The fall of 2017 was responsible for three major hurricanes, which caused millions of dollars in property damage.
One thing that came to light is that many people either did not have proper insurance or were underinsured.
Particularly hard hit were the U.S. Virgin Islands and Puerto Rico. In the Virgin Islands, claims from Hurricane Irma have totaled $435.6 million in claim payments with 38% of claims paid so far.
A total of 9,332 claims have been filed, with 3,032 closed with payment. Hurricane Maria resulted in 5,549 claims, with 1,312 closed with payment. Payment on those claims so far was $82.8 million, or 32%.
|Insufficient coverage complaints
One result of all these claims has been a significant number of complaints in which insureds are experiencing significant challenges as a result of being underinsured; insureds are learning that they did not have sufficient coverage limits to make them whole in the event of loss.
Since September, the Division of Banking, Insurance and Financial Regulation of the Virgin Islands (USVI) has processed more than 1,000 complaints. Because of these complaints, the division has issued a bulletin that places carriers on notice that they must inform customers if they are underinsured.
The bulletin states that many insureds are telling the department that they didn't know they were underinsured, and others stated that they didn't know what it means to be underinsured. While some may have been properly insured at policy inception, over time the property value or replacement calculations may have changed, affecting their coverage. It's not unusual for insureds to modify their property by upgrading the kitchen or building an addition, but they don't tell their agent that they have made changes to the property.
|Public education burden on carriers
The division is requiring that carriers explain underinsurance to the insureds and what impact that will have on their coverage. The division is putting the responsibility of public education on the carriers through agents and authorized representatives.
There are four specific requirements:
|1. Full explanation
The first is that a carrier must provide to its homeowners a full explanation of the term "underinsurance" including examples, and show how settlement is affected at the time of a loss.
|2. Sample notice
The second requirement is that the carrier should use the sample "Notice of Conditions of Underinsurance" as a guide to guarantee that insureds receive the proper explanation of underinsurance, how underinsurance affects coverage, and how their coverage would be affected in the event of a catastrophic loss.
|3. Signed acknowledgement
Upon new or renewal coverage, the carrier must require the policyholder to sign a statement to acknowledge that the issue has been thoroughly explained. The agent is to explain underinsurance and the conditions for determining underinsurance. The policyholder, by signing the statement, acknowledges that the agent has explained underinsurance and that the policyholder understands the conditions for determining underinsurance and how underinsurance affects their personal coverage.
Related: Protecting Homeowners
|4. Causes of underinsurance
The last requirement is that the carrier advises their policyholders that underinsurance can be caused by five different factors, as follows:
- The policyholder does not meet the 80% coinsurance requirement, which means the insured must maintain coverage at 80% of replacement cost.
- The policyholder makes improvements to the property and does not advise the agent in order to increase coverage.
- The bank purchased "force-placed insurance" only for its insurable interest because the initial coverage was canceled or lapsed, or the initial coverage was not sufficient to cover the exposure of the bank, and the insureds did not get their own replacement policy.
- The policyholder chose coverage for the building alone and did not account for contents, loss of use or other structures.
- The replacement cost per square foot has increased since the property was originally insured.
Policyholders whose policies renewed after the hurricanes and are not scheduled to renew again before the next hurricane season may make midterm coverage increases of their policy limits to ensure adequacy subject to underwriting approval.
Christine G. Barlow, CPCU, ([email protected]) is managing editor with FC&S, the premier resource for insurance coverage analysis. She has an extensive background in insurance underwriting. For additional information on FC&S Online, visit www.NationalUnderwriter.com.
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Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.
