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Most recently, insurance rating agency Demotech announced that it had withdrawn its financial stability rating for Southern Fidelity Insurance Company after the insurer placed a moratorium on writing new business and processing renewals in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.
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.
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:
Grocery or restaurant bills
Transportation (e.g., if your temporary home requires a longer commute)
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.
Hurricane Ida is forecast to hit the Northern Gulf Coast this weekend as a major hurricane. Residents from the Upper Texas Coast to the Florida Panhandle are warned to prepare for impact. In this video, Triple-I’s Mark Friedlander provides detailed guidance for preparation.
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.
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.
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.
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 Checklistexplains 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.”
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.
Losses from the winter storm that swept through the southern United States earlier this year continue to loom large among the concerns of property and casualty insurers, even as the nation contends with wildfires and anticipates yet another above-average hurricane season.
“On its own, Uri would not necessarily impact premium rates,” says Dr. Michel Léonard, CBE, Triple-I vice president and senior economist. “What matters is the overall severity of extreme weather events during a calendar year or a specific peril season.”
Dr. Léonard reports that current expectations among weather experts of higher-than-average hurricane and wildfire seasons – in addition to Uri – will likely contribute to increases in property insurance rates in 2021, “before and regardless of inflation.”
“Traditionally, actuarial models keep natural catastrophe losses and inflation separate and combine them in the last stage of rate estimates,” Léonard says.
Three 2021 trends, he says, add up to put upward significant pressure on insurance rates for 2022:
Combined 2021 natural catastrophe losses from winter storms, hurricanes, and wildfires expected to be above annual averages;
Overall inflation in the U.S. currently forecast to be between 4% and 6% for 2021, the highest in a decade; and
Industry-specific inflation above the national average for construction materials and labor due to COVID-19 supply-chain disruptions.
“There are a few situations in which extreme weather events directly contribute to replacement cost increases, which, in turn, impact rates,” Léonard says. “But ‘price gouging’ – such as happened after Uri – shouldn’t be confused with inflation. It’s temporary, while inflation almost always endures.”
Building codes are critical to disaster mitigation, as well as to enabling families, communities, and businesses to bounce back from natural and man-made catastrophes. The Insurance Institute for Business and Home Safety (IBHS) “Rating the States” report has become an important resource for comparing the quality of these codes and of states’ enforcement of them.
Published every three years, “Rating the States” evaluates the 18 states along the Atlantic and Gulf coasts, all vulnerable to catastrophic hurricanes, based on building code adoption, enforcement, and contractor licensing.
“Damage reduction that results from the adoption and enforcement of building codes helps to keep people in their homes and businesses following a natural or manmade disaster, reduces the need for public and private disaster aid, and preserves the built environment,” IBHS writes in the most recent edition of the report. It cites research following Hurricane Charley in 2004 that found code improvements adopted in 1996 in Florida resulted in a 60 percent reduction in residential property damage claims and a 42 percent reduction in cost of claims.
Benefits of strong, uniform, well-enforced statewide codes are diverse and include:
Giving residents a sense of security about the safety and soundness of their buildings,
Preserving economic resources of a community and reducing post-disaster government spending,
Protecting first responders during and after fires and other disaster events,
Incorporating new best practices and cost efficiencies, and
Reducing solid waste in landfills from homes that are damaged or destroyed during disasters.
In the 2021 report, no state achieved a perfect rating based on the IBHS 100-point scale, though several states received high scores, including:
Florida (95 points)
Virginia (94 points)
South Carolina (92 points) and
New Jersey (90 points).
Other states that performed well were Connecticut (89 points), Rhode Island (89 points), North Carolina (88 points), Louisiana (82 points), Massachusetts (78 points), and Maryland (78 points).
The 2021 edition also includes information from the nonprofit Federal Alliance for Safe Homes (FLASH) to support consumer awareness and response to local building codes in their area. Inspect2Protect.org offers a free building code look-up tool available to all homeowners.
“With more Americans living in harm’s way, it is even more critical for residents and communities to have the information they need to take action,” said Triple-I CEO Sean Kevelighan. “2021’s Rating the States report is essential reading for anyone who resides in a hurricane-prone state and wants a definitive assessment of its building codes.”