Although the 2017 hurricane season is now officially over, insurers are still reeling from the hundreds of thousands of claims following hurricanes Harvey and Irma in August and September. Billions of dollars’ worth of damage across Texas and Florida was exacerbated by the construction boom along US coasts – with expensive properties, waterfront resorts, power grids and oil refineries all taking a hit and adding to insured losses. If this wasn’t enough to cope with, Hurricane Maria smashed its way across Dominica and Puerto Rico soon after, wreaking havoc. Here we take a look at some of the extreme challenges insurers are facing in the aftermath of the surge in claims.
Claims pinch points
Insurers and loss adjusting firms have contingency plans to deal with natural catastrophes. A single event will put pressures on both, especially sourcing experienced loss adjusters. Dealing with not two, but three catastrophes in short time, therefore, will push the capabilities of the best-organised providers. Add in the double whammy of these and the earthquakes in Mexico, every insurer is left desperately searching for qualified adjustors on the ground. Through no fault of anybody, this has severely hindered the ability to triage losses, agree quantum and scope repairs. A natural by-product therefore being that many frustrated policyholders are seeking the help of public loss adjustors, which, despite best endeavours all round, will only lead to conflicting views over the sums involved and delaying settlements even further.
On the ground, this has severely affected policyholders who have not been able to access the money they needed to start repairs or rebuilding, and for insurers who with this uncertainty have been forced to create large and materially variable reserves to meet probable maximum losses.
Bringing in technology and property expertise
On the plus side, all involved have been quick to deploy new technology to speed up settling claims. Record numbers of insurers used drones to inspect the damage, drastically cutting the time to inspect properties and also making the inspection process a lot safer for the adjusters on the ground.
External property loss consulting teams like Thornton Tomasetti have been helping adjusters and insurers assess damage on the frontline. Multi-disciplinary teams of structural engineers, forensic architects, mechanical, electrical and plumbing engineers have all been used to assess building safety and property conditions. Again, technology played a part. Thornton Tomasetti’s data analytics tools are helping insurers geolocate their insured properties over maps of the affected areas. This gives an idea of potential liabilities, reducing the uncertainty around required reserves and helping send claims experts to the right places.
But, even with drones and property experts on their side, there remains a significant percentage of outstanding claims, especially for commercial property where only 36.5% of Hurricane Irma claims have been settled in Florida.
The cost of building codes
One challenge when assessing the large-scale property damage was knowing which building codes needed to be applied to rebuilds or repairs. A detailed understanding of these codes is key to accurately quantifying a claim, complicated by the fact that local and regional building codes are continually evolving, and the building may not have met the relevant code before the damage occurred.
Some changes won’t have to be implemented if a building is just being repaired, while others will only apply to new or rebuilt projects. Whichever applies, quickly and accurately estimating the cost of compliance, especially for large commercial properties, clarifies the scale of insured losses.
The volume of claims that we have seen from the recent storm events in Texas, Florida and the Caribbean has tested the resolve of our teams. There was a great demand for triage and the ability to prioritise complex claims while operating under trying conditions. Anybody that has experienced a temporary power cut can attest to the frustration. We are continuing to support our clients’ desire to keep settlement delays to a minimum.
Insurance rates outlook for 2018
Natural disasters hit (re)insurers hard in 2017. The US hurricanes and wildfires, Mexican earthquakes, Cyclone Debbie in Australia and the floods in Peru have all added up to become one of the costliest years on record for insurers, impacting earnings and forcing some to dip into their capital reserves to cover losses. According to Willis Tower Watson’s Marketplace Realities 2018 report, the huge difference in the range of estimated losses means it’s still too soon to tell whether rates will rise consistently in 2018, but buyers with property nat-cat exposures will feel the brunt of any increases. WTW predicts these rates could rise between 10-20% for catastrophe-exposed risks, and 20-25% for catastrophe-exposed risks with recent losses.
Building for the future
Climate change is warming oceans, raising sea levels and increasing the number and severity of extreme weather events. As well as the human impact, the cost of recovering from these events will become increasingly unsustainable for Governments and taxpayers (it’s estimated only 10% of losses from the US hurricanes were insured). It will also make catastrophe insurance unaffordable for many as insurers try to cover their losses in areas prone to wind, flood and wildfire disasters.
Building design can reduce the future financial impact by rebuilding stronger and safer properties which prevent or reduce damage from future disasters such as floods and high winds. Cities need to think about how to live with more water or wind, and what this means for building regulations. Florida brought in stricter building codes after Hurricane Andrew in 1992. The first major test of these was in 2004 when four hurricanes hit that year. A report from the Insurance Institute for Business & Home Safety found that owners of post-Andrew homes filed 60% fewer insurance claims and the severity of those claims was 42% lower.
At Thornton Tomasetti, we can help insurers and loss adjusters analyse the cost of property disaster claims, using our forensic investigation skills to inspect damage to structures. If you would like to speak to one of our experts, our contact details are below:
Fort Lauderdale, FL: John T. Boyer, Sr., P.E., CPD, GBE, CEM, CEA, CDSM, EXWsm, Assoc. AIA, Principal