10 | MARCH 2019 | Claims Magazine | PropertyCasualty360.com
We are very familiar with issues
arising after a hurricane: the fact that
homeowners policies do not provide
coverage for flood, that people severely
underestimate their flood risk, and the
overall lack of coverage in force when
a hurricane occurs. The Federal Emergency Management Agency (FEMA) is
underfunded due to subsidized rates,
although coverage is perceived to be expensive and is for the areas most at risk
of flooding. Even so, the rates are not actuarially sound.
Insuring water hazards
However, living near the water presents obvious hazards and to be actuarially sound,
premiums need to be high. The problem
is the continued building and rebuilding
of properties in flood-prone areas. While
it should be obvious that oceanfront, riv-erfront or low-lying areas are susceptible
to flooding, people still live in these areas
without considering the inherent risks involved. The misunderstanding as to how
the 100-year flood truly works adds to the
misperceptions of risk.
Even in areas where insurance was in
force after a hurricane, there are still issues. In 2017, Hurricane Irma devastated
the Virgin Islands and once clean up began it was discovered that many people
were unaware they were underinsured.
There are many reasons for underinsurance: insureds may have modified the
homes without notifying the carrier, the
property value appreciated over time and
coverage was not adjusted, the insured
refused to increase coverage due to premium concerns and others.
Due to of the prevalence of underinsurance, the insurance department issued a bulletin that now requires insurers
to explain underinsurance to insureds,
advise insureds if they are currently underinsured, advise insureds of the claim
settlement process when the property
is underinsured, and have the insureds
sign a statement that all this has been explained to them and they understand it.
Updating FEMA policies
On January 23, 2019, Houston approved a
federal grant application to provide funds
for the elevation of homes and buyouts. For
homes that have suffered repetitive floods
and severe damage, the grant covers the entire cost of elevations and buyouts, although
homeowners must contribute funds as well.
Elevating and removing those structures in
repetitive flood areas should stem the flow
of repeated damage to property. Currently,
81 homes are being considered for elevation and four for demolition.
While many suggestions have been
made concerning revising FEMA, it has
still not been updated. Meanwhile, ISO
has drafted a new commercial and personal property program for flood, which
gives insurers a standard form with which
to work. This makes it easier for carriers
to consider writing flood coverage.
The existence of better technology for
modeling potential losses from storms
The Importance of a
Over the past few years, the United States has suffered a number of serious and devastating catastrophes from hurricanes to wildfires and even volcanoes. As always, multiple insurance
issues arise whenever there are catastrophic losses. The past few years
are no exception.