Category Archives: Hurricanes

As Building Costs Grow, Consider Your Homeowners’ Coverage

By Max Dorfman, Research Writer, Triple-I (07/14/2022)

Home construction and maintenance costs are on the rise, and homeowners should be factoring these trends into their insurance decisions – especially as risks related to weather and climate intensify.

Rising interest rates and persistent disruptions in the building-materials supply chain can affect repair and replacement costs for purposes of homeowners’ insurance. However, a recent American Property Casualty Insurance Association (APCIA) survey found that approximately two-thirds of insured homeowners could be without key additional coverages – including automatic inflation guard, extended replacement cost, and building code/ordinance coverage – that could more effectively protect their investment.

“Inflation, recent supply chain issues, and increased demand for skilled labor and construction materials following unprecedented natural disasters in the last two years have contributed to a significant increase in the costs to rebuild homes and businesses,” said Karen Collins, assistant vice president of personal lines at APCIA. “It is imperative that homeowners review and, if needed, update their insurance prior to hurricane season to keep pace with rising costs.”

Most homeowners’ policies today cover replacement cost for structural damage, but it’s wise to check your policy – especially if you have an older home. A replacement cost policy will pay for the repair or replacement of damaged property with materials of similar kind and quality.

The limits of your policy typically appear on the Declarations Page under Section I, Coverages, A. Dwelling. Your insurer will pay up to this amount to rebuild your home. If the limits of your homeowners’ policy haven’t changed since you bought your home, you may be underinsured – even if you haven’t made any upgrades.

Many insurance policies include an “inflation guard” clause that automatically adjusts the limit to reflect current construction costs in your area when policies are renewed. If your policy doesn’t include this clause, see if you can purchase it as an endorsement.

Adding to the threat and potential costs is the steady growth in natural catastrophe losses in recent decades. This year’s Atlantic hurricane season is expected to be “well above average,” and wildfires are starting earlier, inflicting greater losses, occurring in more states, and taking more time to suppress.

Triple-I offers tips on how to properly insure your home for a disaster— which is all the more important given current market conditions, and the escalating threat of catastrophe.

Fraud, Litigation Push
Florida Insurance Market to Brink of Collapse

With its abundance of unneeded new roofs on homes – and flashy lawyer billboards at every turn claiming massive settlements on claims – Florida’s insurance market is on the verge of failure. This man-made catastrophe is causing financial strain on consumers, as the annual cost of an average Florida homeowners insurance policy will skyrocket to $4,231 in 2022, nearly three times the U.S. annual average of $1,544.

“Floridians pay the highest homeowners insurance premiums in the nation for reasons having little to do with their exposure to hurricanes,” said Triple-I CEO Sean Kevelighan.  “Floridians are seeing homeowners insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes. These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2016 and 2021.” 

Two major hurricanes made landfall in the state since 2016: 2017’s Irma and 2018’s Michael.

No direct hits occurred in Florida over the past three hurricane seasons. 

Florida, however, is the site of 79 percent of all homeowners insurance lawsuits over claims filed nationwide, even though Florida’s insurers receive only 9 percent of all U.S. homeowners insurance claims, according to the Florida governor’s office. To illustrate how lawsuits have weighed on insurer operating costs, JD Supra, citing the Florida Office of Insurance Regulation (OIR), reported $51 billion was paid out by Florida insurers over a 10-year period, and 71 percent of the $51 billion went to attorneys’ fees and public adjusters. The 2020 and 2021 cumulative net underwriting losses for Florida homeowners’ insurers totaled more than $1 billion each year.

“The state’s homeowners’ insurers have been forced to respond to these unfortunate market trends this year by restricting new business, non-renewing existing policies, and even canceling policies mid-term,” Kevelighan said. “What’s more, four homeowners insurance companies have been declared insolvent since February — all while more Americans are moving to Florida than any other state.”

Citizens Property Insurance Corp., the state-backed property insurer of last resort in Florida, has seen its policy count rise to nearly 900,000 this month statewide.  Its policy count figure stood at about 420,000 in October 2019.  Citizens provides insurance coverage to homeowners unable to find a private-sector insurer willing to sell them a homeowners insurance policy.

Placing further pressure on the affordability and availability of homeowners’ insurance in the state, third-party rating bureaus have downgraded the financial ratings of some insurers operating in Florida.

The typical Florida homeowners’ insurance policyholder paid $2,505 for coverage in 2020, Triple-I found, and that figure rose to $3,181 in 2021.  Triple-I’s analysis was based on data and analyses from Florida’s OIR, the National Association of Insurance Commissioners (NAIC), and Triple-I’s estimates of what insurers are paying today for home replacement costs.

During a special legislative session in May 2022, Florida lawmakers passed Senate Bill 2B, which Gov. Ron DeSantis signed into law. The measure is aimed at easing homeowners’ premium increases and reducing excessive litigation.

To help Floridians and others residing in natural disaster-prone states better manage risk and become more resilient, Triple-I launched a few years ago its Resilience Accelerator initiative, Kevelighan said.

The Resilience Accelerator’s goal is to demonstrate the power of insurance as a force for resilience by telling the story of how insurance coverage helps governments, businesses and individuals recover faster and more completely after natural disasters. “The insurance industry’s focus on resilience is starting to pay dividends as more Americans recognize the very real risks their residences face from floods, hurricanes, and other natural disasters,” Kevelighan added.

Fla. P&C Crisis Worsens As Hurricane Season Begins

Already this year, three Florida insurers have been declared insolvent due to their failure to obtain full reinsurance as the 2022 hurricane season bears down.

“We have the potential of a massive failure of Florida insurers, probably the worst on record,” says Triple-I communications director Mark Friedlander. According to Friedlander, the $2 billion reinsurance fund created in legislation Gov. Ron DeSantis signed into law at the end of May isn’t nearly enough, and private reinsurers are pulling back from the market because of its high level of property claims and litigation.

“It needed to be at least double the amount of the funds that were allocated for reinsurance coverage for hurricane season and open to other perils as well,” Friedlander said.

Most recently, insurance rating agency Demotech announced that it had withdrawn its financial stability rating for Southern Fidelity Insurance Company after the insurer placed a moratorium on writing new business and processing renewals in Florida until it secured enough reinsurance for hurricane season. When the Tallahassee, Fla.-based insurer failed to do so by the June 1 start of the season, the OIR ordered it to “wind down operations,” indicating the company could become the fourth Florida residential insurer to fail this year, following the liquidations of St. Johns, Avatar, and Lighthouse.

Flood: An Insurable Peril That’s Underinsured

By John Novaria, Managing Director, Amplify

This year’s hurricanes have served as a wakeup call about the importance of flood insurance and the fact that not enough people have it. Only 1 in 6 homes in the United States is insured against flood, yet 90 percent of natural catastrophes in the country involve flooding.

More of the population is moving into flood-prone areas. Not only does this increased residential and commercial development put more people in harm’s way, it reduces the amount of land available to absorb excess water. This means more homes and businesses inundated, more contents damaged or destroyed, and more vehicles immersed.

Nowadays, flooding tends to cause more costly damage than wind. An average storm year will generate uninsured losses of $10 billion due to flooding, compared to insured losses of $5 billion.

“One of the most frustrating things for our industry related to flood is that this is actually an insurable peril and it’s broadly uninsured,” said Keith Wolfe, president of U.S. property & casualty insurance at Swiss Re. Wolf recently spoke with Triple-I CEO Sean Kevelighan, in the latest edition of Triple-I’s Executive Exchange, about closing the flood-protection gap.

That’s changing, however, as the public and private sectors work together to improve consumer behavior and harden communities. The private market is slowly but surely closing the flood protection gap as it emerges as a viable complement to the National Flood Insurance Program.

Improvements in modeling are making this peril more insurable, and private companies are recognizing the flood-insurance opportunity and entering the market. According to Swiss Re, flood represents a $1.1 billion growth opportunity for insurers.

Relocated Due to Ida?
You Might Be Covered
for Additional Living Expenses

Standard homeowners and renters insurance policies include additional living expenses (ALE) coverage. ALE pays the costs of living away from home—above and beyond your customary expenses— if you cannot live at home due to damage caused by an insured event that makes the home temporarily uninhabitable.

What expenses are typically covered by ALE?

ALE covers living expenses incurred by you so your household can maintain its normal standard of living.  These expenses could include:

  • Temporary housing
  • Moving costs
  • Grocery or restaurant bills 
  • Storage costs
  • Laundry expenses
  • Transportation (e.g., if your temporary home requires a longer commute)
  • Parking fees
  • Pet boarding

Your homeowners policy’s ALE coverage is usually equal to 20 percent of your home’s insured value—a home insured for $200,000, for instance, may have ALE coverage of up to $40,000—or limited to a certain timeframe (e.g., no more than 12 months).

What about Damage from Hurricane Ida?

Standard ALE coverage should be triggered if damage from a covered peril (e.g., wind and rain) caused the home to be uninhabitable. In addition, some companies provide ALE coverage when policyholders leave their home or apartment due to mandatory evacuation orders. Policyholders should speak with their insurance professional to confirm whether their policy provides ALE coverage for their situation.

As a reminder, standard homeowners insurance policies typically do not provide coverage for flood damage. The National Flood Insurance Program (NFIP) covers physical damage from flood but does not include ALE. Some privately sold flood policies offer ALE following flood losses. 

What Other Help Is Available?

Federal assistance has been made available through the Federal Emergency Management Agency (FEMA). On September 2, FEMA announced they will cover hotel expenses for survivors of Hurricane Ida with damaged homes or dwellings in 25 parishes in southeast Louisiana.

The program, known as Transitional Sheltering Assistance, will provide survivors with short-term housing free-of-charge as they recover from the Category 4 storm. Survivors must first register with FEMA at disasterassistance.gov or by calling the FEMA helpline at 800-621-3362. Those wishing to take advantage of the program must find and book their own hotel rooms. Participating hotels are listed at www.femaevachotels.com.

Atlantic Hurricane Season Forecast
Reduced Slightly

Colorado State University (CSU) hurricane researchers have slightly reduced their forecast for 2021 Atlantic hurricane activity in an August 5 update.

The CSU Tropical Meteorology Project team, led by Triple-I non-resident scholar Dr. Phil Klotzbach,  predicts 18 named storms this year (down from 20 in the previous forecast), eight of which are expected to become hurricanes (down from nine). Four of the hurricanes are expected to be “major” (Category 3, 4, or 5).

Despite the slight drop in the number of storms, the 2021 hurricane season – which runs from June 1 to November 30 — is forecast to be above average and follows a record-breaking 2020 season. An average season has 14 named storms, seven hurricanes and three major hurricanes.

As Nat Cat Losses Mount,
A Resilience Mindset Matters More Than Ever

Insurance is essential for individuals, businesses, and communities to recover quickly from natural  catastrophes – but perils have evolved to a point at which risk transfer, though necessary, isn’t enough to ensure resilience.

Triple-I CEO Sean Kevelighan said during a that better insured communities recover more quickly but “the long-term resilience of both the communities impacted by natural catastrophes and of the industry itself depend on preparedness and improved risk mitigation.”  He was one of three panelists participating in the webinar.

“Something’s Got to Give”

Insured U.S. natural catastrophe losses totaled $67 billion in 2020 after an Atlantic hurricane season which included 30 named storms, record-setting wildfires in California, Colorado, and the Pacific Northwest, and a severe derecho in Iowa. This year’s hurricane season looks to be more severe; the Bootleg wildfire in Oregon – so large and intense it has begun to create its own weather and is affecting air quality as far east as New York City – isn’t  expected to be fully contained until late November; and these disasters are taking place on the heels of devastating winter storms in the first quarter.

As Kevelighan put it in his panel remarks, pointing to a 700 percent increase in insurer loss costs since the 1980s, “Something’s got to give.”

“As the country’s financial first responders,” he said, “insurers are not just responsible for providing relief to the communities affected by natural disasters, but also planning for potential catastrophes to come.”  

One of the ways insurers do this, he said, is by building the industry’s cumulative policyholders’ surplus—the amount of money remaining after insurers’ collective liabilities are subtracted from their assets. At year-end 2020, the U.S. policyholders’ surplus stood at a record-high $914.3 billion.

Mitigate and educate

The role of the insurance industry has grown beyond merely taking on risks to educating the public, regulators, and corporate decision makers on the changing nature of risk and driving a resilience mindset characterized by a focus on pre-emptive mitigation and rapid recovery. Triple-I and a host of other insurance industry organizations have played a key role in promoting public-private partnerships and using advanced data and analytics to understand and address hazards in advance.

For example, Triple-I’s online Resilience Accelerator provides access to data and risk maps that empowers the public to assess and prepare for risks specific to their own communities.

This webinar, co-presented by The Institutes’ Griffith Foundation and the Insurance Regulator Education Foundation, included panelists Hanna Grant, Head of the Secretariat, Access to Insurance Initiative; and Dr. Abhishek Varma, Associate Professor, Finance, Insurance and Law, Illinois State University. It was moderated by James Jones, Executive Director, Katie School of Insurance and Financial Services, Illinois State University.

Webinar highlights:

Unethical Contractors Emerge After Disasters; Know How to Avoid Them

Natural disasters create opportunities for unethical contractors, and consumers need to be on the alert.

Post-disaster repair scams typically start when a contractor makes an unsolicited visit to a homeowner and pressures the homeowner to pay the contractor their insurance claim money – then disappear without doing the work.

Triple-I is teaming up with the National Insurance Crime Bureau (NICB) during the NICB’s Contractor Fraud Awareness Week (July 12-16) to educate the public about such frauds and how to avoid them.

Before hiring any contractor, consumers affected by a natural disaster should call their insurer. There’s no need to rush into an agreement. Homeowners should inspect all work and make sure they are satisfied before paying. Most contractors will require a reasonable down payment, but no payments should be made until a written contract is in place.

The NICB offers these tips to homeowners before hiring a contractor:

  • Be wary of anyone knocking on your door offering unsolicited repairs to your home. 
  • Be suspicious of any contractor who rushes you or says the government endorses them.
  • Shop around for a contractor by getting recommendations from people you trust.
  • Get three written estimates for the work and compare bids.
  • Check a contractor’s credentials with the Better Business Bureau.
  • Always ask for a written contract that clearly states everything the contractor will do.
  • Never sign a contract with blank spaces because it could be altered afterward.
  • Never pay for work up front and avoid paying with cash; use either a check or credit card.

The NICB Post-Disaster Contractor Search Checklist explains the contractor hiring process step by step.  Anyone with information concerning insurance fraud or vehicle theft can report it anonymously by calling toll-free 800-TEL-NICB (800-835-6422) or submitting a form to the NICB.

“Acting as communities’ financial first responders, insurers rebuild damaged homes, cars, and lives after a natural disaster,” said Triple-I CEO Sean Kevelighan.  “The Insurance Information Institute is proud to join forces with the NICB to educate consumers and communities about how to best prepare and recover economically.”

“Victims of disasters are under tremendous stress as they are often pulled from their homes, fight heavy traffic attempting to get to safety, all while leaving their home and belongings behind,” said NICB President and CEO David Glawe. “When they go home, they are exhausted and strained, a time when they are most susceptible to these fraudulent schemes.”

RELATED LINKS:

Article: Insurance Fraud

Facts & Statistics: Insurance Fraud

Long-Term Considerations
From Condo Collapse

The insurer for the Champlain Towers South condo association has said it will make an up-front payment to resolve damage claims related to the 12-story beachfront property in the Miami  suburb of  Surfside, Fla., that collapsed on June 24, 2021.

“We want to make it known that James River Insurance Company has made the decision to voluntarily tender its entire limit from the enclosed policy towards attempting to resolve all the claims in this matter,” the insurer’s attorney wrote to the judge handling a class-action lawsuit seeking millions of dollars in damages from the association.

Since the collapse last week, four residents or their families have filed lawsuits against the association. Many more suits are expected in the coming months, and litigation could take years as investigators work to determine what caused the collapse. The first court hearing was held yesterday, and a Miami-Dade Circuit judge acknowledged that the building’s $48 million in total insurance coverage likely won’t be enough.

In all, the court heard, the condo association’s master policy has $30 million in property coverage and $18 million in liability coverage. The condo association has agreed to hand over financial decision making to a court-appointed “receiver.”

Seeking survivors as storm nears

With investigators still working to find and rescue survivors and Hurricane Elsa – the first of the 2021 Atlantic hurricane season and earliest “E-named” storm on record – heading toward Florida, the situation remains fluid. This week, dozens of units at a Central Florida condominium complex near Disney World were deemed unsafe after an inspection found the walkways leading to the units were at risk of collapsing, according to an Osceola County spokesperson.  Residents were advised to enter the buildings containing the units at their own risk, the spokesperson said, adding that county staff were offering residents assistance with temporary housing.

Increased attention to the condition of older high-rise buildings in South Florida and across the U.S. in the wake of the Champlain Towers collapse could lead to a rise in claims for loss-of-use coverage. In addition, many businesses in the vicinity of the collapse have been made inaccessible during the rescue operation, which could lead to business interruption claims.

Spotlight on building codes

Furthermore, this event could lead to a review of building codes and inspection practices nationwide. South Florida’s building codes are among the nation’s strongest – designed to keep residents safe from hurricanes. The state implemented mandatory codes after Category 5 Hurricane Andrew ripped homes from their foundations and left 65 dead in Homestead in 1992, and some counties – particularly in South Florida – have added more stringent requirements.

But after last week’s collapse, IBHS chief engineer Anne Cope said, “This is a moment like Katrina and Andrew, where we are going to learn something and make changes.”

Many of the region’s buildings – including  Champlain Towers South – were built before 1992 as part of a South Florida condo boom. Those buildings are subject to codes that were in place at the time of their construction, and are only required to undergo local county inspections every 40 years – such as the 2018 review of the Surfside condo in which an engineer raised red flags that the building was beginning to address but didn’t warn of imminent disaster.

A FEMA study last year said implementation of modern building codes could save states and localities billions of dollars.