One result of all these claims has been a significant number of insured complaints where insureds are experiencing significant challenges as a result of being underinsured; insureds are learning that they did not have sufficient coverage limits to restore them to whole in event of loss. Since September, the Division of Banking, Insurance and Financial Regulation of the Virgin Islands 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 did not know they were underinsured, and others stated that they did not 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 coverage. It is not unusual for insureds to modify their property by upgrading the kitchen or building an addition, but not tell their agent that they have made changes to the property. The division is requiring that carriers explain underinsurance to the insureds and what impact that will have on coverage. The division is putting the responsibility of public education on the carriers through agents and authorized representatives.

There are four specific requirements. 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. 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.

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.

The last requirement is that the carrier advises their policyholders that underinsurance can be caused by five different factors. Those factors are:

1. The policyholder does not meet the 80 percent coinsurance requirement, requiring the insured to maintain coverage at 80 percent of replacement cost,

2. The policyholder makes improvements to the property and does not advise the agent in order to increase coverage,

3. The bank purchased “force-placed insurance” only for its insurable interest because the initial coverage was cancelled or lapsed, or the initial coverage was not sufficient to cover the exposure of the bank, and the insured did not get his own replacement policy,

4. The policyholder chose coverage for the building alone, and did not account for contents, loss of use or other structures,

5. 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.