Building in Rockport, Texas, destroyed by Hurricane Harvey (photo by Sill adjuster onsite in Texas).
Hurricane Season is Here and Now! Don’t Be Complacent. Be Aware, Prepare By Reviewing, Updating Your Business, Home, Property Insurance Before Disaster Strikes.
By Michael C. Perlmuter, JD, President & General Counsel
Most of the U. S. based weather services issued warnings. First they predicted a modest number of storms for the 2017 season. Next, in the past few months, changing weather conditions compelled the services to “up” their predictions.
Then along came Hurricane Harvey.
Harvey is / was every property owner’s worst nightmare. Weather scientists did not have the benefit of a week or more to track Harvey. Harvey developed in just a few days in the Gulf of Mexico and then picked up velocity as it headed for the east coast of Texas, making landfall as a Category 4 hurricane with winds exceeding 130 miles per hour.
Harvey, the first Category 4 storm to make landfall in the U. S. since Hurricane Charley struck Florida in 2004, hit with such immediate ferocity it resulted in several deaths and more than 300,000 businesses and homes without power. That was just within the first day and did not include the damage done by follow-up “catastrophic” rainfall and flooding.
Early reports indicated that because of the widespread impact and inability to reach certain communities, the dollar amount of damages could not be estimated.
Within moments, Harvey had the distinction of becoming every insurer’s worst nightmare as well.
Nearly 12 years had passed since the last major hurricanes (classified as a Category 3 hurricane or greater) made landfall in the United States.
That was Hurricane Katrina, the monster which started as a Category 5 (classified as a hurricane with sustained wind force of greater than 157 mph), but made landfall as a Category 3 in August of 2005. Katrina created havoc from Florida to Louisiana, leaving an estimated 1,500 killed and at $108 billion in damages made it the single most costly hurricane in the U.S.
Hurricane Wilma then slammed into Florida in October 2005, with a reported sustained wind force ranging between 105 and 120 mph. Wilma caused approximately $21 billion of damage in Florida making it the fifth costliest hurricane on record to date.
The last Category 5 hurricane to make landfall in the U.S was Hurricane Andrew 25 years ago. Andrew swept through Florida as well as other portions of the southern U.S. and the Bahamas leaving a reported $26.5 billion in 1992 dollars of economic damage in its wake.
A new report by global insurer Swiss Re states that if an event similar to Andrew occurred today, the losses would dwarf those experienced a quarter of century ago. Using the same model as Andrew, Swiss Re calculated that the economic losses would be estimated at $80 to 100 billion, of which only $50 to 60 billion would be covered by insurance. Swiss Re also estimated that if the path of the 1992 storm shifted 20 miles north, it would directly strike Miami and result in 2017 losses ranging from $100 to $300 billion and surpass Katrina as the costliest natural disaster ever in the U.S.
Significantly, Swiss Re predicts only slightly more than 50% of the damage would be covered by insurance, leaving an enormous shortfall to be made up by taxpayers and the government.
Because the U.S. had not experienced a major hurricane since the two in 2005 (up until Harvey), even though there have been many other hurricanes and storms (Hurricanes Irene 2011, Sandy 2012, Arthur 2014 and Hermine 2016 for instance) which have fostered billions of dollars in losses, the consensus in the property insurance arena is that many property owners have become complacent as to the risk. It is critical to point out, say industry experts, that this so-called 12 years “quiet period” does not translate to decreased risk.
It is not a matter of if a major hurricane will barrel through south Florida, but when, according to Maria Schwartz, atmospheric perils specialist for Swiss Re. It is incumbent upon brokers and property owners to continue to be diligent in their preparation for a new major hurricane.
Says Schwartz: “It is more important than ever to better understand hurricane risk, to learn about new solutions that address the protection gap, and to consider if insurance instruments are sufficient to cover financial needs in the event of a significant loss.”
AccuWeather Chief Meteorologist Bernie Rayno adds that no matter how much you hear and how much you read about a major hurricane in books and articles, until you experience it live, you can never understand the ferocity of a Category 4 or 5 hurricane.
2017 Hurricane Season Heats Up
June 1 marked the beginning of the 2017 hurricane season and meteorologists are predicting this to be a potentially very active season. Colorado State University in its early August 2017 report raised its seasonal forecast to 16 named storms from 15 a month earlier. The National Oceanic and Atmospheric Administration upped its outlook to a range of 14 to 19 from 11 to 17 named storms from May. (Storms get names when their winds reach past 39 mph and they reach hurricane strength at 74 mph.)
Why do we anticipate an active season? Warm ocean temperatures are the lifeblood of hurricanes and the tropical Atlantic Ocean is currently the third warmest it has been for this time of the year since 1950. So far this year, seven storms have already been named, two of which have become hurricanes. The question is then: Will more named storms become hurricanes and join Harvey on the list of hurricanes making landfall in the United States?
What You Can Do Now To Protect Your Business, Home in Respect to the Upcoming Potentially Active Storm/Hurricane Season
Minimizing the potential for hurricane damage falls, to a large degree, to a partnership that includes governments at all levels working hand-in-hand with property owners. There are simple measures to mitigate damage, like hurricane shutters and sealing any gaps around wires and cables that enter a structure.
However, there is risk that the storm surge from a major storm could result in significantly higher damages than any past storm. That is the result of both the rising sea level during the past 12 to 25 years as well as the growing concentration of coastal assets in Florida and other states. High end condominiums and commercial building are continually popping up in hurricane prone and flood prone areas along the coasts. Miami, for instance, has embarked on an experiment to expand its flood protection with sea pumps, improved road infrastructure and seawalls. Dade County, in which Miami resides, maintains one of the nation’s highest wind standards when it comes to building codes.
However, from a risk awareness standpoint, hurricane proof status is unachievable. There are limitations to design and retrofitting techniques, so it is impossible to tell exactly how these high rises will likely respond to the next major storm. Clearly the insurance industry has learned lessons from past catastrophic events such as Andrew, Dennis (another Category 3 which hit Florida during the record-breaking 2005 hurricane season) and Katrina.
Improvements in communication and meteorology also will positively impact emergency management. The information available to us today has dramatically improved. The tracking error has shrunk to one-third of what it was in 1992. With satellite pictures and radar, we can keep track of exactly where the storms are and there has been an improvement in modeling-where the storm is going and what it might so in different places.
Social media and cellphones have dramatically improved how the public obtains weather related updates. From a planning perspective, the advances in technology and communications will help us all plan better, understand the potential impact, and pull the trigger on evacuations earlier and more accurately.
Take Action, Evacuate But First Review, Update Insurance Policies
Nevertheless, the following is still imperative: Don’t be complacent; don’t ignore evacuation orders; and don’t fail to properly prepare for a hurricane, or appreciate it its severity by staying in the danger zone and throwing “hurricane parties” as some insureds have done in the past.
Next, insureds must understand their policies and more specifically, understand hurricane deductibles contained in their policies. Hurricane deductibles were introduced as a risk sharing mechanism by the insurance companies by having the insured bear more of the risk without raising premiums to unaffordable levels. Deductibles, of course, are the amount of loss paid by a policyholder before his insurance coverage kicks in. Usually, a deductible is stated in terms of a flat dollar amount, such as $1,000.
In many coastal states, however, homeowner insurance and residential commercial property insurance also include deductibles that only apply to hurricanes. A new study by the Insurance Research Council reports that one-third of homeowners in several coastal states are still unaware of hurricane deductibles. Application of hurricane deductibles is triggered by windstorm losses resulting only from a hurricane declared by National Weather Service. Hurricane deductibles apply for damage that occurs 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 and anytime hurricane conditions exist throughout the state.
Hurricane deductibles and their triggers are set by law and are the same for the private, or regular market. In Florida, for example, the Citizens Property Insurance Corporation (CPIC), is a state-run program which provides property insurance to consumers. The hurricane deductible applies only once during a hurricane season. All insurers must offer a hurricane deductible of $500, 2%, 5% and 10% of the policy dwelling or structure limits. The percentages are based on the total value of the home (e.g., a 10% hurricane deductible on a $200,000 home would be $20,000). In some cases, a deductible of more than 10% is permissible. For example, for homes that are insured for less than $500,000, the deductible can be higher than 10% if the homeowner states the dollar value of the deductible in a letter to the insurer. The deductible must be stated in the policy as a dollar amount regardless of the percentage.
Whether a hurricane, named storm or windstorm deductible applies to a claim depends on the applicable trigger selected by the insurance company. Triggers vary from state to state to and insurer to insurer. Currently, 19 states (Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia) and the District of Columbia currently have some form of hurricane or named storm deductible in place. Other states may allow insurers to include hurricane deductibles in property insurance products.
Another area of concern to commercial property owners of multi-building complexes, is how their insurance applies. By that, I mean a business property owner should check to see if their policy has a “per building” named storm deductible or a “per occurrence” deductible. If the insured has a per building named storm deductible and say 30 buildings sustain damage, then each building must exceed the deductible before the insured will collect from his carrier.
Beware the Restoration Contractor
Finally, but least of all, another topic worth discussing to protect an insured is the issue of the large number of contractors who sweep into areas following a hurricane. For an insured who wants to make sure that he or she is made whole, these contractors pose a huge dilemma.
Many, if not most of the preliminary emergency repairs done by these restoration contractors are likely covered by the insured’s policy. But, any work beyond that scope, and certainly, any work done without prior approval of the insured’s carrier, may not be covered. In addition, often these contractors do unnecessary work that runs up a property owners’ bill, eating into their total coverage. As a result, some of the work that the insured must ultimately do to put his building back to whole may cost beyond his insurance coverage. Lastly, these contractors are not trained or educated in insurance policies or policy language, and may not, as a matter of law, present or negotiate insurance claims on behalf of insureds.
The Most Important Second Call
Our advice: Do all you can to prepare your structure for hurricane season, check and double-check your insurance policy to make sure you understand what your potential exposure is if you have a hurricane deductible. And, if nature strikes and you receive damage this fall due to one of these named storms or hurricanes, your first call should be to your agent or insurer to make them aware of your claim. But, understand, if you have experienced damage, many, many, many others will have also, and the facilities and attention of your agent and adjuster and carrier will be stretched far beyond its capacities to properly adjust your claim.
Thus, your second call should be to a professional who is legally licensed by your state, schooled and experienced in preparing a damage estimate on your behalf and presenting it to your insurance company to resolve your claim—a licensed Public Insurance Claims Adjuster.
Make sure that Public Adjuster has experience handling hurricanes claims over several past cycles of hurricanes. Also make sure that they have a full staff of in-house employees, because Public Adjusters who rely on third parties to assist them in adjusting a loss and estimating building or contents damage, will not be able to even find these parties once a hurricane hits.
Only a public adjuster such as the Alex N. Sill Company has the experience, the in-house resources, the in-house legal staff and the in-house accounting staff to timely prepare, present, and negotiate an insurance claim in the event of a hurricane on behalf of an insured under the laws of all the coastal states. Beware and be prepared!
Contact a Sill public adjuster near you for help maximizing your hurricane damage insurance claim.