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No matter where you live in the United States, there’s a good chance you’ll have to deal with one or more natural disasters or severe weather events. Each part of the country experiences at least one peril or another. Some states have hurricanes or tropical storms, while in other states it’s tornadoes, snow, hail, floods, earthquakes, or some combination of events.
South Carolina survived the 1,000-year flood of 2015 and was dealt back-to-back “blows” by Hurricanes Florence and Michael in late 2016. These events left mass destruction behind for our residents and Insurance CAT teams, FEMA, military and red cross were deployed to our state. South Carolina is not alone: remember hearing the names Harvey, Intra, Marie and Nate? Remember the loss of $5,700 homes and businesses during the wildfires in Northern California? Across the country we see extreme weather events and natural disasters causing mass destruction and loss. The National Climate Assessment stated “warming-charged extremes have become more frequent, intense, widespread or of long duration.”
How does the insurance industry respond to extreme weather events?
In the short term there will likely be an immediate increase in rales, followed by higher deductibles and limitations on coverage in the longer term. According to William Kelsey, president of the Housing Partnership Insurance Exchange,”… the insurance market was overdue for an upward correction. Homeowners in some high-risk areas could face big increases and, in some areas, may have difficulty getting insured at all There is a growing concern about what climate change may bring, which may soon put more upward pressure on insurance rates.”
While the insurance industry may be more short- term and sales focused, the reinsurance industry which insures the insurers, is thinking long term and pays attention to computer modeling, trending and forecasting. If the re-insurers raise their rates, insurance companies will have to either absorb the cost or pass it along to their customers.
Insurers could redraw the risk maps, which could also affect your premium rates. If you live in an area affected by recent storms or fires, it may already be designated high-risk zone and you may already be paying more for your insurance. But in newly affected areas of the country, conditions are changing, and your property may be designated as high risk in the future because of recent increased extreme weather events; higher risk equates to higher premiums. Considering recent extreme weather events, we may see insurance carriers tighten underwriting, as well as the terms end conditions of the policy.
What’s your zip code?
When it comes to weather- related events and your risk, where you live matters. In the Southeast, we are well acquainted with floods, hurricanes, thunderstorms, and tornadoes- all which are relatively common occurrences. Damage to your home that follows a thunderstorm or tornado will probably be covered by a typical homeowners policy, while you’ll need to have separate policies to insure against other weather-related risks.
What about hurricanes in the Southeast?
Homeowners in the Southeastern states are at risk of being hit by a hurricane at any time between June to November. A basic homeowners’ policy will not cover flood-related damage, even if the flooding is caused by or happens during a hurricane. As a result, consider a separate flood policy or an endorsement to add flood as a covered peril to the homeowners policy. For example, if you insure your home dwelling for $200,000, and the policy has a 5-percent deductible, then you will have to pay for the first $10,000 of hurricane-based claim before your insurer will begin paying your claim.
It is not unusual for these kinds of deductibles to be divided into two separate categories, with one focusing on hurricane-specific damage and the other focusing on damage that’s tied to other storms or events that involve heavy winds.
Here come the flood waters, am I covered?
Floods are the most common of all the natural disasters in the United States. Homeowners insurance usually doesn’t cover damage caused by flooding. If your home is in a high-risk area, and you obtained your mortgage from a federally regulated or insured lender, you’ll be required to buy flood insurance through the National Flood Insurance Program. If you live in a moderate- or low-risk area, you are not required to have Flood Insurance.
Besides private insurance companies, the federal government offers flood insurance coverage through the National Flood Insurance Program.
If you are interested in learning about Flood Insurance or find out if you are in a Flood Zone, visit www.floodsmart.gov to learn more. If you are interested in purchasing Flood Insurance speak to insurance agent about purchasing this coverage. It is likely if you live in a Flood Zone that the insurance company will require an Elevation Certificate. Flood Policies have a 30- day waiting period which means you cannot go out and purchase a Flood Policy today and have it in place tomorrow. Flood Policies, unlike your all perils deductible on your Homeowners Policy, have separate deductibles few each dwelling there are two types of Flood Insurance; Primary Flood Insurance and Excess Flood Insurance.A Primary Flood Insurance Policy typically offers $250,000 of coverage for your dwelling (home) and $100,000 for your personal property (contents). Excess Flood policies can be purchased for additional protection.
What about earthquakes?
South Carolina earthquakes occur with the greatest frequency along the coastline of the state with an average of 10-15 earthquakes a year below magnitude 3. The largest was the Charleston Earthquake of 1886 which measured at 7.3 magnitude.
Damage caused by an earthquake is not covered by your standard homeowners insurance policy. The more recent versions of a standard homeowner policy have very limited coverage for household water damage-leaks and pipes-and expressly exclude coverage few a flood event and any type of earth movement.
Earthquake insurance coverage is expensive, and premiums are rising. Less than 10 percent of the state’s residents carry coverage against the earth moving beneath their property, according to Russ Subisky of the S.C. Insurance News Service. Earthquake Insurance policies typically have a percentage of the dwelling limit deductible. For example, if your home is insured for $250,000 dwelling limit and you have a 10% deductible, then your responsibility for any claim damages would be $25,000. The closer your home is to a fault line or sits on soil types with greater exposure to loss in an earthquake, the more limited insurance options you may find available because of the extreme risk of earthquake loss.
While it is still difficult to attribute individual weather events to climate change, experts predict such extreme weather to occur more often. In the United States, disasters hit highly populated areas which increases the cost of such events. Think supply and demand of resources. These weather events not only affect the property owner, but also directly affect the insurance industry.
