As Hurricane Irene barrels down on the East Coast, Chris Hackett, Director of Personal Lines Policies for The Property Casualty Insurers Association of America (PCI), has quite a few things to say concerning insurance and how people will be affected by the storm. We were able to ask Mr. Hackett about current, past and even future potential natural disaster events that we all should prepare for. Here is what he had to say:
Live Insurance News –
With hurricane Irene beating down on the Carolinas, and maybe even New York, is it too late for residents to purchase flood insurance for this event? Besides flood coverage, what should a consumer know about what homeowner’s insurance doesn’t cover in these areas in regards to hurricane damage?
Chris Hackett –
Yes, it is too late. All flood policies written with the National Flood Insurance Program, NFIP, have a 30 day waiting period. Homeowner’s [policies] specifically exclude two main events: Earth movement and flood. Damage from winds is typically covered.
LIN –
What do you think should have been done differently in preparation for hurricane Katrina for both residents and insurance agents? Many people had no idea that they wouldn’t be covered, what would you advise agents to do about this problem in the wake of what is predicted to be one of the most active hurricane seasons now upon us?
CH –
Agents should remind their clients that damage from flooding is not covered under homeowner’s insurance and that there is a 30 day waiting period for this [type of] policy, so waiting for an event can be a mistake. People in high prone areas should talk to their agent to make sure they understand what they have coverage for.
LIN –
Why were claims being disputed by insurance companies in the wake of Hurricane Katrina?
CH –
Many homes were completely lost; nothing left. So, the problem arose when the insurance companies tried to adjust the claims and couldn’t tell what peril actually caused the loss – flood or wind.
LIN –
Has the insurance industry, as a whole, addressed this issue so that it can be avoided in the future?
CH –
The cure for the situation is that people should have policies that cover both major perils in order to avoid confusion.
LIN –
Besides coastal areas, most of the damage from a hurricane may just come from heavy winds – do most homeowner’s policies cover wind damage?
CH –
Wind [damage] is typically covered under a regular homeowner’s insurance policy.
LIN –
Most homeowners will dismiss the Virginia earthquake as a fluke of nature. Do you think this is wise or should people living in this area seek out earthquake insurance?
CH –
Unlike California, earthquake coverage can be purchased by adding it to your policy, as an endorsement. People should look at the value of their home and determine if they can take a financial hit like an earthquake, then ask their agent for the cost of coverage. It’s a personal discussion, but with this information, one should be able to make up their mind.
LIN –
With current homeowners and flood insurance premiums at the level they are at today, are insurance companies actually collecting enough funds for what seems to an ever growing number of claims?
CH –
Recent events have shown us the industry is responding just fine to disasters. With 2011 being one of the worst years hit – the Joplin tornado, freezing storms in Chicago, etc. – the industry is holding up well financially.
LIN –
In California, the state run earthquake fund has over 9 Billion dollars in reserves; many say that this is just not enough. The insurance industry claims they would be left handling the overflow. How will the industry hold up financially to a major earthquake and how is the industry fairing currently with major disasters?
CH –
Yes, the insurance companies may have to take on some overflow. As for how the industry is currently faring: The industry appears to be fine. It is regulated on a state level. The industry invests in conservative, municipal bonds and other investment vehicles that are easy to liquidate. The reason behind this type of investment strategy is mainly used for disaster losses, the insurance companies must have funds ready to pay out quickly, making it their primary objective to remain solvent.
LIN –
Only 12% of California homeowners have earthquake insurance due to many believe FEMA will just come in and offer SBA loans again – this is what happened in 1994 Northridge quake. Do you feel this is a viable plan for homeowners? If not, what advice would you give California residents?
CH –
I do not advice on taking this gamble. Homeowners should try to be proactive and timely. It’s never a good practice to rely on disaster assistance.
LIN –
What do you think is the best way insurance agents can help their clients in the wake of a disaster?
CH –
Keep yourself accessible to your clients and help facilitate a timely claim for your client by intervening when needed.
LIN –
There are many tips and safety articles published on hurricane preparedness for homeowners. What advice would you give a business owner in regards to disaster preparedness as well as other insurance issues?
CH –
Just like personal lines, commercial insurance excludes [damage from] both flood and earth movements. There are many types of insurance policies that a business owner should review with an agent, like liability, workers compensation and the various types of disaster insurance.
Indeed, insurance is not an issue that should be taken lightly. As the year continues to produce natural disasters, the importance of insurance coverage has never been more apparent. As Hackett says, the insurance industry seems to be very stable at this time, news of that should be encouraging to those that may have doubted the state of the nation’s industry.
