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The Orange

Resources for the modern insurance agent

After Recent Hurricanes, States Confront Challenges to Insurance Practices

by Precise Leads

October 5, 2017

In the wake of Hurricanes Harvey and Irma, it’s more important than ever to know your state’s insurance regulations.

According to the National Oceanic and Atmospheric Administration, the United States had suffered nine natural disasters that caused at least $1 billion in damages by July 7th. Last year, it witnessed 15 such disasters. With Hurricanes Harvey and Irma alone creating as much as $200 billion in losses, it’s no surprise that insurers acknowledge that new measures are needed to help homeowners and businesses recover from a natural disaster.

Because of these increasingly severe losses, the insurance industry now confronts a widening “protection gap,” the difference between the total economic losses from extreme weather events and the actual insured losses. According to Swiss Re, the average annual protection gap has risen from $23 billion in the 1980s to $100 billion today, leaving millions of policyholders with insufficient coverage and greatly reducing insurers’ profits. Without new strategies to strengthen communities against natural disasters, consumer losses will continue to mount at this unsustainable pace.

What States Can Do

Increasingly lacking state regulations have significantly contributed to the problem. Since each state sets its own insurance regulations, no uniform standards exist nationwide, exposing policyholders to heavy risks in some of the country’s most populated states.

Some of these flaws are outlined in a recent report compiled by the Rutgers Center for Risk and Responsibility at Rutgers Law School and advocacy group United Policyholders. After ranking each state’s insurance consumer protection laws, the researchers found that many states block consumers from disputing claims dismissed by insurers, while half of the states prohibit policyholders from suing insurance companies unless the insurer has “intentionally or recklessly” rejected a claim. In addition, consumers in roughly 15 states have no legal recourse to obtain insurance funds even after an insurance company failed to perform its obligations.

To rectify those shortcomings, the Rutgers report recommends that states establish a neutral mediation and appraisal process to settle disputed claims. It also suggests that states should bar insurance companies from inserting clauses in policies that require policyholders to contest claims through arbitration rather than a court of law. As for insurers, the report advises that carriers provide disaster victims with more flexible coverage and clearly specify what events can result in covered losses so as to spare policyholders significant uncovered damages.

Many of these practices are already common in Hawaii and South Carolina, which topped the report’s list of states with the best insurance consumer protections. In an interview with the Insurance Journal, South Carolina’s Department of Insurance Director Ray Farmer stated that he has the power to summon emergency claims adjusters when a natural disaster is declared in his state. He’s also authorized to temporarily forbid insurers from cancelling or not renewing policies following a disaster.

What Agents Can Do

It’s imperative that agents help their clients secure needed payouts in the aftermath of a natural disaster. As United Policyholders Executive Director Amy Bach stressed to Insurance Journal, “insurance funds are make or break for an individual’s ability to rebound after a disaster.” As your clients struggle to recover from their losses, they need a reliable insurance authority to guide them through the claims process and secure the funds they need to rebuild their lives. Knowing your state’s insurance laws can ensure that they receive help when they need it most.

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