. This would result in a loss of premium of over 50% top the carrier. As over 90% of all losses are partial, not total, you would be getting the benefit of insurance without payimg premium for it.

    Now to address the CO-0INSURANCE VS REPLACEMENT COST CLAUSE. Co-insurance penalizes the insured much more severely than the RC clause. In the event of underinusrance on a CO-INSURANCE contract, the insured sustains BOTH depreciation and a penalty based upon the underinsured percentage. Such as if $80,000 was required, and $60,000 is the policy amount, the insured would first sustain depreciation and then would have an additional 25% deducted. In a replacement cost clause loss with the same figures, the insured would sustain a loss of actual depreciation or the penalty of 25%, whichever is LESS!!!!

    Finally, how can you afford to pay for a $300 real estate appraisal on every policy. And an appraisal does not calculate RC, it calculates market value. These are two entirely different values.

    No, Linda, you should learn about the insurance industry before you make such statemnt to show your lack of knowlege and understanding.

  • March 28, 2007 at 10:57 am
    Linda says:
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    You may not have looked at an appraisal lately but they do provide the replacement cost as well as the market values. As to the cost of $300 it is the cost of doing business shall we say. Any time there is a new purchase and a mortgageholder there will be an appraisal done. Secondly, here in the state of Fl where I am located, we only have Citizens to write wind insurance and they now require updated appraisals dated within 18 months in order to provide insurance, so if you want a wind policy you will need an appraisal.

  • March 28, 2007 at 11:04 am
    adjusterjoe says:
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    Linda:

    If you are using the RC amount in the apparisal, you are using the same guide carriers use. Carriers use a modified verison of Marshal Swift or Craftsman, or other respected RC guide. You should really learn more about the insurance business if you plan to stay in it.

  • March 28, 2007 at 11:07 am
    adjusterjoe says:
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    As long as NFIP is a welfare program, it should not broaden coverage. Our government cannot afford it.

  • March 28, 2007 at 1:14 am
    adjusterjoe says:
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    don Hester: I hate to point out the bad apples in my profession, however, will do so. Back at the time of origin of the NFIP, adjusters were paid an hourly rate and time and expense. The adjusters were greedy and billed in excess of 35-40 hours per day on flood claims. They would work 5-7 flood cliams per day and bill each at 5-8 hours. Hence, the feds prosecuted some for fraud. The schedule came into effect shortly thereafter. The reason second homeowners are charged more for their seocnd home is that it sits vacant for many months a year and is subject to loss greater than an occupied house.

  • March 28, 2007 at 1:28 am
    KAT says:
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    Our government cannot afford the war in Iraq either.

  • March 28, 2007 at 1:39 am
    adjusterjoe says:
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    And your point bringing a totally unrelated subject into the discussion?

  • March 28, 2007 at 1:58 am
    KAT says:
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    The point is we are American\’s and with all the money we pay in taxes we should not be welfare. If this country can afford to spend the money on the war we should be able to take care of our own country first.

    Also if we are paying an adequate premium for flood why should we be limited in the amount we can buy. Some of my customers banks are requiring them to buy excess flood policies. Please dont blast me I am only asking a fair question.

  • March 28, 2007 at 2:13 am
    adjusterjoe says:
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    Kat:

    You struck the nail squarely on the head. Homeowners/businessowners are paying only a fraction of the true cost of flood insurance. Think about it. Private insurance had no desire to write it as it is a money loser. Flood insurane has a probability factor of near 100%. Who would or could pay the accurate premium? Private insurance now has the best of all worlds. They sell the policy for a commission and have none of the loss ratio to hit their books. The corporate office of the carrier also gets a fee for the statistical data they keep. Then, if they are a large company, State Farm, Allstate, Hartford, etc, they get paid to adjsut the claims. All of this with not enough premium being collected in the beginning. And now teh Congress wants to extend overga efurther? I don\’t think so.

  • March 29, 2007 at 8:24 am
    adjusterjoe says:
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    for your voice of reason and knowledge LL.

  • March 29, 2007 at 3:55 am
    dh says:
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    If the insured can\’t get the basic benefits provided in the policy because of the different interpretations of what the policy does or doesn\’t pay for. The policy as given to the insured lists some items explicitly. But many things are not spelled out, like kitchen cabinets, how much of the wall will be paid for – replace 2-3-4 ft. If they only pay to replace 3 ft up – they also only to paint 3 ft up. That\’s a very uneven looking wall in the end. If that\’s the way a policyowner is going to be re-imbursed – this needs to be spelled out in the policy. At the moment – we don\’t get this knowledge until a claim is filed and we then have to take the adjusters word for it. It\’s an the unwritten side of the policy.

  • March 29, 2007 at 4:37 am
    adjusterjoe says:
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    Your arguments don\’t hold water (pun intended). I have been around the claims business for over 20 years and worked many flood claims and been to flood seminars. NEVER has it been suggested to paint a wall only 3 or 4 feet up. Never heard of this happening. And the policy, as do all other policies i have ever seen, pays for direct physical damage, from a covered peril, hence the replacement of the sheetrock up only 4 feet if the flood line was less than 4 feet. If the sheetrock above the flood line was not damaged, then why replace it? The 4 foot replacement is based upon the fact that sheetrock comes in 4 x 8 sheets. Hence the board may be laid length ways and there is a factory edge for a seam. It cuts down on labor and waste of making a 28\” cut for a floodline.

  • March 30, 2007 at 7:50 am
    Evan says:
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    LL

    I would like to know which underwriter you are using at Citizens because we are constantly bombarded with faxes from them requesting appraisals.

    I wish there was another market because they are a pain to deal with. Their \”market availability\” requirements are a joke. If we had another market to write with we would.

  • March 30, 2007 at 7:58 am
    LL says:
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    Appraisals are only required for commercial Wind-only policies that cover buildings.
    If the HO3 has $200000, why should the wind not follow form?

  • April 2, 2007 at 11:07 am
    Evan says:
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    I only write commercial and do not do homeowners. I thought that maybe I was going to get some good news and not have to get appraisals any longer. Darn.



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