If we are to learn anything from recent catastrophic climate- and weather-related events, among the lessons should be this: Too many Americans are under-insured, ill-prepared for risk and in need of education on the insurance claim process.
According to the National Centers for Environmental Information (NCEI), the annual average number of U.S. “weather/climate events with losses exceeding $1 billion each” from 1980 through 2021 was 7.7. In the last five years of that period — beginning with 2017 — the average was 17.8.
Those numbers are adjusted in correlation with the Consumer Price Index (CPI), so the averages represent a dramatic rise in catastrophic events, not the impact of inflation.
Through the first half of 2022 — annually the low period nationally for catastrophic weather/climate events — there had been nine billion-dollar weather events in the U.S., from drought in the western and southern plains to a tornado outbreak in the South to severe storms throughout the Midwest to damaging hail in the central northern states. And that, of course, was before Hurricane Ian hit Florida and the Carolinas, causing an estimated $67 billion in damage.
Yet in the days after Ian ravaged parts of southwestern Florida and brought severe flooding to central parts of the state, the extent to which those in the storm’s path were underinsured became increasingly apparent. Most homes and businesses were insured for wind damage under a Homeowners Insurance policy or Business Property Insurance policy, but such policies do not cover damage from flooding, and a majority were not covered by Flood Insurance. Consider:
“Ian could financially ruin thousands of families in Florida,” Mark Friedlander of the Insurance Information Institute (III) told Politico. “There’s no better way to say it.”
Of those whose property — residential or commercial — experienced extensive damage from Ian, the people in the best position to recover were:
- Fully insured;
- In possession of a home or business inventory documenting their building’s structure and contents;
- Aware of how to file a claim after a disaster hits.
For businesses and individuals seeking to avoid the plight of those least prepared for a catastrophic climate/weather event, here’s a quick guide to disaster preparedness.
Facts, Myths and Misconceptions About Flood Coverage
Many flood victims learn too late that damage from flooding is excluded from standard Homeowners Insurance and Commercial Property Insurance policies. Others who lack Flood Insurance typically do so because they feel they don’t need it or because it’s too expensive.
According to analysis by Forbes Advisor, the national average premium through the National Flood Insurance Program (NFIP), which is administered by FEMA, was $995 as of July 2022 — though rates vary substantially. NFIP policyholders can choose their amount of coverage, with limits of:
- Residential structures for a family of one-to-four: $250,000 building/$100,000 contents;
- Residential structures of five or more units: $500,000 building/$100,000 contents;
- Businesses: $500,000 building/$500,000 contents.
Here are FEMA’s Standard Flood Insurance Policy Summary of Coverage and Commercial Property Summary of Coverage.
Far too many believe they can rely on government funding to make them whole again after a disaster. That’s a dangerous assumption. Here are the facts:
- To cover damage from flooding to a building or personal property, including mold, you need some form of Flood Insurance. While flood coverage is not available as an endorsement to a Homeowners Insurance policy, an endorsement for limited flood coverage may be obtainable for commercial property. Flood Insurance is delayed until 30 days after the date of purchase, to prevent people from obtaining coverage only after a catastrophic storm becomes imminent.
- Flooding does take places in areas not classified as high-risk. People outside high-risk flood zones receive one-third of disaster assistance after flooding and account for more than 25% of flood claims, according to the FEMA.
- It doesn’t take a storm of Ian’s magnitude to necessitate costly cleanup and repairs. According to FEMA’s flood damage estimator tool, a single inch of water in a 2,500-square-foot, single-story home would result in a claim of $26,807. Three feet of floodwater in a 5,000-square-foot, two-story home would cause damage estimated at $185,704.
- Federal assistance is available only after a community is designated as a federal disaster area, and relief is limited. FEMA announced on October 8 that it had approved $150 million in grants to 101,705 households affected by Ian — an average of $1,474.85 per household. “People are going to be really disappointed when they see what funds they get and how short they are in helping them recover,” the III’s Friedlander told CNN.
- Those covered under FEMA’s National Flood Insurance Program (NFIP), on the other hand, will be far better off. From 2015-2019 — the five most recent years for which statistics are available — claim payments through the NFIP averaged $57,684.
Contents Coverage, Documentation and Other Preparatory Steps
Flood Insurance includes two types of coverage: building and contents. Some people who purchase Flood Insurance opt for building coverage only, with no protection for possessions such as furniture, electronic equipment, washers and dryers, clothing, microwave ovens, non-central air conditioners, valuable items and carpeting installed over wood floors. Most who chose not to purchase contents coverage now likely regret it.
In addition to insuring your property’s contents, it’s important to document all items of value and your building’s structural features – particularly if you’ve made recent upgrades. Documentation before and after a claim is critical in proving a loss.
The Insurance Information Institute recommends these steps in creating a home inventory:
- Pick an easy spot to start. A contained area — such as your small kitchen appliance cabinet, your sporting equipment closet or your handbag shelf — is a great place to get started.
- List recent purchases. Get into the inventory habit and then go back and tackle your older possessions.
- Include basic information. In general, describe each item you record, and note where you bought it, the make and model, what you paid and any other detail that might help in the event you need to make a claim.
- Count clothing by general category. For example, "5 pairs of jeans, 3 pairs of sneakers …" Make note of any items that are especially valuable.
- Record serial numbers. Usually found on the back or bottom of major appliances and electronic equipment, serial numbers are a useful reference.
- Check coverage on big-ticket items. Jewelry, art and collectibles may have increased in value and may need special coverage separate from your standard Homeowners Insurance policy. While you're making your home inventory list, check with your agent to make sure you have adequate insurance for these items before there is a loss.
- Don't forget off-site items. Your belongings kept in a self-storage facility are covered by your Homeowners Insurance, too. Make sure you include them in your inventory.
- Keep proof of value. Store sales receipts, purchase contracts and appraisals with your list.
- Don't get overwhelmed. Once you've started your inventory, keep going even if you can't get it all done immediately. It's better to have an incomplete inventory than nothing at all.
Supplement your inventory with photos of the building’s structure and features, along with a narrated walkthrough video. Safely store the inventory and visual documentation with a copy of your insurance policies, and make everything as portable and accessible as possible by using an external drive and/or cloud-based digital storage service such as Dropbox or Google Drive. Lastly, keep your inventory up to date, and be sure to have contact information for your insurance carrier’s claims department stored in your mobile phone, along with contact info for your insurance agent and account manager.
If you’re forced to evacuate due to a pending or ongoing catastrophic event, be sure to equip yourself with a battery to keep your phone charged, and whether it’s a paper copy or digital, have your Homeowners and Flood Insurance policies accessible.
Quick Response in the Claim Process
Fast action is important for Homeowners Insurance claims after a disaster, but it’s especially important for businesses, as the III stressed in its September 30 release Ian Brings Financial First Response to Fore – Begin Claims-Filing.
When preparing and filing a business claim after a catastrophic event, follow these key steps (most of which also apply to Homeowners, Renters Insurance and Flood Insurance claims, to at least some extent):
- Review and modify existing contingency plans, estimating the potential impact of a long-term closure.
- Identify equipment, services, and third parties critical for continued operation.
- Identify an internal point of contact who is familiar with the claim and has the authority to collect and provide key information, as necessary. If this person is not within the finance department, you should assign a liaison to the finance department. If a Workers’ Compensation claim is involved, a human resources contact should be provided.
- Gather all necessary documentation. You will need to support your claim with detailed business records. The insurance company will require considerable documentation before any claim is considered. Depending on the nature of the claim, be prepared to provide financial statements, income statements, revenue reports, and inventory reports, among other requested documentation.
- Track all financial losses and expenses associated with the claim. Use your accounting system to capture extra expenses. Your insurance policy may contain coverage for extra expenses that would not otherwise have been incurred. To the degree that you can separate the specific costs and expenses related to the claim, it can help expedite the process.
- Prepare a formal claim and file it promptly. Provide details on the impact the loss had on your operations. The claim may be reviewed by several individuals at the insurance carrier, some of whom may not be familiar with your business and the specifics of your loss.
- Do not pay for repairs before learning whether your insurer has deemed your property a total loss! You don’t want to waste money you may need for a total rebuild.
- Communicate in writing with the insurance company to avoid any potential misunderstanding. Track everything you have provided to the insurance carrier. You may receive a request for the same information on more than one occasion.
- Exercise patience. Claims take time to investigate, evaluate and resolve. Complex claims can take more time to resolve, though following these steps will expedite the process.
- Regularly communicate with your agent or broker. Working with knowledgeable, experienced insurance professionals is the best way to protect yourself with customized coverage, manage the cost of risk and achieve satisfactory resolution when filing a claim is necessary.
With more than 3,500 professionals staffing over 150 offices around the nation, Alera Group offers insurance, wealth services, employee benefits and retirement plan solutions across specialties and geographic locations. Whether your needs are personal or commercial – or both – we can provide the solution that’s best for you.
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About the Author
Vice President, Claims and Operations
The Insurance Alliance Network
Chuck’s background includes more than 40 years of claims experience, including tenures with two Fortune 100 insurance carriers and one national Medical Malpractice carrier. His responsibilities have included a variety of positions in Liability, Workers’ Compensation and Medical Malpractice Insurance, as well as in litigation management.