The strongest hurricane to approach the US in years, Hurricane Matthew, has killed at least 27 people, and brought enough rain to the southeastern part of the country to fill the Rose Bowl 163,000 times. With winds up to 100 mph, the Consumer Federation of America believes Hurricane Matthew victims will file between $4 billion to $7.5 billion in insurance claims for wind damages alone.
But after Hurricane Sandy, horror stories emerged from homeowners who couldn't get their claims paid—even if they took out the maximum coverage possible. Undoubtedly, many of those affected by Hurricane Matthew are wondering whether their insurer will pay their claim, and if so, when?
Hurricane Matthew and the Insurance Industry
According to the Insurance Information Institute (III), the insurance industry has the "financial strength" to handle all claims related to Hurricane Matthew.
Keep in mind, the III is mainly referring to wind damage claims. Standard home insurance policies protect against that kind of damage. To be protected from a flood, however, a homeowner needs separate flood coverage. Flood insurance is provided by the National Flood Insurance Program, a federal program. Still, the Consumer Federation of America predicts most people will file wind damage claims.
Lawrence S. Powell, PhD, director of the Alabama Center for Insurance Information and Research at the University of Alabama, agrees.
"The latest expected loss numbers I have seen are around $4 billion. While it is a big number of dollars to pay out, in perspective, it is less than 1 percent of the insurance/reinsurance industry capital allocated to catastrophe losses," Powell explains.
Though the industry should have enough money to pay their claims, Scott Mager, attorney at Mager & Paruas, warns consumers might still have trouble getting reimbursed for damages.
If you're having trouble getting a claim paid, consider hiring an attorney to help you. "If you don’t get an expert natural disaster lawyer involved early, you are virtually guaranteed of delays in claims," Mager warns.
According to Mager, possible issues a consumer could run into include delays in payment because:
- Insurers claim they didn't get enough information from the homeowner
- Insurers claiming damages aren't covered
- Insurance companies are overwhelmed with claims and understaffed
- Homeowners are waiting for an adjuster to come out and assess the damages
Besides this, when you do get paid, payments are often insufficient or inconsistent. One reason for this? The experts your insurer sends to calculate expenses may understate the true costs of a repair.
These are "engineers [or] contractors that come out to the location and say that x dollars are sufficient to pay when they well know the repairs cannot be made for that price," Mager says.
Specifically, those who aren't generally affected by hurricanes (including the Carolinas that were hit by Hurricane Matthew) might have a harder time getting their claims reimbursed.
"[There is] little involvement in way of aggressively forcing insurance companies to comply from states that don’t typically have these claims, such as Georgia, South Carolina, and North Carolina and northward," says Mager. "In that regard, I would strongly urge the State Insurance Commissioner from each state—and the Governor, where possible—to issue a public notice…that insurance companies will be dealt with harshly and penalties or suspensions imposed by not timely handling insurance claims or wrongfully denying or underpaying claims."
Are Insurance Companies Prepared to Pay Thousands of Claims?
Still, Powell notes that thanks to technology, Hurricane Matthew won't catch insurers off guard like Hurricane Katrina did 11 years ago.
"With today’s data resources and technology, most insurers know where they have concentration of exposures and can manage this risk with underwriting, reinsurance, and loss mitigation," Powell says. "New GIS technology applications will likely assist insurers in working through claims faster than in previous east coast storms."
Hurricane Katrina itself served as a teaching ground for insurance companies. It caused $41 billion in insured damages across the country, with 725,000 claims filed. And Jim Donleon, Louisiana insurance commissioner, called it the "worst insurance loss event in the history of insurance anywhere in the world," in the Insurance Journal.
But the devastating loss from Katrina also meant insurers were forced to recover and reform. And it means victims of Hurricane Matthew should have a much easier time getting reimbursed for damages.
Will Insurers Raise Their Rates?
If you’ve ever filed an insurance claim, you likely know what happens next: your rates go up. While companies prepare to shell out millions of dollars to pay for the aftermath of Hurricane Matthew, consumers in these areas should brace themselves for increased insurance rates overall.
"Of necessity, the companies are going to have to raise their rates after paying the claims from Matthew," says David Meltzer of East Insurance Group. "Why? A rep of a major insurance carrier told me that, on average, in Maryland as one example, restoration and construction costs are $70 per foot higher than they were just two years ago. More premium will be needed to offset the higher costs."
Areas that haven't seen hurricane damages in years will likely see the biggest impact on their rates.
"Prices might increase…if loss data from the storm reveal new information about the expected level of losses from future storms," says Powell. "While total losses are not large relative to previous storms, they occurred in areas that had not seen much hurricane activity in the 250 or so years that data have been collected. Therefore, it is possible that we could see price adjustments in some areas of northern Florida and Georgia."
And although insurance companies are better informed about adequate rate levels, regulation has kept them from raising their prices.
"It could be that observed losses convince some states to allow insurance companies to charge higher rates going forward," Powell says. "In this case, we would see rate increases, but rates would likely still be less than adequate from an actuarial perspective."
Mager believes insurers will increase their prices, guaranteed. "Often, you have insurers re-evaluating their risk and determining whether they wish to stay in this industry. Some will stop writing policies. All will raise their rates," Mager says. "I assure you that a dozen smaller insurance companies will go under…from this storm, which means that the state will come in and have to assume liability."
Other Possible Outcomes to the Insurance Industry
Increased rates aren't the only potential consequence of Hurricane Matthew. Meltzer predicts some insurers will pull out of storm zones altogether.
"Some companies will leave coastal states, and others will stop selling to people within five to seven miles of the water," Meltzer says. "Others may continue to offer insurance in historically storm prone areas but only with big deductibles like $25,000, similar to earthquake insurers."
Hurricane Matthew and What It Means for Consumers
With massive flooding leaving thousands of people stranded in North Carolina, not to mention thousands of homes and cars destroyed, Hurricane Matthew should act as a reminder to consumers about the importance of home and flood insurance. Still, homeowners should know their home insurance won't protect them against all damages from a hurricane.
For example, flood protection isn't provided in a typical homeowners or renters policy. But your home coverage will protect your property against wind damage.
If you live in a hurricane prone area, you might have a policy with a special hurricane deductible. This means your deductible is based on a percentage of damage. It isn't a specific dollar amount. Usually the deductibles range from 1 to 5 percent. It may be higher if you live in a high-risk area.
For instance, let's say you insure your house for $300,000 and you have a 1 percent deductible. You'll have to pay $3,000 before your insurance covers the damages.
Often these special deductibles will apply if the National Weather Service names a hurricane. The special deductible period might end after the storm is downgraded or after a certain amount of days. The specific rules regarding your deductible vary from company to company.
“Families will have to dig deeper into their pockets because insurers have been steadily increasing hurricane wind coverage deductibles and imposing other policy limitations,” J. Robert Hunter, insurance director for the CFA, recently told CBSNews.com. “This liability shift to consumers may take some by surprise, since disclosures are often buried in renewal paperwork that consumers may not understand or even read.”
About 20 states in the US participate in these type of policies. If you live in a high-risk area, these deductibles are often mandatory.
Flood Insurance for Home Owners and Renters
If you live in a high-risk area or have a mortgage with a federally regulated or insured lender, you're required to have flood coverage. Otherwise, you're off the hook. Still, as Hurricane Matthew shows, flood insurance expenses are worth it if a storm hits your area.
How do you go about buying it? The NFIP has partnered with private insurers to sell flood insurance, making it easy to buy. Expect to pay around $700 a year for both renters and homeowners. Costs differ depending on your location and property.
Still not convinced? Floods are one disaster you want to prepare for no matter where you live. They're the most common natural disaster in the country, with the NFIP noting that 20 percent of flood claims come from people living in low to moderate risk areas.
"People should start getting flood insurance even if they don't live in a flood zone," says Meltzer. "Whether or not one believes the climate is changing, we are definitely seeing more water-related claims than we used to."
What Kind of Car Insurance Do I Need to Protect from Hurricane Damage?
Homes aren't the only damage people have to think about if a hurricane strikes. Cars are often completely destroyed by storms.
But just because you have car insurance doesn't mean you're automatically protected. You need to have the right kind of coverage. This means you need more than the mandatory liability protection. Only comprehensive car insurance protects against flood and wind damages.
Beware Cars with Rebuilt Titles
Buyer beware is the general rule whenever you buy a used vehicle, but it's even more applicable right after a flood. Often, cars with a salvage or rebuilt title are sent out across the country to areas that weren't effected by the storm.
Salvage vs. Rebuilt Titles: What's the Difference?
If a car has a salvage title, it means an insurance company has classified it as totaled. Most insurers will deem a car totaled if a car has damages that are between 50 to 80 percent of the cash value of the vehicle. The car will then likely go to a salvage lot where someone might rebuild it.
Once the car is rebuilt, the salvage title is replaced with a rebuilt title. The car must go through an inspection before receiving this new title. Still, you'll want to have your own mechanic check the car before you buy it.
And remember, while mechanics can sometimes get cars back up to good running condition, not all damages are as easily repaired as others.
Signs of Flood Damage
Don't get duped into buying a car with residual flood damage. Look for these signs:
- Stained, faded, or damp carpets
- Carpeting that doesn't match
- Moldy smell
- Dried mud in the trunk, dashboard, or seats
- Rust around the doors, pedals, or inside the hood