Hot Topics for December, 2013
Property Insurance and the Importance of Proper Coverage in a Time of Escalating Storm Intensity
If you are a fan of great films, you have likely seen the movie, "The Perfect Storm". Released in 2000, it tells the story of a group of unlucky fisherman who risk their lives to venture to the Flemish Cap where they have tremendous success in landing a great catch of fish they can sell at market for a handsome reward. However, standing in their way back to shore is the nightmarish hurricane that would become known as the Perfect Storm. If you've seen the film, you know the final outcome is simply tragic.
In the past, it seemed as though this Hollywood-style blockbuster of a storm was limited to faceless villains for suspense movies. However, with recent weather events across the country and around the globe, it is clear that as community association leaders we must pay great attention to the havoc and real world losses these super storms can bring. We may not be able to avoid the storms but we can take steps to protect our communities from the financial destruction that is likely to ensue.
Whether you believe in global warming or not, the insurance industry is taking the threat of escalating storm intensity very seriously. The Insurance Information Institute (http://www.iii.org) provides accurate and timely information on insurance subjects. They have published a paper on climate change that addresses the very real impact on the insurance industry and those properties which underwriters insure. They acknowledge that while science has not yet provided all of the answers, they are encouraging insurers to spread the word about climate change and how insured properties can take steps to minimize potential damage.
Insurers often talk about disasters in terms of catastrophes. A catastrophe is a natural or man-made disaster that is unusually severe. The insurance industry declares a catastrophe when claims are expected to reach a certain dollar threshold, currently set at $25 million, and more than a certain number of insurers and policyholders are affected. A catastrophe can be a hurricane or tropical storm, which over the past decade have accounted for the largest portion of catastrophe losses, a tornado or winter storm, or any other type of disaster such as terrorism and earthquakes.
Catastrophes appear to be growing more destructive, but insured losses are also rising because of inflation and increasing development in areas subject to natural disasters. In 2005, the year of hurricanes Katrina, Wilma and Rita, catastrophe losses totaled more than $60 billion. Hurricane Katrina caused losses of $41.1 billion, the highest on record, about twice as much as Hurricane Andrew would have cost had it occurred in 2005. If, as suggested, hurricane-related losses grow by as much 40 percent over the next 20 years, a Katrina-like storm could cause $60 billion in losses, or significantly more if it struck a densely populated metropolitan area like Miami or New York City. For more information, read the excellent article at http://www.iii.org/issues_updates/catastrophes-insurance-issues.html.
You may be wondering how to best protect your community and financial investment in these times of climate uncertainty, escalating storm intensity, and more frequent storm prediction. Work with your community association insurer to review where you are most at risk and then purchase adequate insurance to protect unit owners from the potential ravages of a super storm. Schedule a meeting with your insurance broker and discuss your concerns as well as new insurance policies to protect your community association. Most importantly, encourage your homeowners to do the same review with their insurance carrier, to assure that no gaps exist between the association's coverage and the homeowner's responsibility to insure.