Washington, D.C. — The Consumer Federation of America (CFA) today warned consumers to prepare to file claims for damage resulting from Hurricane Irma and offered tips on how to get all you are entitled to from your insurance company.
Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner and Federal Insurance Administrator (who ran the National Flood Insurance Program), was deeply involved in Florida in the aftermath of Hurricanes Andrew and the storms of 2004/2005. Seeing that the insurers were threatening to sharply raise rates and drop homeowners’ policies after Andrew, Hunter devised a moratorium and price freeze that Governor Lawton Chiles and the legislature adopted, keeping affordable insurance in place. After the 2004/2005 storms, when reinsurers were severely price-gouging in the Florida market, Hunter worked with Governor Charlie Crist and Commissioner Kevin McCarty to put a layer of state reinsurance in place at actuarial rates, lowering homeowners insurance premiums by 20 percent and earning tens of billions of dollars for the state.
“Our thoughts and prayers go out to the people of Florida, Alabama, the Carolinas and Georgia as they face the aftermath of this huge storm,” Hunter said. “Unfortunately, we believe that families will have to dig deeper into their pockets than ever, because insurers have been steadily increasing hurricane wind coverage deductibles and imposing other new homeowners insurance policy limitations. This shift of costs to consumers under homeowners insurance policies may take some by surprise, since disclosures are often buried in renewal paperwork that consumers may not understand or even read. Because so many consumers experienced severe claims problems in the wake of Hurricanes Katrina and Superstorm Sandy, we urge homeowners dealing with losses caused by Hurricane Irma to be vigilant with their insurance companies, including the insurers settling National Flood Insurance claims, to ensure that they receive a full and fair settlement.”
Although the storm sharply weakened, Hurricane Irma is still a huge event, which will leave a pattern of claims in Florida, Alabama, South Carolina, North Carolina and Georgia that is quite different than what Hurricane Harvey did in Texas and Louisiana. While the claims of Harvey were predominantly flood claims, with wind damage limited mainly to the western part of the Texas coast, Irma’s claims promise to be mainly wind damage across these states with the most significant flooding mostly occurring along the coast. CFA believes that Hurricane Irma could result in about 450,000 claims for insurance payments. We expect more than 300,000 claims for wind damage by homeowners and another 150,000 claims for federal flood insurance. Insurance payments for wind damage from Hurricane Irma could exceed Hurricane Andrew’s wind insurance payments of about $25 billion (in current dollars) while FEMA-insured flood claims will be about $15 billion. Private flood insurance will also be paying some claims.
In the areas hit by flood it appears that about 30 to 40 percent of homeowners with flood damage have insurance protection, a penetration ratio which varies from community to community in different parts of the impacted area. This compares with estimates of under 20 percent flood insurance penetration in communities hit by Harvey-related flooding. Unfortunately, the number of flood insurance policies written by FEMA in Florida dropped by 15 percent since 2012, according to that agency. There has been some growth in private flood insurance in Florida in recent years. We will see how that works for consumers and if Irma will encourage or dampen the private market’s enthusiasm for entering the flood risk arena.
Two Irma-Specific Concerns
- Wind and Water Claims at the Same House
Homes with both wind and water damage could face some unique insurance problems. Some insurers use an “anti-concurrent-causation” clause in their policies that, insurers allege, removes coverage for wind damage if an uninsured flood happens at about the same time, a potentially serious problem in claims from Hurricane Irma. CFA believes that these egregious clauses are impossible for consumers to comprehend as most people cannot believe that their insurance company would sell them a policy with wind coverage that could disappear through a trap door hidden deep in the policy language. Florida’s (and the other impacted states) political leadership should stand up and demand that these clauses not be enforced. “The clauses are often ambiguous, so if an insurer points to such a clause to deny your wind claim or to offer an inadequate payment, read the provision carefully to see if you think it is ambiguous and, if so, contact an attorney right away,” Hunter explained.
We anticipate a significant number of homes will have suffered both wind and water damage from Irma. While the National Flood Insurance Program (NFIP) is financially backed by taxpayers, it is often a policyholder’s homeowners insurance company that will handle the claim for both the wind and the flood damage, even though the flood portion will be covered by the NFIP and taxpayer money that supports it. Because of this unique situation, it is very important that consumers verify that insurers do not attribute an unjustifiably large portion of the losses they experience to flood damage. Consumers must be the first line of defense against insurers shifting costs for wind losses to the NFIP and thus to taxpayers, something of significant concern in Hurricane Irma given the abundance of both wind and flood claims. CFA is calling on Congress to monitor the post-Irma claims handling for this kind of abuse and urging consumers who notice any cost-shifting to contact their U.S. Representative and Senators so they can make sure that taxpayers are protected.
- Solvency of Some of the New Insurers Created to Take Out Homeowners Policies from Florida’s Citizens Insurance Company May be Problematic
On August 22, 2017, even prior to Hurricane Irma forming in the Atlantic, one of the new insurers, Sawgrass Mutual, signed a consent order and went under administrative supervision. Florida’s insurance regulators were trying to get the company’s 20,000 policies moved into another insurer but that has not happened yet. The timing of Hurricane Irma leaves the Sawgrass policyholders in a very tough spot. Many of them may end up having to file claims with the Florida Insurance Guaranty Association, which can delay recovery and also might result in somewhat lower payments.
Sawgrass is not the only concern as Irma wreaks havoc in Florida. Twenty-five insurers were formed since 2005 in Florida to specialize in taking homeowners business out of Citizens. These new insurers have not been tested by a major hurricane. The leading writer of homes in Florida, Universal Property and Casualty Insurance Company only has a “D” financial strength rating from Weiss Ratings. The insurer, says Weiss, has “weak overall results on stability tests” and has “concerns about the financial strength of its reinsurers.” The insurer had 577,263 policies in force as of the end of 2016.
Two of the other top 11 insurers had weak “D” financial strength (Tower Hill Prime with 148,000 policies insured and People’s Trust with 146,000). Five of the top 11 had fair “C” ratings, two had good “B” ratings. The only large insurer with an excellent “A” rating is Citizens Property Insurance Corporation, itself. A list of the ratings of the top 25 home insurers in Florida can be viewed here.
Hunter noted that, over many years, the state has been forcing tens of thousands of policyholders out of Citizens and pushing them into these weaker and sometimes failing insurers. “If Irma had not weakened, many policyholders might have found themselves dealing with insurers that were in financial trouble,’ Hunter said. “This should alert consumers to be very careful in selecting or remaining insured by home insurers that could be in trouble when the next big one hits.”
Tips for Consumers Filing Claims
As consumers prepare to contact their insurance companies in the wake of the storm, the CFA offered the following tips regarding the filing of a claim.
- You have paid your premium and are entitled to coverage. If you have a legitimate claim, do not hesitate to file it. Report your claim as promptly as possible as insurance companies generally handle them first come, first serve. This is particularly important in Hurricane Irma since claims adjusters will be spread thin because of the size of this event and the deployment of many thousands of adjusters to Texas and Louisiana dealing with claims from Hurricane Harvey. Patience will be required here but keep on top of your insurer to make sure you get service as soon as possible.
- Once your claim is reported, be sure to get your claim number and write it down. Insurance company claims departments can locate your file most promptly using your claim number.
- Maintain receipts for any expenditures related to immediate repairs you had to make to secure your home as well as any living expenses (hotel, evacuation costs, meals) if you could not return to your home in the wake of the storm. In wind claims you should get reimbursed for such additional living expenses. If your claim is limited to flood insurance, additional living expenses are not covered.
- When the insurance company sends out an adjuster to survey your damage, ask if he/she is an employee of the insurance company or an independent adjuster (I.A.) hired by them. If an independent adjuster, ask if they are authorized to make claim decisions and payments on behalf of your insurance company and ask for the name of the in-house company adjuster to whom the I.A. will be sending your information.
- Many insurance companies have repair programs in which they offer to send out one of their approved contractors to estimate your property damage. You may wish to obtain an estimate from their contractor, but you are not under any obligation to use them. The insurance company may encourage their use, as it is to their advantage. Contractors that participate in these programs have likely agreed to unit repair costs dictated by the insurance company or one of their vendors. The unit repair costs are provided to insurance companies by software vendors and are averages by geographic region and may or may not fully compensate you for your damages. It is very important to remember that your claim is unique and individual and should always be treated as such by your insurance company. If your insurer suggests that you cannot get your own estimate, contact your state insurance department to complain.
- Beware of fly-by-night contractors who might approach you to repair your home. Make sure the contractor has good references and is insured in case of errors in construction or a worker is injured on your property. Check with the Better Business Bureau near you or with your insurance company if you are not sure about the qualifications of a contractor.
“Not all insurance companies handle claims badly, so go into the claims process with an open mind,” said Hunter. “Be vigilant, though, and be ready to stand up for yourself and your family, or you run the real risk of being shortchanged.”
Keep Good Records
When you file a claim, you should immediately start a notebook documenting contacts with your insurance company. List the date, time and a brief description of every exchange. If you need to complain later, this information will be vital (see below). If an adjuster says he or she will come and does not, write it down. If an adjuster is rude, write it down. If the adjuster is pleasant and efficient, write that down, too.
Make as thorough a list of your possessions as you can. Use pictures of your possessions taken before the storm and keep them in a safe place. If you later realize you have no pictures when you file a claim, don’t forget that family or friends may have pictures of rooms in your house (for example, from Christmas or other celebrations) that can be helpful in recreating a list of your belongings.
You may wish to take your own photos of the damage as part of your documentation, if you can do so safely. Do not climb on the roof. Leave that to the professionals. The adjuster should still take their own damage photos.
As noted above, you may be entitled to money up-front for living expenses, such as hotel costs and meals, if your home becomes uninhabitable as a result of wind damage. Keep receipts from emergency repairs as well as any costs you incur in temporary housing. These costs may be reimbursable under the “Additional Living Expense” portion of your homeowners’ policy. Insurers are usually very good about these initial payments, while the media is focused on the hurricane aftermath. Most claims problems, if they arise, come later, when bigger payments are sought and the media has lost interest.
As you begin the claim process, if you are able, obtain a repair estimate from a trusted local contractor to use as a guide in talking with the adjuster.
What if the Claim is Denied or the Offer is Too Low?
If the claim is denied or you feel the offer is too low, demand that the company identify the language in your homeowners’ policy that served as the basis for denying your claim or offering so little. This approach has several benefits:
- The company may be right and you may not know it. Once they pinpoint the appropriate language in the policy, you should be able to make this determination. For example, you may have $900 in damage, but the company could well point out that you have agreed to a $1,000 deductible.
- The company may have slipped new limitations into the policy and not adequately informed you. If you feel that you have been misled in this regard, it might be a good idea to consult an attorney. The introduction of percentage deductibles (up to 10 percent of the value of a home) will shift much of the cost of Hurricane Irma from insurance companies to insurance consumers, as compared to earlier storms. The practice of shifting the cost of previously insured events back to consumers may be acceptable, but only if consumers are clearly given the option to select the level of coverage they want with fully informed consent.
- You may find that you are being low-balled because of another restriction new to many policies is a limit on replacement cost payments, which might come into play in the event that a home is totally destroyed. A typical cap is 20 percent above the face value of the policy (some companies cap at no increase over the face value of the policy). If costs surge because of the spike in demand for materials or labor from a major storm like Hurricane Irma (particularly if the state does not monitor price gouging sufficiently) this limit might apply. For example, if a home would cost $200,000 to replace before the storm and that amount was the limit on the policy, the insurance company would pay no more than 20 percent more, or $240,000. If the surge in construction costs due to extreme demand causes the price of replacing the home to jump to $300,000, the homeowner will be short $60,000.
- Another new limit on policy coverage that will surprise many homeowners is that many insurers no longer cover additional costs to bring a damaged home up to current building codes (wiring, elevation for flood risk, etc.)
Once the insurance company tells you the reasons for its action, it cannot produce new reasons for denying payment or making a low offer at a later time. You have locked them in—an important protection for the consumer.
If you review the policy and find that, under a reasonable reading, you think you are entitled to the full amount of your claim as you read the language they relied upon, you will likely win if you go to court. Courts consistently rule that if an insurance policy is ambiguous, the reasonable expectation of the insured party will prevail since the consumer played no part in writing the language of the insurance policy. Don’t be afraid to seek legal help if this happens.
How/Where do I Complain if I Have Trouble on a Wind Claim?
If you feel that the offer is too low or the claim denial is wrong, the best process for getting your complaint resolved is as follows:
- Complain to more senior staff in the insurance company. It is often best to complain to an executive in customer relations (who is paid to keep consumers happy) rather than an executive in the claims department (who is paid to keep claims costs low). Use the records you have kept since the claim process began. The more serious the insurance company sees that you are in documenting how you were treated, the more likely that they will make a more reasonable offer.
- Complain to your state insurance department. All states will at least seek a response to your complaint from your company, which will give you more information as you consider next steps if you are not satisfied with the response. A few states may actually intervene on your behalf with the insurance company in clear cases of bad claims handling. It is important to dispassionately present your side of the story, using the notes you have been taking. As tough as it may be to contain your anger about an insurer that mishandles a claim, the more level-headed you are with your complaint, the more likely it is that insurance regulators will work to help you.
- See a lawyer. Now the notes you took are even more vital. In addition to an award covering your claim, if your treatment was particularly bad, the courts in many states will allow additional compensation when the insurance company acted in “bad faith.” Since insurance companies take your money in exchange for their promise to make you whole when disaster strikes, they must act in utmost good faith in performing that obligation.
What Isn’t Covered in my Homeowners’ Policy?
Homeowners’ policies do not cover flood, earthquake, tree removal (except when the tree damages the house) or food spoilage from power failures. Of importance to Irma-impacted homes, homeowners insurance almost always covers wind, with two exceptions:
- In some coastal areas, some insurers may exclude wind from the homeowners policy. In these rare instances, people buy a separate wind only policy, sometimes from state wind pools.
- For some insurers, as noted earlier, wind coverage may be denied if you have uninsured flood damage at about the same time as the wind damage occurred.
Do I Use the Same Methods for a Flood Insurance Claim?
The federal government underwrites flood insurance coverage, although insurance companies (known as “Write Your Own” companies) are contracted with the government to service claims. Follow the same procedures as above, except direct complaints to the Federal Emergency Management Agency, the government agency responsible for running the federal flood insurance program (1-800-427-4219, TDD# 1-800-427-5593). The FEMA flood insurance program tips on handling claims are located here. This page shows you how to appeal your claim, seek an appraisal or file a lawsuit or hire someone to represent you in the claim process, approaches created after the awful claims practices discovered in the wake of Superstorm Sandy and the resulting Congressional outrage with FEMA.
CFA research has found that some of the private insurance companies that settle flood claims have corporate cultures that are biased toward settling claims low, even when the payments will be paid by NFIP/taxpayers and not the insurance company. In Superstorm Sandy, this tendency led to woefully inadequate settlement offers and outrage among NFIP policyholders.
“Flood insurance claims after both Katrina and Sandy were handled very badly and many Sandy claims are still being settled,” said Hunter. “This sad history should not deter you from seeking fair compensation for flood losses caused by Hurricane Irma.” Indeed, Hunter indicated, insurers should face greater scrutiny by state regulators and FEMA because of the serious claims problems that occurred after Hurricane Katrina and Superstorm Sandy. FEMA has been under extreme pressure from Congress to get better at watching the performance of their insurance company contractors to do a better and firer job in settling flood insurance claims.
Some flood insurance policies are written by private insurers. If you experience trouble with private flood insurance claims, follow the steps above for wind claims to help resolve your problems.
Preventing Insurers from Using Hurricane Irma as an Excuse to Raise Homeowners Insurance Rates, Limit Coverage
After Hurricane Katrina and other large storms, insurers pulled back from offering homeowners coverage along the coasts, dumping people into higher priced, state run insurance pools. They also cut coverage and raised rates substantially. After Hurricane Andrew, insurers dropped thousands of homeowners’ policies and raised rates dramatically, causing the state to take action to slow down both policy cancellations and price hikes. Florida and other affected states must stand ready to protect homeowners in case this happens in the wake of Hurricane Irma.
CFA is calling on state regulators not only to closely monitor insurers to prevent claims abuses but to stop insurers from moving to increase home insurance rates and cut back on the coverage they offer after Hurricane Irma claims are paid. There is no reason, actuarially, for insurers or reinsurers to sharply raise rates or cut back coverage in homeowners insurance policies due to Hurricane Irma. Irma is a wind storm within the about computer model projections underlying insurers’ current rate schedules. Insurers have already raised prices for such wind storms and cut back coverage in Florida after Andrew and again after the storms of 2004/2005 and no further significant price or coverage action should be allowed by the regulators.
Consumers must also act to protect themselves. To do this, consumers must stand together and agree not to buy auto insurance, home insurance, or other coverage from any insurance company that refuses to renew homeowners insurance policies with consumers who make claims related to Hurricane Irma. Consumers stood together after Hurricane Andrew, persuading Florida to pass a moratorium on the non-renewal of policies and to look carefully at rate increase applications. They stood together again after the 2004/2005 storms in Florida to get the legislature to take on some of the reinsurance risk and cut the cost of homeowners insurance by 20 percent as a result. Consumers should fight any attempt to use hurricane claims as an excuse not to renew homeowners’ policies or sharply raise home insurance rates and should complain to state regulators if insurers do take such actions. We know concerted action works so be prepared to join your neighbors to demand that homeowners insurance stay fully available in Florida, Georgia, the Carolinas and Alabama at reasonable prices.
Contact: Robert Hunter, 207-864-3953; Mark Romano, 708-525-3975
The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.