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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2008

How to React When Disasters Come Knocking

Now is the time to prepare for how storms, fires and other calamities can uproot your ability to close

Mother Nature constantly reminds us of her majesty and the destruction of which she is capable. Hurricanes, floods, wildfires, earthquakes and tornadoes are just a few of these reminders. That raw power equates to hundreds of billions of dollars the insurance industry pays in claims to those affected by the natural disasters.

Mortgage brokers must understand how natural disasters in turn affect their own business, especially when a storm or wildfire is looming.

In an effort to reduce its losses, the insurance industry has some safeguards in place. The primary safeguard is its ability to suspend coverage for a blanket territory at a moment’s notice. Simply put, insurers can — at the drop of a hat — stop writing coverage for homeowners and other policies for certain ZIP codes, counties or entire states.

For example, when Hurricane Ike was passing over Cuba this past September, insurance companies started to send notices that they would not write new policies for the Texas coast. And as wildfires spread in California, insurers stopped writing new homeowners’ policies in surrounding counties.

So how exactly do adverse weather and insurance affect mortgage brokers’ business? Consider the simple-yet-important insurance binder — a document needed to close the loan you worked hard on.

Picture this: You worked hard putting a loan together and have the closing scheduled for next week. But a storm is approaching, and the insurance company suspends the insurance binder it issued or tells you that it cannot issue the binder at all because coverage has been suspended. What can you do in this situation to ensure you don’t lose the deal?

First, be aware of the weather in your area. If you hear about hurricanes or wildfires in certain counties, determine what impact they could have on your business. Check to see if you have any closings scheduled for the coming weeks. Call the insurance agents from whom you await binders and ask them if the weather will have any impact on your scheduled closings.

Second, if it looks like a natural disaster will hit, take action. You can do one of two things:

  1. Reschedule the closing for after the natural disaster has passed; or
  2. Speed up the closing before the disaster becomes an issue.

If you are going to delay the closing, make sure the seller does not cancel the insurance in place. Also, if it’s a newly constructed house, inform the builder to make sure coverage stays in place.

Finally, if you cannot change the closing date, you have one more ace up your sleeve: Shop around. Not every insurance company has the same underwriting guidelines, and some will suspend coverage before others. The difference can be a day or sometimes just minutes or hours.

At some point, however, all insurance companies likely will suspend coverage. As you call around, tell the insurance agent the property’s county or ZIP code and ask if coverage can be bound. If it can, then ask the agent to do so quickly, have your client ready to sign the new insurance paperwork and get it back to the agent as soon as possible. Time is critical in these situations, so do not delay.

With winter giving way to spring in a few months, you will start to hear weather reports about impending hurricanes, floods, wildfires, etc. Be ready to act. By moving quickly, you can still get your loans closed and funded.



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