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Important Hurricane Irene Coverage Issues

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Important Hurricane Irene Coverage Issues

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It is now estimated that insured losses from Hurricane Irene may total around $3 billion, much lower than original estimates and those projected before she made landfall in Virginia and again in New York.

Despite the lower than expected insured losses, Irene’s impact is essential to be understood by property and casualty professionals. Irene will be noteworthy for two noteworthy news items that have wide-ranging property casualty policy loss implications.

Irene: A Hurricane or a Tropical Storm?- Depends on Geography… and Windspeed

The first is that Hurricane Irene induced very little wind damage overall and therefore, according to Insurance News Net, reports that a leading analyst at Risk Management Solutions Inc. anticipates fewer disputes concerning wind versus flood damage.

Given that Irene's wind speeds were relatively low, and the hurricane, in large part, didn't possess wind strengths capable of total destruction, it should be more obvious if damages were caused by floods or winds, said Matt Nielsen, senior product manager at RMS.

A major change noted by Nielsen was a revision made by the National Hurricane Center has on the strength of Irene’s winds when the storm made its second landfall in the United States, in Little Egg Inlet, N.J., with tropical storm winds, rather than as a category 1 hurricane, as first reported.

While there was wind damage in North Carolina, with homes missing siding, shingles pulled from roofs, and a few instances of older buildings that collapsed, and in Virginia, where some hotels along the coast sustained damage, most of the wind damage appears to have been from fallen trees.

While tropical storm winds were felt as far west as Washington, D.C., Irene will be more of a flooding event due to storm surge and swollen rivers overflowing, said Nielsen, adding the most severe flooding was centered in Vermont, New York and New Jersey.

Analysis

Given Irene’s aftermath and comparative ease in insurance adjusting as a Tropical Storm, this storm could serve as a future benchmark providing useful details for future risk managers, actuaries, and adjuster’s to study and learn from.

This is important because many insurers create different policy deductibles for tropical storm damage versus that caused by hurricanes. Thus, the significance of the change by the National Hurricane Center designating Irene as a tropical storm at its second landfall cannot be underestimated.

Connecticut’s Interpretation

Connecticut Governor Dannel P. Malloy and Insurance Commissioner Thomas B. Leonardi today announced that the Administration has been working closely with the insurance industry in the aftermath of Tropical Storm Irene to address the issue of higher-cost hurricane deductibles that may be applied for some damages on coastal properties. As a result, the majority of the companies that write homeowners policies in Connecticut, including the Travelers and The Hartford, will be waiving the higher cost deductible.

"I applaud those companies who are waiving the deductible and commend them for taking this tremendous step of corporate goodwill. Failure to do this would result in many homeowners paying tens of thousands of dollars out-of-pocket," Governor Malloy said. Commissioner Leonardi said some carriers have outright waived the deductible even though their policy language permitted it; others did not invoke it because their policy triggers were not met.

Commissioner Leonardi said talks are ongoing with other insurance carriers to resolve the issue. The Commissioner said the Attorney General and Department of Consumer Protection are also looking into the matter. Currently, 17 companies that have nearly 70 percent of the homeowners market throughout Connecticut are not invoking the hurricane deductible on coastal policies. Going forward, Commissioner Leonardi said the underwriting guidelines that permitted these deductibles will be changed and tightened.

Analysis

In an era of increased competition and cut-rate online insurers in the property/ casualty sector, positive public relations and being viewed as consumer-friendly can be seen as very helpful in differentiating a company’s offerings in the crowded marketplace. Those companies that decided to outright waive deductibles are positioned to create a lot of consumer goodwill and ultimately gain market share.

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