Hurricane Matthew May Be Gone, But Insurance Industry’s Work is Just Starting

By | October 14, 2016

It’s been nearly a week since Hurricane Matthew ravaged the Southeast coast but the insurance industry’s job of responding to the devastation and assessing the total cost of damage from the storm is just beginning. With flood waters still rising in North Carolina, the industry is expecting to feel the effects of the storm for some time.

By all accounts, the destruction left behind by Matthew wasn’t as bad as what was originally anticipated. Storm experts say that’s because the storm didn’t hit land as the category 4 hurricane that impacted Haiti.

“When Matthew was nearing Florida, there was a large amount of uncertainty of whether there would be more wind and storm surge or less so because the storm was paralleling so close to the coast,” said Tom Sabbatelli, RMS Hurricane Risk Expert based in the UK.

Sabbatelli said the fact that Matthew stayed about 50 miles off the coast and the hurricane force winds remained around the center of eye made a big difference for the state, sparing it from extreme devastation: “Florida avoided the strongest of the winds,” he said.

But, he added, remaining offshore for so long, an unusual phenomenon for a hurricane, also allowed the storm to keep its strength and stay a category 3 and category 2 storm as it traveled north over Georgia and the Carolinas.

“As it tracked up the coast it maintained its intensity,” Sabbatelli said. “There hasn’t been a great amount of historical precedence for this track.”

Andrew Higgins, technical manager for Allianz Risk Consulting, said analysts expected Matthew would be more of a high-wind storm and the flooding that has occurred in South Carolina and North Carolina in its aftermath wasn’t expected.

“We really didn’t see that coming. Obviously with these types of events you have flooding and storm surge, but this storm slowed down as it made landfall in Charleston [S.C.] and dumped a tremendous amount of rain in North Carolina,” Higgins said.

RMS is now in the process of reconstructing the wind and storm surge through satellite imagery and observations so it can put together a final loss estimate. The consensus from other modeling firms have the storm impacting the industry in $3-$10 billion range: CoreLogic said it anticipates the industry will see about $4 to $6 billion in damage; Karen Clark & Co. estimated the losses to be about $7 billion; and AIR Worldwide put its damage estimates between $2.8 billion and $8.8 billion.

KCC said the most impacted coastal areas include: Daytona Beach, Fla.; Tybee Island, Ga.; and Hilton Head Island, S.C.

However, thousands of residents in North Carolina are still without power and dealing with major floods, which will undoubtedly lead to more claims over the next few weeks. Business interruption claims will be significant especially because of the long-term power outages, Higgins said.

He suspects a lot of the damage will be flood related, particularly in eastern North Carolina, and those claims are not covered by the insurance industry unless claimants have private flood insurance.

Since it didn’t make a direct hit as a major hurricane, we won’t see major wind damage claims,” he said. “But because it hugged the coast and went inland we will see more flooding.”

“The good news – if there is any good news to be had with this story – is that this could have been a much worse event,” said Neil Alldredge, senior vice president of state and policy affairs for the National Association of Mutual Insurance Companies (NAMIC). “For the people affected it is bad enough, but it was anticipated that with the way the storm tracked it could have been a much larger event. This is good news for the broader economy.”

Industry Response

The insurance industry is now in full-fledged recovery mode and agents and carriers across the Southeast are diligently working on getting people back on their feet.

Alldredge said NAMIC’s estimated 300 member companies in the affected states are prepared to handle claims from Matthew and help their clients, despite what may be said otherwise.

“It is troubling to see statements made anticipating a problem because for the vast majority of customers that is not the reality,” he said. “Insurers have every incentive to deal with customers fairly and swiftly and get them back to normal as quickly as possible. No insurance company wants a long drawn out saga. It is not in their best interest and not how they behave.”

Nevertheless, North Carolina Insurance Commissioner Wayne Goodwin activated the state’s Disaster Mediation Program to help homeowners resolve any disputes on residential property damage claims from Hurricane Matthew.

In Florida, the claims volume hasn’t been as significant as what was expected, said William Stander, executive director for the Florida Property & Casualty Association (FPCA).

“Claims appear to be straight up the coast and not necessarily in a particular location,” he said. “There isn’t any concern of this affecting the stability of the marketplace. It is just a matter of getting out there and doing our job and helping the state recover.”

Citizens, Florida’s state-run insurer of last resort, said it had received a total of 2,190 claims as of Oct. 12 – 123 commercial property claims and 2,067 personal residential.

The Florida Office of Insurance Regulation (OIR) reported a total of 39,302 claims as of Oct. 12 with estimated insured losses at $218 million. Residential property accounted for 34,913 of these claims; 652 were commercial property; 1,827 were flood claims – 28 private and 1,827 federal flood; 15 were related to business interruption losses; and 1,895 were classified as other lines of business. The claims include ones from Citizens, as well as hundreds of private insurers including national companies Allstate, GEICO, Progressive, and Travelers.

South Carolina Insurance Director Ray Farmer issued a data call to state insurers to gather information from claims from the storm with the first deadline being Oct. 24.

The insurance departments in Florida, Georgia, South Carolina and North Carolina urged residents to get in touch with their insurance agent or company and begin the claims filing process.

Florida on Edge

Florida’s assignment of benefits (AOB) issue currently plaguing the state and leading to higher insurance rates is poised to become an even bigger problem in the wake of Hurricane Matthew, the state fears.

Citizens, which has seen a huge increase in AOB litigation from water loss claims particularly in South Florida, has been leading the charge to try and curb the abuse. The company has said that after a significant storm event such as Matthew the AOB problem could spiral out of control as “unscrupulous” contractors take advantage of homeowners in need of repairs.

Michael Peltier, Citizens spokesperson, said the company has been taking a multi-faceted approach to get ahead of the problem, which has included auto dialing its more than 100,000 policyholders in affected areas and emailing agents to encourage them to reach out to their customers directly.

“We have been in contact with most of our policyholders within the area of the hurricane, trying to get ahold of them first and let them know if they have a claim to call us to start the claims process – it is the most effective way to handle AOB abuse,” Peltier said. “We are trying to get to as many areas as we can to let customers know to call us first.”

There haven’t been any reports yet of AOB abuse occurring, but Peltier said it is much too early to know as AOB claims may not be reported until 30 days after a loss has occurred.

“We are right at the beginning of that cycle,” he said.

Stander of the FPCA said it is important the industry be on alert for AOB abuse. The association has issued a standing order to its members to report AOB abuse to FPCA.

“Certainly keep your eyes open for those examples of AOB that we can point to when policymakers return next session,” he said. “We know there’s a problem… it’s not a question of is it a problem it’s a question of what we do about it, and that’s up for discussion and an area for the legislature to weigh in.”

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About Amy O'Connor

O'Connor is the Southeast editor for Insurance Journal and associate editor of MyNewMarkets.com. More from Amy O'Connor
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