The Week in a Minute, 9/20/17

The I.I.I.’s California representative, Janet Ruiz briefed our membership this week on key insurance related stories. Here are some highlights. 

  • The I.I.I.’s Steven Weisbart was quoted in a Washington Post story on the insurance industry’s financial strength in the wake of Hurricanes Harvey and Irma.
  • A FEMA/State Disaster Recovery Center opened today (September 20) at the Carolyn Sims Center in Boynton Beach (Palm Beach County) for Floridians impacted by Hurricane Irma.
  • Florida’s Department of Financial Services opened Irma-related Insurance Village locales this week in St. Augustine, Jacksonville, Fort Myers, and Naples.
  • The Texas Department of Insurance (TDI) released details on Hurricane Harvey’s Disaster Assistance Mobile Unit Locations.
  • Maria made landfall as a Category 4 storm in southeast Puerto Rico Wednesday. The governor’s spokesperson said ‘this is a total disaster.’  The same evacuation centers used for Irma are filled with thousands of people according to CNN.
  • The LA Times offered these earthquake preparedness tips in the wake of the deadly 7.1 quake that struck Mexico City on Tuesday.
  • Politico posted last week an in-depth story on how Oklahoma’s earthquakes could adversely impact the U.S.’s energy supplies.  It was written by the author of Quakeland: On the Road to America’s Next Devastating Earthquake (Dutton 2017).
  • Dr. David Harkey will succeed Dr. Adrian Lund in January 2018 as president of the Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDI).

 

Disaster Relief: Preparing for Fraudsters

By I.I.I. staffer Brent Carris

While natural disasters have the unique ability to unify people, it is important to stay cognizant of scams and fraud that follow.

PropertyCasualty360 addressed potential scams in this article, noting that hurricane relief fraudsters are some of the first to appear after a storm. One way to avoid scams is to donate strictly to well-known reputable organizations such as the Red Cross or Direct Relief.  The Insurance Industry Charitable Foundation has a Hurricane Harvey disaster relief fund as well.

Affected homeowners should be wary of who they let into their home for repairs. Regulators in Florida are warning consumers not to sign Assignment of Benefits (AOB) forms to get repair work started.

FEMA has launched this page with information on disaster relief and how affected individuals can prepare for the arising fraudsters.

 

Concurrent Causation and Hurricane Irma claims

The issue of causation, especially when there may be multiple causes of loss, can be a tricky one for both insureds and insurers. It comes down to what caused the loss – and in what order.

Take the example of a major catastrophe, like a hurricane, where there may be property claims arising from both wind and water. Determining the cause of loss is key to determining whether there is coverage under the terms of an insurance policy because there are two policies in play, one for wind damage and one for flood damage.

Some jurisdictions subscribe to the “efficient proximate cause doctrine” while others subscribe to the “concurrent causation doctrine”.

What’s that?

The efficient proximate cause doctrine finds that where there is a concurrence of different perils, the efficient cause – the one that set the other in motion – is the cause to which the loss should be attributed.

Under the concurrent causation doctrine, when multiple perils contribute to a loss, coverage is allowed if at least one cause of the loss is covered by the policy.

In the case of Florida, a recent court decision adopted the concurrent causation doctrine, which will impact Hurricane Irma claims.

Insurance and disaster aid for non-U.S. citizens

Our Communications department has received questions from Canadian news outlets on behalf of Canadian citizens who own homes in areas affected by either Hurricane Harvey or Irma. Here are some of their questions and the answers we found.  Of course, the answers below also apply to other non-citizens who own property in the U.S.

Q: Can Canadians qualify for a Federal Emergency Management Agency (FEMA) grant?

A:  It depends. To be eligible for assistance from FEMA, at least one person in the household must be a U.S. citizen, Qualified Alien or noncitizen national with a U.S. Social Security number.

Q: Can Canadians purchase a FEMA National Flood Insurance Program (NFIP) policy?

A: Yes. Anyone who owns property in the U.S. can buy a FEMA NFIP policy as long as their property is in a participating NFIP community. They should be able to buy excess flood coverage if the event they want policy limits above a beyond what FEMA’s NFIP offers ($250,000 for dwelling protection, and $100,000 for the dwelling’s contents).

Q: Can Canadians purchase a policy from Florida’s Citizens Property Insurance Corp.?

A: Yes, it appears. We found no restrictions on the citizenship of the buyer. To find out more about Florida Citizens’ eligibility requirements click here.

Counter-terrorism efforts key to estimating risk post-9/11

Today marks the 16-year anniversary of 9/11, and as we remember those who perished and honor first responders on that day, it’s worth noting that we have not had a large-scale terrorist attack on U.S. soil since then.

From a recent discussion by property underwriters Gedion Amesias and Jeri Xu at the Swiss Re Open Minds blog:

“Since 9/11, the U.S. government and four of its allies (Five Eyes alliance) have been spending tens of billions of dollars each year on counter-terrorism. Even though it’s hard to accurately estimate, there are experts that approximate the U.S. spends around $100 billion a year on counter-terrorism efforts. Successful attacks since 9/11 have been carried out by either a lone wolf or a duo, for example the 2016 cargo truck attack in Nice by one driver, and 2013 Boston Marathon bombing by a pair of brothers. Plots that involve more people are more likely to be discovered through the surveillance of their communications, so organized large-scale plots are less likely to occur.”

And:

“Terrorism insurance is effectively insurance against the failure of counter-terrorism. Because counter-terrorism efforts have increased so much post 9/11, a reasonable assumption to make is that the frequency and severity of loss from terrorism have decreased significantly.”

They conclude that underwriters need to think about how terrorists will behave going forward and how governments around the world will counteract terrorism in order to predict where and to what extent future losses may occur.

Willis Towers Watson offers insight into how insurers are responding to meet the evolving nature of terrorism.

The I.I.I. has resources on terrorism risk and insurance here.

Hurricane Irma Loss Estimates, 9/13/17

We’ve chronicled loss estimates from Harvey. Here we’ll do the same for Irma.

Karen Clark

As of 6 p.m. 9/13, Karen Clark estimates :

  • Total insured loss of $25 billion, being
    • $18 billion in the United States, mainly Florida but also Georgia, South Carolina and Alabama.
    • $7 billion through the Caribbean.

Business Insurance notes:

Estimates include losses to buildings, other insured structures, contents, business interruption and autos, but do not include crops or losses covered by the National Flood Insurance Program.

RMS

As of 2:30 p.m. 9/10, RMS estimates:

  • 10 percent chance that wind losses will exceed $60 billion. (This estimate has been falling the past couple of days, as the storm has tracked away from the Miami/Fort Lauderdale/Palm Beach corridor.)
  • This doesn’t include:
    • Post-event amplification (demand surge), which could add as much as another 15 percent, depending on how the storm plays out.
    • Storm surge, which could add another 30 percent.
AIR

As of 5 p.m. 9/10, via press release:

  • Total US Insured Losses: $20 billion to $40 billion.
  • This estimate did not include any mention of insured losses in the Caribbean, which were estimated between $5 billion to $15 billion, according information in a prior AIR release.
  • Here at I.I.I., we’ll note that a $20 billion loss would make the storm one of the three worst insured catastrophes in U.S. history, even after accounting for inflation.

As of 3 p.m. 9/9, via CNBC:

  • Total Insured Losses: $20 billion to $65 billion.
  • U.S. Insured Losses $15 billion to $50 billion

Understanding Hurricane Deductibles

With Texas still dealing with the remnants of one major hurricane and Florida about to contend with another, Thursday’s Wall Street Journal called considerable attention to hurricane deductibles:

These deductibles were widely put in place after Hurricane Katrina in 2005 and have been standard in many states for years. But they have rarely been triggered on a large scale because few hurricanes have landed in the U.S. over the past decade.

The Journal article called them “little known provisions that allow insurers to shift thousands of dollars of damage costs” onto homeowners. Most industry experts would quickly point out that this reduces premiums – by hundreds of dollars a year in hurricane-prone states like Florida.

A recent poll by the Insurance Research Council found that about a third of coastal residents were unfamiliar with hurricane deductibles. (The flip side, of course, is that two-thirds were familiar with them – less than anyone would like but comparable to what the public understands about other insurance concepts.)

The concept is simple: To limit their exposure to catastrophic losses from hurricanes, insurers in coastal states sell homeowners insurance policies with percentage deductibles for storm damage instead of the traditional dollar deductibles, which are used for other types of losses such as fire damage and theft.

The deductible is a percentage of the insured value of the home.

Here is an example of how a percentage deductible works: if a policyholder has a $5,000 covered loss and a 2 percent deductible and the insured value of the home is $200,000, then the insurance company will pay $1,000. The remaining $4,000 is he amount of the deductible (2% of $200,000 = $4,000).

Beyond the simple concept are many permutations from state to state. The deductible is reviewed by state insurance departments and may be subject to various laws and regulations. The details are spelled out on the declarations page of homeowners policies, generally one of the first pages of the document. (It will be clearly marked near the top.)

Below is a primer on deductibles and specifics for Florida and Texas – two states where the deductibles may become an issue in the coming weeks.

FLORIDA
By Florida law, application of deductible is triggered by windstorm losses resulting only from a hurricane declared by the National Weather Service. Such deductibles apply for damage occurring from the time a hurricane watch or warning is issued for any part of Florida, up to 72 hours after such a watch or warning ends, as well as any time hurricane conditions exist throughout Florida.

Deductibles are set by law and may only apply once during a hurricane season. All insurers must offer deductible of $500, 2 percent, 5 percent and 10 percent of the policy dwelling or structure limits, with percentages based on the home’s total value. Regardless of percentage, the deductible must be stated in the policy as a dollar amount. This is true for both private insurers and the state-run Citizens Property Insurance Corp., which insurers many homes in high-risk areas. See website for details.
Additional resources:

The Florida Insurance Council

Florida Office of Insurance Regulation

 

TEXAS

Texas insurance policies differ from most states because they can offer three types of deductibles: one applied to typical losses like fire; one applied to losses from nonhurricane windstorms and hail; and one applied to hurricane losses.

The hurricane deductible is calculated as percentage of dollar amount of coverage on a dwelling. The trigger varies by insurer, but is generally when the National Weather Service issues a hurricane watch or warning and it remains in effect for a specified amount of time after storm has passed. Intensity of hurricane may also affect the trigger.

Some insurers require a hurricane deductible to be a percentage of the insured value, but by law it must be shown on the insurance policy as a dollar amount.

Beach or FAIR Plan
The Texas Windstorm Insurance Association (TWIA), provides wind and hail coverage when it is not available in the insurance marketplace for 14 counties.  The Texas FAIR plan operates statewide, but cannot provide wind and hail coverage in areas that are eligible for inclusion in the TWIA. TWIA covers only 14 coastal counties and five communities in Harris County [Galveston Bay].
The deductibles can vary by the type of residence:

  • Residential Dwelling or Farm and Ranch Dwelling – Standard deductible is 1 percent (with $100 minimum); Optional deductibles range from $100 to $250 and from 1.5 percent to 5 percent.
  • Mobile Home deductibles are 1 percent (with $250 minimum) – For property located inland of the intracoastal waterway or seaward of the intracoastal waterway and protected by an approved seawall; or 2 percent (with $250 minimum) for property located seaward of the intracoastal waterway and not protected by an approved seawall. See website for details.

Additional Resources:

Texas Department of Insurance

Office of Public Insurance Council

 

Flood Vehicles: Avoid Purchasing a Washed-Up Vehicle

One of the many devastations of the floods that accompanied Hurricane Harvey is the destruction of a up to a million vehicles worth as much as $4.9 billion.

The National Insurance Crime Bureau (NICB) has issued a news release warning consumers that vehicles flooded by Hurricane Harvey may soon be appearing for sale around the nation.   By definition, a flood vehicle has been completely or partially submerged in water to the extent that its body, engine, transmission or other mechanical component parts have been damaged. If the vehicle is so damaged that it is no longer operable, the driver’s insurance company settles the claim by buying the vehicle and selling it as a “salvage” at an auto auction.

Dishonest and unscrupulous car dealers buy the vehicles, dry and clean them, yet leave plenty of hidden flood damage. They then transport the vehicles to states unaffected by the storm or natural disaster and sell them as used vehicles to unsuspecting buyers. These dishonest dealers will not disclose the damage on the vehicle’s title as they are required, which is a crime called “title washing.” The vehicles are then sold with the hidden damage. More facts about flooded cars can he found here.

The NICB’s VINCheck is a free public service that allows car buyers to see whether a vehicle has ever been declared as “salvage” or a total loss by an NICB member that participates in the program.

Hurricane Irma Likely to Make Landfall in Florida or the Southeast U.S.; Devastating Winds and Storm Surge Expected

Hurricane Irma tore through the Caribbean on September 6th and 7th leaving destruction in its wake. At least seven fatalities were reported as well as 95 percent of St. Martin destroyed and 70 percent of Puerto Rico’s households without power. The storm is headed towards Turks and Caicos and Haiti.

Florida Gov. Rick Scott urged all Florida residents to be prepared to evacuate with the National Hurricane Center  warning the storm could reach South Florida by Sunday.

The Insurance Information Institute (I.I.I.) has issued this press release today urging anyone in the path of the storm to make  safety their first priority. The I.I.I. recommends that Floridians recall the lessons from Hurricane Andrew in 1992 and Wilma in 2005. Not only can high winds be deadly; storm surge is also a serious threat to human life. Residents near coastal areas and inland bodies of water should have a plan for evacuating from flood-prone areas—and be ready to put that plan into action. The release contains many useful disaster preparedness tips.

Historical Perspective: How Does 2017 Atlantic Hurricane Season Compare to Most Active Past Seasons?

Phil Klotzbach, lead author of the Colorado State University (CSU) hurricane forecasting team, and I.I.I. non-resident scholar delivers this perspective.

After a relatively mild start, the 2017 Atlantic hurricane season has become drastically more active over the past couple of weeks. Hurricane Harvey made landfall in Texas as a Category 4 hurricane, bringing devastating rains to the Houston metropolitan area, causing at least 70 fatalities and economic losses estimated as high as $108 billion.  Following hot on its heels, Hurricane Irma developed off of Cabo Verde and has intensified into a devastating Category 5 hurricane.  Irma has wreaked death and devastation across the northern Leeward Islands, and after brushing the northern coast of by Puerto Rico, the cyclone is tracking across the Turks and Caicos, the Bahamas, and appears headed toward Florida and the southeast United States.  While landfall of a major (Category 3+ on the Saffir-Simpson Wind Scale – maximum sustained winds of 111 mph or greater) hurricane in the United States seems likely at this point, it is important to realize that other years in the recent past brought major storms in rapid succession.

During the 2004 Atlantic hurricane season, a total of five hurricanes made landfall (Charley, Frances, Gaston, Ivan and Jeanne), with four significantly impacting the state of Florida.  Prior to Harvey’s landfall, Charley was the last Category 4 hurricane to make landfall, doing so in SW Florida.  Both Frances and Jeanne made landfall near Stuart, FL as a Category 2 and Category 3 hurricane, respectively.  Ivan made landfall near Mobile, AL and brought significant storm surge and wind damage to both Alabama and the Florida Peninsula.  Total economic losses from that year are estimated at $71 billion.


Hot on the heels of the 2004 season, the 2005 Atlantic hurricane season had the most named storms (28) and hurricanes (15) on record.  It also had five landfalling hurricanes, including four major landfalling hurricanes (Dennis, Katrina, Rita, and Wilma).  Dennis made landfall on the Florida panhandle causing considerable damage there, while Katrina was a large Category 3 hurricane that caused intensive surge and wind-related destruction along the Mississippi coastline as well as triggering the levee failure that caused massive flooding in New Orleans.  More than 1,500 fatalities occurred in Katrina.  Rita made landfall several weeks later in SW Louisiana, also causing significant surge and wind-related damage.  Then Wilma rounded out the season, becoming the strongest storm on record in the Atlantic (as measured by central pressure); making landfall as a Category 3 hurricane in SW Florida.  All told, the season caused $208 billion in damage.


While the 2017 Atlantic hurricane season has been devastating already, and continued destruction with Irma looks likely, the two recent years of 2004 and 2005 were also incredibly deadly and destructive.  The United States has enjoyed a great string of luck since 2005, with NO major (Category 3 or greater) hurricane landfalls. Harvey, of course, brought that streak to an end.  Unfortunately, it looks like we may have another very significant United States landfall hot on Harvey’s heels.