Washington, D.C. — The Consumer Federation of America (CFA) today warned consumers to prepare to file claims for damage resulting from Hurricane Michael and offered tips on how to get all you are entitled to out of the insurance company.
The former head of the National Flood Insurance Program, former Texas Insurance Commissioner and CFA’s Director of Insurance, J. Robert Hunter, said, “Our thoughts and prayers go out to the wonderful people of Florida, Alabama, Georgia, and the Carolinas who face the aftermath of this huge storm with wind damage expected to be $5 Billion and flood damage expected to reach $3 Billion. Families will have to dig deeper into their own pockets because, sadly, only about one in three families who had flood damage from this storm have federal flood insurance.”
Most homes have homeowners policies covering wind damage, but insurers have been steadily increasing hurricane wind coverage deductibles and imposing other, sometimes draconian, homeowners insurance policy limitations (discussed below). 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, CFA urges homeowners dealing with losses caused by Hurricane Michael to be vigilant with their insurance companies, including the insurers settling National Flood Insurance claims, to ensure that that they receive a full and fair settlement.
Tips for Consumers Filing Flood and Wind Claims
As consumers prepare to contact their insurance companies in the wake of the storm, 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. Insurers should not raise your rate for filing this claim or fail to renew your policy for filing it. Report your claim as promptly as possible as insurance companies generally handle them first come, first serve.
- 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 or any living expenses (hotel, 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. is 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 should always be treated as such by your insurance company.
- 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.
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 Wind 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 Michael 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.
- 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 Michael (or if your state does not monitor price gouging sufficiently) this limit might apply. For example, if a home would cost $200,000 to replace 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 caused the price of replacing the home to jump to $300,000, the homeowner would be short $60,000.
- Another new limit on policy coverage that might surprise you is many insurers no longer cover the cost of additional costs to bring a damaged home up to new building codes (wiring, elevation for flood risk, etc.)
- Many insurers use an “anti-concurrent-causation” clause in their policies that, insurers allege, removes coverage for wind damage if a flood happens at about the same time, which could be a very serious problem in claims from Hurricane Michael. CFA believes that these clauses are often ambiguous, so if an insurer uses such a clause to deny your wind claim or to offer a very inadequate payment, read the provision carefully to see if you think it is ambiguous and, if so, see an attorney right away.
- 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.
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 consumer 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 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 insurance 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 when you complain, using the notes you have been taking.
- 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.
Do I Use these 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. To start a National Flood Insurance Program flood insurance claim, follow the same procedure as above or visit. This page provides tips on starting a flood insurance claim, working with insurance adjusters, documenting damage and cleaning up, and applying for Federal Disaster Assistance, which is also available to NFIP policyholders. If policyholders do not know their insurance agent or insurance company, they are encouraged to call the NFIP Call Center (800-427-4661, TDD# 800-427-5593. If consumers have a policy with NFIP Direct, they can call NFIP Direct Claims at 800-767-4341.
Following Hurricane Michael, the NFIP is offering advanced payments to policyholders on their flood insurance claims. When a policyholder contacts their insurer, the policyholder can receive an advance payment of up to $5,000 on a flood claim, without an adjuster visit or additional documentation. Additionally, a policyholder who provides evidence of damage to their insured property in the form of photos or videos, receipts validating out-of-pocket expenses related to flood loss, or a contractor’s itemized estimate, can receive up to $20,000 in advanced payments.
Since the National Flood Insurance Program (NFIP) is paid for by taxpayers, and often the same insurance company will handle the claim for both the wind and the flood damage, 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 Michael given the large number of residents who will likely need to file both wind and flood claims. If you see such potential abuse by insurers, contact your U.S. Representative and Senators so that they can make sure that taxpayers are protected. 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, for example, this tendency led to woefully inadequate settlement offers and outrage among flood insurance policyholders.
“Flood insurance claims after both Katrina and Sandy were handled very badly,” said Hunter. “But the service has been better in recent events.” Indeed, Hunter indicated, insurers 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 pressure from Congress to continue getting better at watching the performance of their insurance company contractors to do a better and fairer job in settling flood insurance claims.
Steps States Should Take
- Preventing Insurers From Using Hurricane Michael 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, such as North Carolina’s Coastal Property Insurance Pool. They also cut coverage and raised rates substantially.
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 Michael claims are paid. There is no reason, actuarially, for insurers to raise rates or cut back coverage in Homeowners insurance policies due to Hurricane Michael, which is a wind storm within the computer-modeled projections underlying insurers’ current rate schedules (the wind storm was a strong storm, probably a one in 100-year event). Insurers have already raised prices for wind storms and cut back coverage along the Gulf Coast and no further price or coverage action is justified.
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 Michael. Consumers stood together after Hurricane Andrew, persuading Florida to pass a moratorium on the non-renewal of policies and to look carefully at companies’ post-disaster rate increase applications. 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.
- State Insurance Departments Should Create Web Sites Tracking Insurer Progress in Settling Hurricane Michael Claims
“The insurance departments in the states with serious damage should establish a web page with information on how each insurer is doing at closing claims from Hurricane Michael,” said Hunter. It should show the number of claims filed, the number partially paid, the number fully paid, the number closed with no payment, and how long it takes each insurer to resolve the average claim settled since the storm. A model for such a system could be the web page and monthly analysis of claims payment progress used by the New York Department of Financial Services in the aftermath of Superstorm Sandy. An email calling for this action by the commissioners of Florida, Alabama and Georgia was sent on October 11, 2018.
“Americans always pull together to protect one another whenever there is a disaster like this, but when it comes to rebuilding homes long after the storm has passed, too many people find themselves in lonely battles with insurance companies. We all will have to keep a spotlight on the communities hit by Michael to make sure that survivors don’t face a second disaster in the shape of unfair practices by their insurance companies,” said Hunter.
Contact: J. Robert Hunter, 703-528-0062