I recently attended a fundraiser cocktail party for my youngestchild's school. Ordinarily in these situations, once I reveal thatI work in insurance, the conversation immediately shifts to sportsor the cheese plate. That evening, however, thanks to mediacoverage of the predictions for the Atlantic hurricane season–andthe fact that our non-coastal Connecticut town was hit hard duringthe last few seasons–I was more popular than the bartender.

My new friends shared memories: surviving with children foreight days without power, fighting with insurance companies, andthe plights of hard-hit neighbors. I was peppered with questionslike the ones that follow, and my answers lead many to ask me forthe name of a broker who could help them upgrade theirinsurance.

1. “Do I have enough coverage?”

Several partygoers shared horror stories about having inadequatecoverage after major weather or a fire. Most understood the need toselect a coverage limit based on the cost to build (not buy), butfew knew what their limits were, or if they were appropriate. Thosecovered by standard insurers were intrigued by the fact thatspecialist insurers typically offer guaranteed replacement cost(GRC), or at least extended replacement cost with generous coverageextensions in higher risk areas, to help ensure a home can berebuilt in like kind and quality when the cost to do so exceedspolicy limits—something more likely to occur when demand surgecreeps in following a massive storm.

2. “What if we don't want to rebuild at the samelocation?”

Everyone appreciated that specialists typically give theirclients the choice to receive a cash settlement up to the policylimit, rather than force them to rebuild in a place that is eitherhighly likely to sustain damage again, or that may have become thesite of painful memories.

3. “Why not distribute funds up front to make it easierto begin repairs?”

We discussed the fact that some carriers hold back payment untila homeowner proves that repairs are underway. Following a largeloss, this can create a significant out-of-pocket burden forpolicyholders, perhaps even putting them in a difficult financialposition until reimbursement is made by the carrier. Policyholdersof specialists generally benefit from generous advances at thebeginning of the settlement process, not hold-backs.

4. “Is my finished basement covered if my sump pumpfails?”

Virtually everyone in attendance had a basement, and most werefinished, some quite elaborately. This sparked a number of issues(see the flood question that follows), but it was revelatory tomost that many standard insurers provide very limited coverage forthe backup of sewers and drains, far less than required to properlyrestore even a single drowned media room. Specialists provide morecoverage, typically up to the coverage A limit that applies in moresituations, including sump pump failure. They also typically offerfull policy limits for contents (coverage C), whereas standardinsurers strictly limit this coverage.

5. “Would we really have to stay in a hotelroom if our home becomes uninhabitable?”

One man indicated his neighbors were moved to an extended stayhotel after a major loss; another beamed that his specialistinsurer placed his family in a fine home. I explained that standardcarriers generally cap loss of use coverage (coverage D) at 20% ofthe dwelling limit. Specialist carriers are less likely to caplimits at a percentage, and instead typically provide coverage for“reasonable expenses” required for homeowners to maintain theirnormal standard of living.

Specialists generally don't put a time limit on this coverage,and instead offer it for the reasonable amount of time required torepair the loss and/or make the home properly inhabitable. Idescribed how valuable this was to a PURE member whose historichome required nearly two years to be reconstructed. Throughout theprocess, his family was able to reside in a comparable home thatwas centrally located to their workplaces and school.

I also explained that specialists tend to provide more generousadditional living expenses (ALE) for homeowners who are evacuatedat the request of civil authority, and more comprehensive coverageto reimburse lost fair rental income.

6. “Will my out-of-pocket be different in amajor storm than, say, a fire?”

A self-proclaimed insurance expert in the group noted that hisagent explained his policy has a “special deductible” that triggersduring certain weather events. When I probed for details (How muchis the deductible? What triggers it?), he was at a loss. Iexplained that although special deductibles are common, thetriggers vary widely from named storms, specific wind speeds, orhurricane definitions. The group was surprised that sometimes thesedeductibles can be a stated dollar amount or a meaningfulpercentage of the dwelling limit (not a percentage of the cost ofyour damages, as recently reported by another insurer), potentiallyresulting in significant out-of-pocket expenses. That said,sometimes specialists give policyholders the flexibility to choosetheir special deductible, providing significant premium savings forthose willing to retain more risk. Further, in the event of a largeloss when the special deductible is not triggered,specialists will typically waive the standard deductible.

7. “Is there a difference in how insurers reimburse treedamage?”

Recent superstorms snapped trees and left them on homes,driveways, fences, lawns, pools and power lines. I explained thatstandard homeowners' coverage helps provide for the removal oftrees that have fallen on the home or a driveway, but thatspecialists provide a greater amount of coverage and will remove atree that has fallen on other parts of the property as well. Somespecialists have established relationships with arborists todeliver preventative services and preferred response to theirpolicyholders.

8. “Flood insurance is flood insurance,right?”

Everyone in this group knew that their homeowners' policyexcluded damage from flood, but some didn't realize that risinggroundwater following a storm is considered flood, and mostbelieved all flood insurance is the same. I explained thatspecialists often sell excess flood coverage, which is importantsince the NFIP's limits might exhaust quickly when a large home isflooded. Further, some provide solutions to enhance flood coveragewith things like replacement cost for contents in secondary homes;additional living expenses and basement improvements; and a singlecontact to navigate and accelerate claims involving wind and waterdamage.

9. “How much coverage do we have if our homeowners'association assesses us for damage?”

I explained that this coverage varies significantly, as standardinsurers may only reimburse $1,000 for such assessments (andsometimes $0 when the assessment is triggered to cover theassociation's deductible), while specialists typically provide upto $50,000 and some meaningful fraction thereof to coverassessments issued for the association's deductible.

We must help consumers understand these and numerous otherdistinctions between specialist and mass-market insurers so theycan make informed decisions about their insurance and riskmanagement programs. As a member of PRMA (Private RiskManagement Association), I'm proud to collaborate with hundredsof independent agents and representatives from AIG Private ClientGroup, ACE Private Risk Services, and Fireman's Fund to help raiseawareness of issues like these and advance the high net worthspecialist category. I encourage you to make your firm a member ifyou'd like to do the same.