Bad Things Can Happen. At Home.
Our homes are special places. Yet they’re also delicate, vulnerable to disasters bringing total destruction or “typical” problems demanding your immediate attention. And after the initial securing of loved ones and accessible property, what’s everyone’s first thought?
How much is this going to cost?
Whether a natural disaster such as a tornado, hurricane, flood, earthquake, or wildfire, or simply a rice cooker spark leading to a destructive fire (spoiler for a beloved show), similar economic pains result. You see the news stories. It could be your neighbors. It could be you.
Those affected can be in for weeks, months, even years of financial challenges.
You’d be right to wonder why. Isn’t that the exact reason homeowner’s insurance exists? Yes…and not quite. It’s a bigger “maybe” than even we anticipated. Financial suffering may still occur for a wide range of reasons. We’ll get to them below.
Disaster Mortgage Insurance: An Additional Layer of Protection
There’s a product you can offer to members to add another layer of protection to their existing homeowner’s insurance. It’s called Disaster Mortgage Insurance and will be the topic of this article.
Before diving into the product, let’s understand the challenges people may face…both before and after their homeowner’s insurance claim goes through. Armed with this information, you can empower members to protect themselves today, without taking on any new products.
And then, you can discover what this product might contribute to your current offerings. Oh, yes, it can also help protect your mortgage portfolio as well. Because risk-reduction is for everyone.
Towards the end, we’ll share details on Disaster Mortgage Insurance. From there, you’ll be better able to decide if it’s a product worth considering at your financial institution.
Full disclosure: GreenProfit Solutions is able to offer Disaster Mortgage Insurance. True to our mission, this article is about unbiased education, not selling.
Why Consider Supplementing Your Homeowner’s Insurance?
It’s a normal impression to believe homeowner’s insurance is sufficient for protecting your property and financial security. Unfortunately, there are a range of factors which can make this less clear-cut than you, me, or your members would like.
Here are a few complications common in our research:
- Insufficient insurance coverage
- Outdated coverage
- Out-of-pocket costs (ex. Deductibles, some which may vary depending on the claim)
- Different valuations between “replacement cost” and “Actual Cash Value (ACV)”
- Involuntary job loss
- Inability to pay mortgage while home is unlivable
Your members have ranges of budget flexibility. Some can stretch like an Olympic gymnast, while others are already taut and pulled to the limit. It’s the latter group where these challenges can hit hard.
For medical insurance, there are supplement programs to ensure you get “cash fast” after an illness or accident. These may cover missing work, immediate hospital stay costs, or transportation. Your institution can provide the same service for homeowners.
Whether a major disaster or untimely water leak, none of us wants to see a family fall deeper into debt to keep a roof over their head or food on the table. Let’s look at the reasons this may happen, the unmet needs, and statistics to show where homeowner’s insurance isn’t enough.
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This House Is Not a Home…Anymore
On a daily basis, tragedies strike properties around the country. From fires and floods to windstorms and mudslides, billions in property damage occur every year. Extreme weather events continue to rise, and that’s without yet considering the mega-disasters.
According to the National Fire Protection Association, between 2014-2019, US fire departments responded to an estimated average of 353,100 home structure fires per year.
These fires caused an annual average of 2,620 civilian deaths; 11,030 civilian fire injuries; and $7.2 billion in direct property damage. (Emphasized not because it’s the most important, but since it’s the focus of this discussion.)
The leading causes of fires in residential homes are electrical distribution and cooking. In other words, the Pearsons (This Is Us) were literally a statistic. Albeit one with an intense emotional punch. Jack, you’ll always be missed and never forgotten.
Flooding is the most frequent severe weather threat and the costliest natural disaster facing your members (90% of total in the U.S. via presidential decree). For those thinking, “thank goodness I’m not in a high-risk area”, take note:
About 25% of flood insurance claims come from moderate to low-risk areas. (That’s partially because the charts are outdated and climate change is making risk, riskier.) And “rising water” is not covered under most homeowner’s insurance policies.
What causes floods?
- Tropical storms (including hurricanes)
- Spring thaws
- Isolated heavy rains
- Overflow or failure of levees & dams
Especially with flash floods, the triggering event can be hundreds of miles away. Take for example a flooding event which destroyed 222 homes near Jackson, MS in 2019. The cause was in the Delta, not the community.
Today, America could have over 15 million homes at risk of flooding. That’s nearly 70% higher than FEMA estimates. So given the risk, what’s being done?
You may think that lenders require at-risk properties to be covered by flood insurance. That’s true, but only if the home is located within a designated flood zone. The above linked study found those may not account for the real risk.
Thus, lenders won’t require flood insurance, and unsurprisingly, most homeowners will not opt to purchase it if not mandated. That can become a costly oversight. Remember Tropical Storm Harvey? 80% of Houston homes damaged by flooding didn’t have flood insurance.
What’s the consequence these people suffer?
Their homeowner’s insurance covers none of the damage. This bears repeating: 80% of the homeowners in Houston affected by storm flooding received no reimbursement from their insurance.
The risk is real. The cost is high. Take a moment to check the flood zone of your property. Then consider if your members could benefit from a disaster mortgage insurance program.
Second to floods, the most damaging weather events are windstorms. Of course, those of us residing in Gulf and Southeastern states are at highest risk due to tropical weather systems. Upon making landfall, they’re capable of making thousands of homes uninhabitable.
Named storms gain attention, but they’re not the only causes of high winds. “Tornado alley” suffers from destructive events with far less warning. And the remnants of named storms can seed more tornadoes.
While we’re working to create separate categories, Mother Nature has other plans. Windstorms are also often sources of flooding. And if the storms damage gas lines or electrical systems, fires are also possible.
Note: Windstorm coverage may be an optional addition to homeowners insurance policies. Ensure your members are aware of this coverage so they’re protected from all weather events.
The “Choose Your Disaster” Section
Just because they’re less common doesn’t make them less destructive. Especially if it’s your home that’s affected. Check your policy to ensure you have coverage for each. Then remember that Disaster Mortgage Insurance steps in before claim work usually begins.
Some possible risks:
- Gas leaks
- Ice storms
- Volcanic eruptions
Most of these stem from a natural disaster risk described above. But when these happen, it’s a national or global event. Whether a state-spanning explosion of wildfires, hurricane making landfall, or river flooding its banks, the number of affected can reach millions.
Worst of all, each can amplify the next, either directly or indirectly. While we, as Floridians, get a lot of comments on our hurricane propensity, the fact is, no one can escape the risks of natural disasters. Our “cone of uncertainty” is someone else’s fire warning.
In other words, as Cat Stevens sang: “Oh baby baby, it’s a wild world.”
Involuntary Job Loss
Sure, it’s not a natural disaster. Doesn’t change the concern for a member who just lost their job. Think back to the millions who saw their employment vanish in the COVID-19 pandemic. Due to the scale, government assistance arrived quickly, yet that’s not often the case.
Why include this section? It’s not like homeowners insurance will cover job loss.
That’s right. Homeowners insurance doesn’t cover job loss. Which means an inability to pay a mortgage becomes an issue with their loan holder. Maybe it’s your credit union. Maybe it’s not. For the former, helping them protects your portfolio. For the latter, helping is your mission.
Preventing default and foreclosure for someone already dealing with the stresses of job loss is a valuable tool in your financial empowerment strategy.
Is that possible? With Disaster Mortgage Insurance, it could be. Keep reading.
Climate Change. The Elephant in Every Room.
The science isn’t up for debate. Rising global average temperatures is associated with changes in short term weather and longer-term climate patterns.
The EPA explains: “Scientific studies indicate that extreme weather events such as heat waves and large storms are likely to become more frequent or more intense with human-induced climate change.”
Insurance companies have understood the risk. Since the 1970s, they have put climate change in their actuarial considerations. We mainly think about it after major storms, but when “the new normal” becomes “extreme”, the risks for everyone increase.
Data shows that climate change impacts can lead to greater mortgage defaults. Feel disconnected from climate change? Here’s one direct link.
Protection is the Message
The common thread in our risk assessment is more. Whether it be floods, severe storms, wildfires, or job risks, the trend is upwards. Which means more challenges…and opportunities for protection.
As promised, the rest of the article will help you understand the potential role of Disaster Mortgage Insurance. We believe it’s worth consideration (we only write about things we feel are worth your time). The best place to start is with quality information. So here we go.
Disaster Mortgage Insurance: What is it?
You just rode through a wide range of risks and financial challenges for your members. Some of them homeowners insurance can help. Others it ignores entirely. Disaster Mortgage Insurance is an option for your institution to fill those gaps for your members and portfolio.
Here are a few of its benefits.
Mortgage Payment Protection
Ensure your member’s monthly mortgage payment is covered against perils that can damage and displace them from their home. This includes fire, ice storms, sinkholes, flood, windstorms, radiation, earthquakes, mudslides, volcano eruptions and gas leakage.
If one of these losses renders their home temporarily uninhabitable (for 48 hours or more), the Mortgage Payment Protection benefit covers the monthly mortgage payment for up to two years while the home is being repaired or rebuilt.
If it sounds like a mortgage version of your auto loan’s payment protection coverage, you’d be right.
Mortgage Balance Payoff
This applies if your member’s home cannot be made fit to live in by repair, restoration, or reconstruction due to condemnation, or movement of the land on which their property exists.
In that case, the Mortgage Balance Payoff benefit pays off their remaining mortgage balance after proceeds are paid by their homeowners policy.
Note: This benefit is not applicable to mobile homes.
Sound like GAP coverage? That’s not a coincidence.
Reimbursement of Homeowner’s Policy Deductible
This benefit will reimburse your members the deductible they incur on any dwelling claim paid from their homeowners policy. This benefit provides for reimbursement up to 2x in a 12-month period.
In most states, members have the flexibility to select either a $500 or a $1,000 benefit to best align with their homeowners policy deductible amount.
Yes, this is the house version of auto loan deductible reimbursement.
Mortgage Payment Protection for Involuntary Job Loss
Losing a job can be financially devastating, no matter the cause.
The Mortgage Payment Protection for Involuntary Job Loss benefit pays your member’s monthly mortgage payment, or a portion thereof, if your member and/or their co-borrower (when joint coverage is selected) become involuntarily unemployed.
In the event your member or their co-borrower experiences a covered loss of unemployment, this benefit will pay the monthly benefit amount, after a 30 day reimbursable qualifying period, for the number of months reflected within the plan selected.
Sound familiar? It should. It’s Payment Protection.
Emergency Cash for Disasters
The Emergency Cash benefit puts extra money in your member’s pocket to help with displacement expenses incurred as a result of a covered loss. Typically, this coverage is offered at a $500 or $1,000 benefit amount.
Your members will receive these funds quickly, typically in a day or so. When things go sideways, having a cash buffer at hand is true financial empowerment. This can go towards any costs stemming from displacement.
If a noisy duck comes to mind, you’re not wrong. That’s on the right track.
Haven’t heard of it? Neither have your members.
Marketing and outreach is what makes such coverage work at your institution. Not because it needs a hard sell, but rather because it’s just not well-known. Have you heard of it before?
Being the only place your members discover such value is a perk for your institution. How is it promoted?
Typically, the insurance company or distributor you select will provide your credit union with marketing collateral. That may include:
- Branded enrollment portal
- Statement stuffers
- Email templates
- Web banners
For All Homeowners
Offer Disaster Mortgage Insurance to any member who owns a home, regardless of which institution holds their mortgage. You may also offer it directly to your credit union’s mortgagees at the time of closing. It’s truly “provider agnostic”!
Credit Union Benefits
Reduce Portfolio Risk
Members who secure this coverage (standard and/or optional) will be less likely to become delinquent or to default on their loan payments. You know they’re protected against the most common home-damage caused financial struggles.
When members are in need, especially after a disaster, they will remember your credit union’s role in keeping them afloat. Especially when that assistance might continue for years.
Offering Mortgage Disaster Insurance will help your credit union generate non-interest income through a marketing allowance. How much? Great question.
Your credit union earns a percentage of each policy sold, which becomes residual income as the policies renew, according to their billing mode. Do you like your Accidental Death & Dismemberment (AD&D) program? This operates similarly.
For When Homeowners Insurance Isn’t Enough
Your credit union is about providing financial empowerment, and understand that loan protection products are a part of that mission. In the case of car loans, most people know of additional coverages. It’s up to your team to ensure they recognize the need.
When it comes to mortgages, we’ve all been deluged by the mailings for mortgage insurance. Yet few know of anything beyond. You have a chance to raise awareness and get members protected from risks they may not even realize are there.
At worst, you can help them assess flood insurance. At best, you add a new protection product, which serves them, adds revenue, and deepens their relationship with your credit union.
We’ll go into more detail about Disaster Mortgage Insurance in a future article. Meanwhile, if you’d like to discuss if it could be for your institution, get in touch.
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