In the last week, it’s been difficult to miss the news stories and images of the devastation wrought by superstorm Sandy. So many people have been affected by this storm that it raises some significant insurance issues. Using a recent example such as Sandy, you can evaluate your home insurance policies to understand what type of coverage you do or do not have. While unfortunate, by studying the outcomes from Sandy, there are some important lessons to be learned. This storm was particularly devastating because it so severely affected a portion of the population that is not regularly in the eye of hurricanes.
As you may know, deductibles for hurricane losses are generally much higher than the deductible for losses caused by other perils. Instead of a stated dollar amount, the hurricane deductible is generally expressed as a percentage which increases with the value at risk. Many states including North Carolina, Pennsylvania, Rhode Island, Virginia and West Virginia, affected by Sandy have taken the extraordinary step of declaring Sandy to be something other than a hurricane. According to Property Casualty 360, seven states and the District of Columbia have declared hurricane deductibles not applicable to damage from Sandy. While this benefits homeowners in the states, it does create significant issues for the insurance companies.
Deductibles on insurance policies serve two functions: to reduce premium for policyholders who accept a portion of their risk and also to insulate the insurer from a certain degree of loss. However, when the deductible is taken away from the insurer, its underwriting model may be upset and can result in financial difficulty for the insurer. It remains to be seen what long-term effects this will have on the affected insurers. Regardless of the outcome, this does bring up an important issue for all homeowners. You need to be prepared for the possibility of very large deductibles when facing a hurricane deductible. Percentage deductibles are commonly found on policies for losses from hurricanes, floods, and earthquakes.
Once the storm passed, affected homeowners began digging out from the wreckage. Insurers had plenty of notification of the impending storm so they were prepared with catastrophe teams to respond to the high volume of claims. However, you should be prepared for the possibility of a delay in resources. Once you have notified your insurer of your claim, you have an immediate responsibility to protect your property from further damage. Any necessary temporary repairs will likely be reimbursed. You do need to keep good records and documentation of the expenses to substantiate your claim. Be careful of unscrupulous vendors that sometimes appear after a natural disaster to take advantage of homeowners in distress.
If your home is uninhabitable, you will need to make immediate arrangements for temporary shelter. This is part of the additional living expense coverage on your policy. As with repairs, you’ll need to have proper documentation of the reasonable expenses you have incurred in finding alternate living arrangements. Keep in mind that many others affected by a natural disaster will be looking in the same areas so there will likely be some impact on availability.
Once your insurance adjuster is able to meet with you to assess your damage, your home inventory will be very helpful in proving up your losses. Our prior blog post details the items you should include in a simple home inventory.
Learning from a recent event such as superstorm Sandy can help you be more prepared in the event you are faced with a similar catastrophe.