Category: Disaster Coverage

Climate Disasters Blamed for Increased Insurance Premiums and Claims Underpayments

Insurers are fleeing markets and raising rates to compensate for increased disaster losses. Farmers recently stopped insuring homes in Florida. This will result in cancelation of about 100,000 policies as those policies expire. Insurers are also withdrawing from California and Louisiana.

These states have a lot of differences, but they share one thing in common: increased natural disasters attributed to climate change. Warming oceans have been blamed for increasingly bad hurricane seasons in Florida and Louisiana. In 2022, 42 percent of Florida insurance claims were hurricane-related. In California, increasing wildfires are thought to relate to hotter, drier summers.

The carriers exiting these markets have been vague about their reasons, citing the need to protect trade secrets. But several reference these increasing disasters. State Farm pointed to “growing catastrophe exposure” as one reason for withdrawing from the California market. Farmers similarly identified “severe weather events” as a reason from stopping selling policies in California.

Even homeowners whose insurers remain in these markets feel the effects of increased disaster losses. Premiums in disaster-prone areas are increasing. For instance, homeowners living in hurricane-prone Florida pay an average of $6,000 annually for insurance compared to the national average of $1,700. Florida premiums have increased 100 percent over the past three years. And, when hurricane losses occur, consumers are increasingly complaining about underpaid claims that don’t fund repairs.

State insurance regulators are expressing concern about the effects on consumers from these companies withdrawing from their states. Some experts argue that a driving force behind these increases is the failure to regulate the reinsurance companies that provide insurers with extra coverage to pay for years with a high number of claims, like particularly bad hurricane or wildfire seasons. Unlike regular insurance companies, reinsurers are largely unregulated. They’ve raised rates sharply in recent years, and these costs get passed on to consumers. Part of the reason for this is the reinsurance market is global. So a bad hurricane season in Florida or monsoons in India both make insurance more costly for the rest of the planet.

Other experts blame the increase on consumers’ failure to come to terms with increased disaster risks. People keep building expensive houses on the Florida coast and in wildfire-prone areas of California even though they know there’s a large risk these properties get destroyed in disasters.

Because of this, some industry groups say the solution is to let insurers charge extra in disaster prone areas. The theory is that if it costs, say, ten times as much to insure a home on the Florida coast than inland, people will stop rebuilding in areas vulnerable to hurricanes. Other say this would perpetuate the problem by allowing wealthy homeowners to keep rebuilding while doing nothing to address the underlying problems.

Flood Insurance Claim Tips

Following several weeks of storms and heavy flooding in Washington State, the state Insurance Commissioner released a list of tips for homeowners dealing with flood losses under their insurance policies. Flood insurance is challenging, so the Insurance Commissioner’s advice should be helpful to policyholders affected by the flooding.

The upshot is:

  • Most homeowner’s and renter’s insurance policies do not cover flood damage.
  • Flood insurance is available through the Federal Emergency Management Agency’s National Flood Insurance Program.
  • NFIP policies come in two types. The first type of policy covers flood damage to the building, such as the foundation, electrical wiring, flooring, etc.
  • The second type of NFIP policy covers flood damage to personal property like appliances, electronics, and other personal belongings.
  • Homeowner’s affected by flooding who don’t have flood insurance coverage may be eligible for federal emergency grants or loans.

 

 

 

 

Wildfires Making Insurance Coverage Hard to Get – California Expands State Coverage Fund

California recently announced new wildfire insurance rules that might be a glimpse into the future for Washington State homeowners having trouble getting insurance coverage in wildfire-prone parts of Washington. California’s new rules help people who can no longer get homeowner’s insurance coverage due to increased wildfire risk. The new rules expand a California state-run program acting as the insurer of last resort for homeowners living in areas at high risk of wildfires.

Like Washington and Oregon, California has seen significant damage from large wildfires in recent years. This has caused many insurance companies to cancel homeowner’s insurance policies for homes in high-risk areas. Even where coverage remains available, premiums have increased significantly. Many California homeowners have complained about being abruptly dropped by their homeowner’s carriers, or facing exorbitant price increases. In 2017 and 2018, California wildfires caused over 124,000 claims and about $26 billion in losses. Like other mass-disaster claims, wildfire insurance claims are often difficult due to the scope of the losses and the size of the claims.

California’s Fair Access to Insurance Requirements (FAIR) plan collects contributions from California insurance companies to support a fire loss coverage fund. Starting in April, FAIR will cover up to $3 million in damages, and will eventually be expanded to cover other non-fire liabilities, such as water damage or personal liability, typically covered by traditional homeowners insurance. The goal is that homeowners covered by FAIR should have adequate coverage without having to buy additional insurance.

The move was, predictably, applauded by consumer advocates but criticized by the insurance industry, which said the changes could hurt consumer choice.