By Matthew Vanderford, Claimology

Knowing how to resolve an insurance claim dispute can become tiring, even for the most experienced professionals in the Insurance Claims Handling Industry. Many people file claims on their own and are met with many different reasons WHY their insurance companies are not providing coverage, or even working with them to resolve issues when coverage is afforded early. There are several ways to handle issues like this: Continued direct negotiations with carrier adjusters, mediation, appraisal, legal action or doing nothing at all.

Today we’ll talk about Appraisal. Appraisal is an Alternative Dispute Resolution that has been used for over 100 years to resolve insurance claims issues. The process is similar to arbitration allowing for a three-party panel to come together to set the amount of the loss. Once the amount is set, the insurance companies are bound to pay the amounts awarded as provided through coverage. Below is a sample of some appraisal language that is found in most polices. Every policy differs in content. So, make sure to check if your policy contains this provision. You can even contact your insurance agent to see if your insurance policy contains this type of resolution process or what, if any variation exists. You might even want to think about a different policy that does contain this type of resolution.

Appraisal. If you and we fail to agree on the actual cash value, amount of loss, or cost of repair or replacement, either can make a written demand for appraisal. Each will then select a competent, independent, impartial appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers will then set the amount of loss, stating separately the actual cash value and loss to each item. If the appraisers do not agree, they will submit their statements to the umpire. Agreement by the umpire and either of the appraisers will be binding. Each party will pay its own appraiser and bear the other expenses of the appraisal and umpire equally. Even though we may submit to an appraisal, we will retain our right to deny the claim.

Appraisal offers certain benefits in comparison to litigation. For example, most policies require that appraisers be competent and disinterested, meaning that they are well versed in the areas of dispute and are not compensated directly from the outcome of the appraisal itself. Another benefit is that appraisal in intended to keep claims from clogging up the courts system while offering a real conclusion to the claim. As litigation can take years in some cases to finalize a loss, appraisal is meant to fast track the settlement process, usually resolving the dispute within 90 days.

Knowing when to invoke or accept this process is also especially important as not every claim is “ripe” for appraisal. Because there are many factors to consider involving issues with coverage and damages, it’s prudent to contact someone who can advise you (such as a public adjuster or attorney) if appraisal is the best option, when it should be used, or if the carrier has demanded the process forward and you need help to resolve the dispute.

“The Pessimist Sees Difficulty In Every Opportunity. The Optimist Sees Opportunity In Every Difficulty.”
– Winston Churchill

By Maurice Stouse, Financial Advisor and Branch Manager

While the economy rebounds and fears of inflation abound, we continue to watch those indicators we believe will help us and our clients make well informed decisions as to the direction and allocation of their investments. We do not try to predict markets, but rather strive to be ready vs. trying to be right. With that in mind here are some key data that we track daily as we monitor and help our clients manage their portfolios:

Earnings: These are some of the strongest earnings U.S. companies have seen in almost 40 years. To put that in contrast, in 2019 the earnings of the S&P 500 was $162. In 2020, during the middle of the pandemic, that shrank to $142. Look at 2021: Current run rates are $200. Fidelity Investments, in a recent investment professional webinar shared those S&P earnings for 2021 might even hit $225.

Stock prices are mostly based upon earnings. This might help explain the return of the market year to date and over the past year.

Free Cash Flow: That is money that a company has left after paying its bills, debts, its dividends, and other things. Free Cash Flow for many sectors (Energy in particular) is reaching significant highs.

Market Corrections: Corrections occur in the stock market, the bond market, the real estate market, and the commodity markets. We are aware and want our clients to be reminded that this can always be a possibility. One such risk is on the rise: Should the Fed wish to start tightening by decreasing its monthly asset purchases of over $120 billion dollars. That is what has been called tapering and, in the past, the markets have experienced the so called “taper tantrum” where most asset classes experienced a sell off when the Fed makes shifts like this.

Inflation: Like many advisors, we watch these number closely. We have some specifics to share with you beyond the stated CPI and PPI numbers. CPI, the Consumer Price Index, was reported this past Thursday for the month of May. It showed the year over year inflation rate at 5%. PPI (the Producers Price Index) was reported this past week and came in at 6.60% – May 2020 to May 2021. Both numbers show inflation potentially running at twice of what is known as “The Expected Inflation Rate.” That rate is the rate at which most institutional investors expect as the actual long-term rate of inflation. That number is available daily. However, it needs to be computed by looking at two factors: a) the U.S. Treasury 10-year note yield and b) the U.S. Treasury 10-Year Inflation Protected Notes Spread. The difference between the two is the expected inflation rate. That is the result of the pricing that the market puts on those Treasuries based upon what they think the inflation figure really is.

Note: The Federal Reserve more closely watches the movement in an index called the Personal Consumption Expenditures (PCE) index according to Fidelity Institutional, in its June 2021 report on Fixed Income. The PCE is published by the U.S. Department of Commerce. That next reading will be June 25. For now, that number is 3.1% for April which increased substantially from March when it stood at 1.9%.

At this writing, the 10-year U.S. Treasury was yielding 1.45% and the U.S. Treasury 10-Year TIP Spread was -.985%. So, the difference between the two is 2.435%. That is the rate the markets expect the true rate of inflation to be. That is obviously off the stated rate of the CPI and even the PCE. Why might this be so?

Many economists, investors and the Federal Reserve think the current CPI and perhaps the PCE are transitory in nature – the result of the economy rebounding from the lows realized just one year ago in the middle of the pandemic. They also point out that the CPI numbers are distorted by just a few things: Used cars, airline prices, gasoline and food. Add to that the numerous gaps in supply as a lot of manufacturing capacity had been reduced or shuddered during the pandemic.

“2.35%. That is the rate the markets expect the true rate of inflation to be.”

As a result, the markets have shrugged off the potentially ominous CPI numbers believing that the real inflation picture is the expected rate. The market is signaling that there are not too many dollars chasing too few goods which is the classic definition of inflation. We are in a different spot from this. We think that monetary inflation – the growth of the money supply as having much greater impact than temporary supply gaps.

There are several things to consider: 1) The Federal Reserve’s balance sheet sits at $7.95 trillion dollars. That is up from $4.16 trillion dollars at the start of the pandemic. The balance sheet was $2.2 trillion dollars in November of 2008 during the Great Recession. Just two months before that it was at $925 billion dollars. In other words, the Fed’s balance sheet has almost doubled in the past year and is up tenfold since just prior to the Great Recession. The balance sheet is simply the amount of money the Federal Reserve has injected into the financial system by way of buying bonds on the open market When they buy bonds, they use newly produced U.S. dollars to buy those, thus increasing the supply of money. That means a tremendous amount of liquidity. It is liquidity that supports and raises the prices of assets be they stocks, bonds, real estate, or the cost of borrowing and so on. 2) Federal deficit spending. We are approaching a record deficit of $4 trillion dollars. The U.S. government has added to supporting the economy by way of its own spending on stimulus and other programs. That means even more money into the system. 3) Labor shortages – as the economy continues to emerge and grow the number of job openings has caught up with the number of unemployed workers yet employers across the country from restaurants to construction cannot hire the labor to meet the increase in demand. 4) according to Fidelity Institutional, liquid savings are now at $4 trillion dollars, up substantially. Also, the U.S. savings rate is over 14.1% according to Tradingeconomics.com and it remains high (it was less than 10% at the start of the pandemic). You might see that as a lot of money on the sidelines, which is waiting to be spent on dining out, traveling, vacations, leisure and other things as the economy reopens.

Liquidity is the opposite of constrained credit. During the Great Depression, and what brought about the Great Recession can in part be blamed on the lack of liquidity and the lack of credit. That makes demand go off the proverbial cliff, prices deflate, and a recession or depression ensues. Many market pundits think once the supply imbalances are worked through that we will return to continued deflation. Their reasoning is not because of a lack of credit or liquidity but rather due to technology and a shrinking population. They think this time it is different. We do not agree.

The demand for housing has been unprecedented. This is more a result of the liquidity that is out there versus demand, in our opinion. If the Fed balance sheet had not doubled or the deficit spending not occurring, housing and other asset prices would not be supported at current levels. We think the only thing that will cause the housing market to cool, or even slowdown will be the reduction in Federal Reserve monetary injections.

So, what are the takeaways for clients? First, to review strategies and allocations and look to see if you have the diversification, you need or want should you be of the same belief that monetary inflation will indeed impact the expected inflation rate. There are several strategies to consider where inflation resilient or inflation resistant investment are concerned. Equity (stock) investments in Energy, Financials, Materials, Industrials, Commodities and Real Estate. Investments into small and medium sized companies (or funds that invest into those) is advisable as well. Investing in emerging and developed foreign stocks (or funds) for a portion of your allocation as well.

Second, review fixed income holdings. For those that have investment grade corporate or long-term maturities? You may consider adding short term inflation protected bonds, like TIPS to your portfolio.

Third, consider the real rate of return on your investments. That is the return you are getting less a) the expected inflation rate and b) the nominal (stated) inflation rate. As an example, if you have a bond paying 3%, its real return would be .565% after the expected rate of inflation or -2% with the nominal or stated rate of inflation. The same can be said for stocks, or growth investments and real estate. Look at your return and subtract out both inflation rates and make any needed adjustments accordingly.

When managing your investments and financial affairs we encourage investors to review and think about what changes they need or want and then to make those over time, not necessarily overnight. At The First Wealth Management and Raymond James, our focus is on actively monitoring and over actively managing our clients’ investments. We appreciate the old saying that at first you concentrate to build wealth and then you diversify to preserve it.

The First Wealth Management is located at First Florida Bank, a division of the First, A National Banking Association, 2000 98 Palms Blvd, Destin, Fla. 32541 with branch offices in Niceville, Mary Esther, Miramar Beach, Freeport and Panama City. Phone 850.654.8124.
Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC, or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc.

The First Wealth Management First Florida Bank, and The First, A National Banking Association are not registered broker/dealers and are independent of Raymond James Financial Services.

Views expressed are the current opinion of the author, not necessarily those of RJFS or Raymond James, and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Investors should consult their investment professional prior to making an investment decision.

Investing within specific sectors, or in small and mid-size companies, involves unique, additional risks. Those risks include limited diversification, regulatory risks, limited liquidity, and lack of operating history.

There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.

Investors should carefully consider the investment objectives, risks, charges, and expenses of mutual funds before investing. The prospectus and summary prospectus contains this and other information about mutual funds. The prospectus and summary prospectus is available from your financial advisor and should be read carefully before investing.

By Joe Capers

Our beautiful areas of NW Florida are popular destination for vacation home renters. And we must be alert to the fact that standard homeowners and condo insurance policies are designed to cover only owner-occupied or secondarily occupied properties with no rental exposure. The intention is not to cover a home that is rented out to guests. Many insurance companies will not even knowingly provide a policy for short term rental insurance in Florida. So, beware when placing coverage for your rental exposure.

You might be under the impression that Homeowners Insurance and landlord/tenant (rental property) insurance are the same. There are similarities. The Homeowner form is usually broader and is used if the occupancy is primary or a secondary residence. The Dwelling Fire form is more limited and is usually required when the home has rental exposure.
Regardless of the form, you want the correct amount of coverage to rebuild the primary dwelling and other structures on the property, along with hurricane and wind protection.
Insurance industry statistics shows that two out of three homes are underinsured. Other essential areas of coverage include replacement cost on the contents, loss of rents, loss assessments, liability, rebuild to code (Ordinance or Law), increased mold and much more.

You might also think there’s no difference in coverage or carriers depending on whether you rent your place out annually, for a week or for a few nights. But there you’d be wrong.

“What will be the shortest length of time you’ll offer your place for rent?” The answer to this question is crucial in making sure you have the correct policy. Some carriers allow only annual leases, some a minimum of one-week rental and a few others allow less than seven nights. You might be wondering why it’s all that important. In the world of insurance, all information should be as accurate as possible, so a carrier won’t have a ready excuse to deny a claim.

For short-term rentals, since they come fully furnished, make sure you have enough contents coverage to replace the furniture, dishes, linens, accessories, electronics, decorations, etc. in the event of a loss. Replacement cost is always recommended over actual cash value, since actual cash value depreciates the items for age and wear and tear.
There’s also the added liability exposure with rentals which tends to be most costly as well.
If your weekend getaway renter trips over a rug, falls down the stairs and breaks his leg, you need to be ready for a possible lawsuit. Most rental property policies offer liability coverage options between $300,000 and $500,000. Depending on the amount of assets you need to protect, it might be beneficial to purchase a separate Excess Liability policy with coverage limits starting at $1 million or more for your rental property. If the property is titled to you individually and you have a personal Umbrella policy in place, you might be able to add your rental property to that policy. One caveat – if your rental property is titled in an LLC, partnership or other entity instead of your personal name, you’ll probably be unable to add it to your personal Umbrella. Excess liability policies are an affordable way to obtain extra asset protection.

And, of course, you don’t want to forget about flood insurance. It’s as important to have a flood policy on your primary residence as it is on your rental properties, and one should consider purchasing limits to the full replacement cost of the dwelling and contents.
When it comes to short-term rental insurance, always speak with an insurance professional, and make sure you have the coverages you need to make your rental experience a successful one. It is imperative that you select a good carrier that offers short term Renters insurance for your rental properties or temporary vacation rentals. As we demonstrated, these policies protect you from damages that occur when someone else permanently or temporarily rents space in your home.

Insurance Zone, founded by Joe and Lea Capers, is a full service commercial and personal lines insurance agency serving Destin, Miramar Beach, Santa Rosa Beach (30A), Niceville, Freeport and Inlet Beach. Visit their Video Library on www.ins-zone.com and watch several informative videos on ‘Homeowners, Condo Unit Owners and Flood,’or call (850) 424-6979 and talk with one of our experienced Team Members.