Storms and hurricanes: what can insurers do to improve outcomes for all on storm-related claims?


Hurricane Season

By: Jessica Cauley, Jessica Samford, Jonathan Schwartz, and Julia Bover

What Else is in Store for Hurricane Season 2022?

As many Floridians begin to return to their homes—or to find that their homes no longer stand—reminders come that Hurricane Ian may not be the last storm of 2022.

For the seventh consecutive season, the National Oceanic and Atmospheric Administration (NOAA, a division of the National Weather Service) predicts “above average” hurricane activity in 2022. Meanwhile, NASA consistently projects that warmer weather may mean fewer hurricanes, but higher category storms, with higher winds and more rain.

Before the disastrous Hurricane Ian, the 2022 hurricane season (June 1 – November 30) had started slowly. Similarly slow-starting was Florida’s 2004 hurricane season, which turned out to be one of the most active and destructive seasons on record, causing over $61 billion in damage. Plus, as seen as recently as July 2022, landlocked states like Kentucky are not immune from the impact of increased rainfall and devastating flash flooding.

Recent Florida Concerns

Insurance premiums have increased for many reasons, including inflation, breaks in the supply chain, and concerns over contagious diseases. Migration to Florida, which by some counts has become the number one state for net in-migration over the last five years, heightens those concerns. That migration, especially to Florida’s coasts, puts further pressure on the insurance companies that remain and widens the market for those in need of flood insurance.

As Florida’s population grows, so does the number of policies issued by the state-backed Citizens Property Insurance, designed as a “last resort” for Florida property owners who can’t buy private coverage. Some insurers have left the Florida property insurance market after experiencing widespread damage claims in Hurricanes Irma and Michael, more expensive reinsurance, and increased litigation.

That exodus—five insurers having left Florida so far in 2022—ups the financial pressure on the state and the private insurers who remain. The Insurance Information Institute reports that Florida insurance costs grew nearly 25% in the last year. This is due in part to increased costs to rebuild or repair following each storm. Inflation, in combination with COVID-19 fears, has caused market shortages, affecting homeowners who must rebuild or repair after a severe storm. Shortages in building materials throughout Florida have effectively extended the duration of property claims. If materials are available, homeowners and insurers pay more for them.

Flood insurance offers another coverage element for those in moderate – to high-flood zones. In April 2022, FEMA implemented a substantial change for evaluating rates. Previous calculations by the National Flood Insurance Program (NFIP) forced lower-risk policyholders to subsidize higher-risk policies. The new rate structure factors each property’s flood risk, which is expected to decrease premiums for nearly 1.2 million policyholders, while most rate increases should be $10 or less.

Where flood insurance is implicated, insurers and their policyholders will next have to address displacement and issues regarding alternative living expenses (ALE) in the event of a loss.

These factors contribute to Florida’s thriving litigation landscape. According to the National Association of Insurance Commissioners, Florida was responsible for more than 60% of the national property insurance litigation from 2016 to 2019. The legislative response, including Florida Statutes section 489.147 (prohibiting contractors from soliciting business via prohibited advertisement), may reduce the incentive for contractors and non-homeowners to clog the courts.

Overall, policyholders make frequent claims, and more expensive ones, than ever before, putting great pressure on insurers in states consistently hit by storms. Insurers, policyholders, communities, and governmental entities will want to continue preparing for what is to come. Insurers can work with Florida policyholders to utilize all available resources for decreasing future repair costs.

Florida Statutes sections 627.711 and 627.0629 are designed to get information to insureds of any available discounts they may be eligible for. Both statutes offer insureds the opportunity to reduce insurance costs by mitigating risks related to windstorms, but it is unclear how many policyholders take advantage of these measures.

The My Safe Florida Home Program allows single-family, residential homeowners to receive a free home inspection to pinpoint improvements for mitigating hurricane damage. This program also allows homeowners in Florida’s “wind-borne debris region” to apply for grants of up to $10,000.

Another interesting development we continue to monitor is insurers’ utilization of the provisions created by the HB 667 bill, enacted in July 1, 2021, which allows for virtual inspections via photos and live video.

Recent Georgia Concerns

While Georgia has a smaller coastline than Florida, the entire state still experiences hurricanes, flooding, and other storm-related activity. Hurricane Zeta was estimated to have caused $1.1 billion in damage in Georgia, alone, less than two years ago. Tropical Storm Fred caused seven tornadoes to touch down in Georgia last year, and less than 6 months ago a tornado ripped through one county with 185 mph winds. As for flooding, 581 Georgia communities are currently part of the NFIP (with only 74 Georgia communities not currently participating).

Aging infrastructure and increased population are significant contributing factors for Georgia’s increased losses. Indeed, Georgia’s population increased last year by 74,000 residents to roughly 10.8 million. Estimates for Metro Atlanta are already trending at 1.3% for increased population from 2021 to 2022, for a total of 5.1 million. And while some of that growth may occupy new residential and commercial construction and developments, Georgia’s cities and suburbs feature plenty of aging trees, structures, and sewers that may be challenged by strong winds or heavy rains. In addition, the Georgia Insurance and Safety Commissioner’s Office is on alert for fraud related to storm claims and has focused initiatives to counter it, including a fraud hot line and visits to affected areas to alert insureds to scammers posing as public adjusters.

Recent Louisiana Concerns

As in Florida, insurance companies are also exiting the private market in Louisiana. In June 2022, Lighthouse Excalibur cancelled approximately 29,000 policies. The Louisiana Insurance Commissioner recently announced that two more companies are slated to exit, impacting approximately 55,000 more policies.

In response to the 2020 and 2021 hurricane seasons, Louisiana’s legislature enacted Senate Bills, 198 and 214 in August 2022, addressing the assignment of claims adjusters. Bill 198 provides that when claims adjusters rotate three or more times within a six-month period, the insurer writes to an insured to describe the claim status. Under Bill 214 the adjuster, wherever located, has to be available to testify in litigated Louisiana claims.

Recent North Carolina and South Carolina Concerns

North Carolina and South Carolina trail only Florida, Texas, and Louisiana in the total number of hurricane landfalls since 1851, with North Carolina sustaining 58 and South Carolina taking 31 direct hits. In the last 10 years alone, Hurricanes Ida, Zeta, Delta, Isaias, and Michael caused approximately $14 billion in damage in North Carolina. North Carolina has enacted a statute deferring the requirement for insureds to submit proof of loss to property and casualty insurers until the expiration of an emergency proclamation (or renewal).

That statute, the “Omnibus Department of Insurance Bill” (Senate Bill 496) details how insurers can seek guidance on proper cancellation procedures during a state of disaster. As amended, N.C. Gen. Stat. Ann. § 58-2-46 applies to policies insuring those who live in the area designated in the proclamation and who have been displaced. For those policyholders, all premium payments in arrears after the deferral period ends become due, and the insurer may cancel the policy on or after the 15th day after the deferral period. Properly noticed cancellations for nonpayment that are effective on or before the date of the proclamation are valid, and cancellations for cause (e.g., material misrepresentation or ineligible risk) may still be processed during the deferral period.

Notably, in October 2015, when South Carolina was hit with record-breaking rainfalls, the Director of Insurance enacted an emergency regulation that deferred deadlines for submission of loss documents and premiums and suspended cancellations and non-renewals.

Recent Texas Concerns

Texas is the second most hurricane-prone state after Florida. As such, there are regular updates and changes to Texas’ programs and protections. One recent change was to the NFIP. This past year, FEMA updated its insurance risk rating through a new pricing system called “Risk Rating 2.0-Equity in Action.” Using technology and applying new factors, such as property elevation and the type and size of nearby bodies of water, Risk Rating 2.0’s goal is to insure based on individual property risk, rather than on broader statistics. Policyholders may understand their rates more easily and insurers can write and sell flood insurance more comprehensively. This federal program has particularly impacted Texas, Florida, and Mississippi.

While the costs of federal programs may rise, Texas is making it easier for homeowners to buy windstorm insurance. The program is voluntary, but many mortgage lenders have made this coverage a condition to receiving a mortgage in certain areas of Texas, such as the fifteen high-risk counties along the Gulf Coast.

What Can Insurers Do?

It is impossible, of course, to avoid risk and damage associated with weather events, but there are ways to reduce potential destruction. Advances in intelligence, including improved geospatial imaging and radar may provide reliable, real-time information for policyholders who want to prepare before a weather event occurs. Additionally, insurers hit with a wave of claims after weather disasters can deal quickly and efficiently with many of the claims. Artificial Intelligence and digital-based solutions are helping achieve those goals. For instance, Raincoat, a Puerto Rican insurtech, offers “parametric insurance,” so named because it immediately issues payment when a certain parameter (wind speed, for example) is measured.

Through incentives, education for policyholders, and continuing technology advances, insurers can empower policyholders to increase control over coverage and claims, affecting what is potentially their largest investment, their home.

For further assistance or inquiries on this topic, please contact Jessica Cauley, Jessica Samford, Jonathan Schwartz, or Julia Bover for any assistance in understanding and defending coverage issues.