April 2024
Here are the key takeaways covered in their conversation:
- Flood insurance can be very complex, as internal water damage is generally covered but external water intrusion is not typically covered without specific insurance.
- While insurance typically covers accidental water discharge, it does not cover wear or tear or aging infrastructure.
- They also discuss fire insurance, as the impact of fires in California has led to higher premiums and stricter underwriting, forcing some insurers to exit the California market.
- It is very important to understand your homeowner’s policy thoroughly to ensure you are protected in unpredictable situations.
- Justin discusses Greyhawk's role in developing innovative insurance programs by partnering with risk retention groups, reinsurance companies, and carriers to address market gaps and offer solutions. Visit www.greyhawkinsurance.com to learn more.
Watch previous episodes here:
Ep. 78 How Will Realtor Fee Changes Impact Home Buyers and Sellers?
Ep. 77 Estate Tax Changes: Will They Affect You?
Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, joined by Justin Pizzola, co-CEO of Greyhawk Insurance. Justin, thank you for joining us.
Yeah, thanks, man. Really appreciate it. Happy to be here.
Are you sure? I mean, we're here to talk about insurance and fire coverage and the disaster that California has. But it's not just California. Yeah. You sure you're that excited?
Yeah, I'm actually really excited, because fortunately for us, we look at this as a solution. This is an opportunity. So as much as I've been hearing the negative and like the news outlets and quite frankly, a lot of other people in our industry, they tend to talk about it negatively. We are the exact opposite, where the glass is half full and there's a lot of opportunity for us not only from gaining new prospects, but providing a lot of knowledge and our recruitment efforts right now to bring in the next wave of insurance has been really nice to see lately.
I mean, what Greyhawk is doing and their ability to help solve people's problems, not only personal lines but commercial and all sorts of insurance options. Yep. You guys are a great solution. Yeah. Let's talk on what I think is most top of mind for a lot of our clients right now is number one, the recent floods and rains that we had or some people are finding out like, my gosh, I'm not covered for that.
Right? So I want to touch on that. And number two, insurance premiums for personal homes and commercial have gone through the roof recently, especially as it relates to fire. Sure, some people are getting dropped. What do people need to know and what should they do as it relates to fire and flood? Sure.
So before I go into the marketplace itself, on what has shifted significantly, I kind of want to just break down our approach to property insurance, whether it is on personal lines like at home or a commercial building. We like to start from the very beginning where obviously we're going to collect all the data and we're going to take the bird's eye view.
The street view. We want to see the surrounding area, but most importantly, we get all the metrics. So we're going to get square footage. Year built, how many stories, what are the kitchens and bathrooms like? How high are the walls, roof type? The point is we take all that data and we first put it into a third party system and that calculates the replacement cost in today's market.
So I'd say that's like the first main approach, because what we're seeing is somewhere around 40 to 60% of folks under-insured with this hyper inflation.
Because the replacement cost is nowhere near where it should be.
So they're significantly underinsured.
Especially in this general area or for that matter, any higher end area. I don't think the days of 200 and 250 a foot exist anymore. Even if you were to go in the middle of the valley where it's typical builders, grade contractors, costs are just too high and the materials are too high. So what? Back to my point of the system.
When we put in all that data, it spits out what a general contractor, their overhead, their profit cost of materials and architectural fees go for, you know. So that's our first step to advise on. Do you have appropriate insurance? And then from there, once we gather that we want to advise on what's included in basically a homeowner's policy, it's all payroll driven, just like a commercial policy.
So what I mean by perils, you got to understand what's covered. So the main perils: fire, lightning, wind, hail, theft, fire. Then there's also accidental discharge of water. But then you have to pay attention to if it's not a covered payroll, that means it's excluded. So earthquake and flood are two major exclusions in all of California policies, whether it's on the personal lines or commercial.
So we're huge proponent in earthquake insurance first, because that is a significant equity protector. So if I own this asset and I have a lot of equity tied up in that asset, and if I were to suffer a significant loss, if I don't have earthquake because I am next to an epicenter, let's say it's 7.0 or greater, that's going to cause damage.
And I don't want to be that bearer of bad news saying, hey, you elected not to purchase earthquake insurance. Furthermore flood, you can get a little bit more creative. So when you think flood insurance, you kind of want to start with how high is my risk to like a local water basin?
Well, but that's the thing. Like, I don't think people in California really understood what their risks are because, you know, typically we get what, 13 to 18 inches in Southern California.
Now it seems like we're getting 13 in a week. Yeah. When it does rain every once in a while. And so the, the rain that we had in 2023 and then the start 2024, it was just so much more dense. Yeah. And so now I think people that historically were never really worried about flood may need to now.
Is that what you're seeing?
I guess that's what we're seeing. I just want to back up once because water is one of the most prevalent perils and it's also one of the most gray areas in an insurance policy. So a peril covered is accidental discharge of water. So if an internal pipe, a supply line that's feeding a refrigeration system, a toilet washing machine, if those breaks are most likely covered, what your contract won't give you is wear and tear or these aging pipes, this aging infrastructure.
So I just wanted to point that out. First, make sure if you are a property owner and it's a really nice asset for you, if you're not sitting on top of your maintenance or replacing these things, just be careful that insurance companies may not cover you if there's a leakage or seepage or the wear and tear type claim. Stating that, flood is excluded.
So what flood is, is natural rising of water from the outside getting gaining access to the structure. So our approach to flood is offer the full limits, but you also can get creative and not have to purchase full limits like you do when you present an earthquake or a homeowner's policy. They have what's called replacement cost conditions in there.
And if you don't meet those replacement cost, the coverage won't engage the way you think it is. Flood is a little different. So let's say we have a $5 million building and you could buy the full limits of 5 million, but you could also kind of debate the risk to like where it is. Likr it's clear we are not by the local water basin, and we're not by a river, we're not by a body of water.
Sure, heavy rains can happen in build up, but we're not by a hillside or a landslide. So my point is, you can also look at maybe I only need $1,000,000 in coverage. Right? Right. So this is where you get a little creative. But from an advice standpoint, we're always going to advise for limits because we also don't want to be in that position of.
But this is where the kind of the experience in the historic data shows where we've seen the less risky properties like they've done well and the lower purchasing power of insurance because the risk justified it.
I think that's helpful. I mean, you touched on three major points, right? Obviously, you want to look at what the replacement cost value is and you've got software to help people determine the right level of coverage. Be aware of what your standard policy does cover, Right. And then just know that it likely doesn't include flood insurance or the type of outside water.
And if you own a 1960s Charles Devore home and in Woodland Hills, you better have your pipes replaced. Most people probably that have gone through this experience and they've seen outside water damage, most likely they were not covered or they should have been covered by external policy. And this is sort of new because of the rates.
Now let's go into fire. Okay. As it relates to fire and normal insurance premiums for coverage for homes, we've seen people get renewal notices sometimes 30, 40, 50% or even more higher than normal. What should people know about that?
Well, first off, they need to know about the market condition. California is catching up with the times. So what I mean by that is they rank about I think it's around 32 out of the 50 states on where their rates are. So everybody sees these rate hikes. But quite frankly, if you were to compare that to Texas, Florida, the South, New York, we're still under market as far as premium goes.
So what we're experiencing here is because we were underpriced when all these natural disaster fires were ensuing, it hardened up this market really quick. The insurance companies were bleeding in the red, so they couldn't raise rates fast enough. And because it's also a political play and I don't want to get into that, but the fact that the Department of Insurance wasn't giving them their rate swiftly, it just almost shut down the market in California.
So what happens then is if the carrier's not going to get an approved rate in order to operate in California, because just like any other business, they're not in it to lose money. So if they're collecting a dollar in premium, but they're spending $1.80 between all their operating costs and claims, it just it's not going to add up.
Right. So they made underwriting decisions and they just said if you don't meet this super tight box of data and underwriting, we won't even consider issuing a policy. And others just said we're going to pull completely out of California. But in order to do that, the Department of Insurance says you have to non renew that existing book of business.
That's what we've really seen is people exiting. Talk to us a little bit about how you get access to carriers through your business.
Fortunately in my role with Greyhawk, it puts me in a unique position to where I get to focus on the creative and the marketing in all the carrier relationships and developing exclusive programs for our producers. So again, we look at this as solution base. We see a lot of people struggling, but we are on a mission to lead the next generation and insurance and we can kind of touch on what that data looks like in our industry, how it's a much older crowd and we want to reverse that and lead the way.
But stating that the opportunity for creating the exclusive type programs I get to go to risk retention groups, I get to go to reinsurance companies, I get to go to carriers and say, Hey, this is a significant problem. What are our solutions here? What kind of data do you need from us as a brokerage? And let's bring a product to our folks.
Yeah.
Well, that's nice that you're able to be creative there. And I think that what Greyhawk is able to advise on not only for personal lines, commercial, but also business solutions, We can touch a little bit on that here at the end, but I just kind of want to button up the fire and the renewal notice. What advice do you have for people that are getting renewal notices in the mail or getting a letter saying, hey, we're dropping?
Sure. So if you're getting a renewal notice and it's an accepted renewal, you're not getting non renewed- more than likely we're going to suggest you stay right there, even if you see a let's say, a 20 to 25% increase, that's typically not bad to what we're seeing. If you're seeing a greater jump than that, that's at least and you're still getting a renewal offer, at least reach out to us and we could we could test that with other carriers.
When you're getting a non renewal, that's when you're going to be in a little bit of panic mode. And we have plenty of options both on the creative side and the standard side to help people in that situation.
And that's pricing out an insurance carrier or going through the fair plan with some supplemental coverage. Yeah, but I just love the advice that you gave of like, listen, if you're getting a renewal notice right now, you should take it right and then look at your options afterwards to then price it out. You never know.
Yeah. And then so just sorry to cut you off there, Chris, but one of our core values is integrity. So if we get a call in there with Triple-A or with State Farm, like, Hey, we really want to work with you guys at Greyhawk, but we do a review like you guys don't need to go anywhere.
However, I notice these things and this is my feedback. That's my advice. I can't speak for those carriers. We'll give that advice. That's just who we are. Yeah.
Well, look, I've always loved that about you. And that's why you are somebody that we've worked very closely with for a number of years. Let's now talk a little bit more about Greyhawk. You guys don't just do personal lines and it's also commercial and business insurance. So tell us a little bit about who you guys are.
Yeah, I'm going to try to do the Reader's Digest version because I could talk about this stuff forever. So we started about two and a half years ago and it was before me. So there were two partners. It was Charlie Deaver and Daniel Clarke, and they were doing fantastic things in the insurance space. And at that time I had my own brokerage.
It was known as Pizzola Insurance Associates, and we were doing really good things. The problem was I was getting in the weeds of the operational side of the business and I just, I don't thrive in that space, if you will. So when it came to a lot of the management and like the payroll and all that stuff, I'm like, man, I need to get back to the marketing, the creative and drumming up business and engaging and quite frankly, building a platform for people to have fun at.
They want to walk out their door. I want that environment for them to want to come to work. Basically, we’re part of this community called PAC West Alliance, Greyhawk joined the month they had an annual conference. So as I'm sitting in the lobby, one of Greyhawk’s partners just happens to sit next to me and we hit it off instantly.
We became buddies. And then you fast forward about a year, year and a half. I picked up the phone one day and I'm like, Hey, there's this issue going on in our industry. Like, what are the solutions between me and you guys? Like, I feel like we're really good at this problem solving stuff and it just led to, Hey, let's line up golf and just talk about like what we could be doing better our industry.
And I'll never forget driving to that golf course that day- I was calling my wife. I'm like, Hey, I feel like I should pitch them on this partnership. Because if you put the three of us together in our lanes of what we do really well, like sky's the limit for us. And it was funny, when I got to the golf course, I was putting my bag in the back of the cart and Charlie was instantly running over to me doing this like, Hey, just remind me when we're out there, I want to pitch you something.
Yeah. And I'm like, That's funny. I was going to pitch you something, and he's like...
you first. And I told them, like, Hey, we should consider partnering up is like, That's exactly what it was as we never looked back. So I just wanted to give that background because what it did, Charlie runs all our producers and our production and leads the sales team. Daniel runs all our operations and he is just phenomenal at the employee management.
And then again it puts me in that space that I thrive in and I enjoy, which is the creative, the marketing, drumming up all the relationships.
Problem solving.
So that's the background of kind of Greyhawk and where we're at now. And we are about 95% commercial and employee benefits, even though we have a significant personal lines book, we have a really good commercial book of business and it's in the middle markets, a large market space.
Right. And you mentioned a couple of areas in the commercial and business owner space that people are neglecting or running into submission.
Sure. The most common claim that we see other than, I would say commercial auto, it's just those that's a big hazard. Folks are driving around on the freeways in the highways. Accidents happen. Other than that, as far as business operations go, employment practice, liability is a very common claim we see in California, unfortunately. And so as cyber insurance, I mean, there's so much electronics out there.
I don't think we're going backwards.
Yeah, we're not going backwards. So I guess the reason you brought it up is when you do a full business review, we take it from start to finish. They might call us and say, Hey, we need general liability or any worker's comp. And then it's like, okay, we'll definitely help you there. But now we have to talk about the other two policies that go one side of it.
And you typically want, you know, at least 120 days notice to be kind of do this full review, right. Do your due diligence. Justin, you shared a lot of information that I'm going to try to recap. Yeah. If you have a policy for your personal lines or your home, make sure to kind of get it updated and check for replacement comp because you may be way under covered for a replacement.
Right. It's likely that your current policy does not cover flood. Yeah. Excluding, you know, pipe breakage or something. So if you're worried about flood in these excess rains, you're going to need an extra policy, right? If someone is coming to you with a renewal policy, you should take it and then figure out your options or prices from there.
Fire is a part of the big problem with why these insurance companies had to leave. And then not only that, but great premier insurance solutions can handle commercial, personal and business and employee benefits.
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