Record Losses For All

by Mark Goldwich

Image by commons.wikimedia.org

The Weather Channel’s website, weather.com, recently published an article, “Eight Billion-Dollar Weather Disasters Have Hit the U.S. So Far in 2016”. The article noted this was only for the first 6 months of 2016, and that just one of the storms alone accounted for over 3.5 billion dollars of that damage. Also of note were the facts that 5 of the 8 weather disasters occurred in Texas, including 2 flooding events, and the damage totals did not even include late June flooding events in West Virginia. All told, at over 12 billion dollars, this could end up being the costliest January to June weather disaster period in recent history (it is already ranked #2, behind 2011’s tornado superoutbreak in April).

Now let’s try to break down who has to pay for all these damaging weather events, and how this could translate into insurance terms. First, remember that not all such losses are covered by insurance. Some properties are uninsurable, some properties are insurable but the owner chooses not to insure, can’t afford to insure, or decides to self-insure, and still others are insured, but not all the damages are covered by insurance. For example, if a 50-foot tall, 100 year old oak tree comes down in a storm, and does not land on covered property, there is no coverage for cutting up the tree and hauling it off of the property – and the bill for that could be thousands of dollars. Now, consider how many trees come down in all of these storms without landing on anything. As another example, flood insurance only covers certain types of buildings, and only up to certain limits (it is not like other types of property insurance where you purchase the amount of insurance you need).

So, out of the 12 billion dollars in damages, let’s say only 7 billion dollars are covered by insurance – that is still a great deal of money. Fortunately, the insurance companies have that money sitting in reserves, collecting more interest than you or I can get. And, let’s not forget that just because the damages are covered by insurance, and the policies are in place, and the premiums are paid, that doesn’t mean the insurance companies are going to willfully pay that money to their insureds, who have now crossed the line from (pre-loss) “customers”, to (post-loss) “legal and financial adversaries”.

Small change image courtesy of flickr.com

Care to guess how much I would predict insurance companies would offer premium paying customers with covered losses, if the covered damages were actually 7 billion dollars? Don’t read ahead. Just think about it for a minute before scrolling down. Don’t peek! If they owe 7 billion, how much would they pay without question? Should be 7 billion, right? OK, maybe they try to hold back a little – after all, some people probably try to inflate their claims, and mistakes happen, but they would probably pay at least 5 billion, don’t you think?

Well, I don’t. My experience tells me they would try to pay a mere 1.75 billion dollars of the 7 billion dollars owed. Good thing we’re a litigious society, with tons of lawyers at our disposal, and we won’t let anyone take advantage of us like that, huh? Don’t count on it. Accounting for the small percentage of policyholders that would fight their claims – either on their own, or with the help of a professional public adjuster or attorney – I would doubt the figure would rise above 2 billion dollars. That makes for a nice additional profit of about 5 billion dollars on covered losses owed, but not paid.

Why do I think the insurance companies would offer so little? That would be based on my own experience, supported by a governmental agency, the Florida Office of Program Policy Analysis and Government Accountability that published a report in January 2010, which showed insurance payments were up to 747% higher when policyholders were represented by public adjusters for claims related to hurricanes (catastrophes). This report supports my own experience when dealing with insurance claims, and especially when dealing with catastrophe claims.

Exhibit 6

Public Adjuster Representation Typically Resulted in Larger Payments to Policyholders

Source: OPPAGA analysis. Data refers to the median (50th percentile or typical) payment.

Consider these two examples of actual claims I handled recently:

In one case, an insured was paid just over $2,600 for damage to his roof from a storm. The insurance company acknowledged that about 50% of the insured’s roof needed to be replaced due to a covered wind event, but decided not to pay to replace the entire roof as was required by building code (and the insured had the proper endorsement to address this). I thought it would be a simple matter of letting the insurance company know of their mistake. Instead of quickly paying the correct amount, an adjuster blustered about the amount I had estimated, misrepresenting a number of facts about the size of the roof and the cost of the repairs. It took a few months to get someone else involved that agreed the prior adjuster did not respond properly, and an additional $7,750 was paid, on top of the $2,600 initially paid.

In another case, a woman had a pipe leak inside a wall between her bathroom and laundry room, damaging some drywall, a vanity, floor tiles, and some of her daughter’s shoes. The insurance company adjuster was very difficult with her, suggesting the leak must have been occurring for an extended period of time, and questioning the insured about some items that were completely unrelated to the claim. She said she could tell there was going to be a problem within just a few minutes of him entering her home. Sure enough, she soon received a letter denying the claim altogether. She then hired me, and I recently met with another adjuster, who agreed to pay for the damages, totaling over $6,000.

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Keep in mind these are small losses, not resulting from major weather catastrophes, yet the amounts the insurance companies were attempting to avoid paying were relatively significant for such small claims. If you consider the hundreds of thousands of claims that would have been filed for the weather related catastrophes in the first 6 months of 2016, and have confidence as I do in the amounts that could be recovered with professional representation, you can begin to see why I believe the insurance companies could be avoiding as much as 5 billion dollars or more in covered claim payments.

Yes, the insurance industry might be making record payments on record numbers of weather disasters, but their insureds are also suffering record losses as well. The difference is, the insureds paid their full premiums with their hard-earned money, and don’t have the 5 billion dollars I believe is being shorted, and the insurance companies do have the money. The insureds who refuse to settle for less than everything they are owed are fully compensated – I hope that includes you.

Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.

Why Buy Insurance?

by Mark Goldwich

Just this week I got asked a question I am asked several times every year. I was speaking with a woman who had recently had a water loss at her home, and she was considering whether or not she needed our assistance with her homeowners’ insurance claim. Along the way, as it tends to happen, we talked about her insurance policy, what it generally covers, and what it generally doesn’t.

While homeowners insurance policies vary from company to company, there are many similarities when it comes to coverages and exclusions. Most policies cover by one of two methods – “all risk”, which certainly sounds like it covers the insured for just that, all risks, or anything that happens. Does anyone really believe an insurance company will pay for anything that happens to your property? Of course not. What they really mean, and what you should hear (in your head) when they say “all risk”, is that the insurance company will cover you for all risks that are not later excluded in the policy.

Image courtesy of commins.wikimedia.com

If the policy is not an all risk policy, it is what is called a “named peril” policy. With a named peril policy, you are given a list of perils that are covered, and also a list of exclusions. Generally, there are exceptions to the perils, and also to the exclusions. If the event that damaged your property is a named peril, you still need to review the exclusions, but if the event is not one of the named perils, it doesn’t matter what the exclusions are – it’s just not covered.

It might surprise you then to hear both policies appear to cover similar things, such as fire, windstorms, accidental pipe leaks, and theft, to name a few.  Both types of policies tend to exclude similar things, such as wear and tear, mechanical breakdown, flood, pollution, rust, mold, repeated leakage, and more.

So what ‘s the difference?. There are two main differences. First, the all risk policy covers more items, simply because it covers the limited number of events listed in a named peril policy (and for that reason, it is both more expensive, and  it is easier to market as a better insurance product). The other difference, at least as how it has been explained to me, is that with the all risk policy, the legal burden to prove a claim is not covered is on the insurance company; whereas with a named peril policy, the burden prove a loss is covered is on the insured.

After we talked about her policy and the coverage and exclusions contained, that’s when she asked the obvious question: “Why do I even have insurance anyway?”

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There are a few answers to this question (even though it’s almost always said halfheartedly). If there is a mortgage on the property, as is usually the case, the mortgage company requires the homeowner to purchase insurance to protect the mortgage company’s financial interest in the property.  In that case, the homeowner has no choice, but it may be for the best.  If there is no mortgage on the property, the homeowner does have a choice, and a decision to make. They could purchase insurance, or not.

Most people in this situation decide to purchase insurance rather than saving the money they would otherwise be spending on insurance premiums to use that money to pay for any unexpected events that the crop up. They know it would take several, if not many, years to save enough money to cover the expense of even a relatively minor loss. And they also know a major loss, at almost any time, would leave them wholly unable to rebuild or replace everything lost.  This could mean financial ruin for them.

Ultimately, people buy insurance because they can’t afford to suffer a major loss without it. They prefer to transfer the risk of paying for such a loss to a company that is financially able to pay a large loss, or even a total loss. They can afford manageable monthly payments, and they can usually afford their deductible, but just as people tend to buy homes using a mortgage instead of paying cash, they use insurance to pay for repairs to the home instead of paying for those repairs themselves.

Even those who could afford to pay cash for their home, or who could pay cash to repair or replace their home in the event of a catastrophic loss, tend to use insurance to spread and share the cost, as well as avoiding liquidation of assets or conversion of  investments in order to generate the needed cash.

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You see, when people ask the question “Why do I even have insurance anyway?” it’s more of a rhetorical question. They know why they have insurance, they are merely complaining about paying higher and higher amounts of premiums for lower and lower benefits. It should also be noted this question invariably comes when a claim is not being covered, or not being paid completely. No one ever asks this question after collecting $200,000 for a large loss just months into their first year of insurance when they have paid less than $1,000 in premiums. No, it usually comes after 10 years of paying premiums faithfully and then having a relatively small claim declined.

It just goes to show, whether or not we have a mortgage, and whether or not we’ve been paying premiums for a long or short time, we buy insurance just in case, for peace of mind, to hedge our bets, to leverage another financial tool at our disposal, and for any number of other reasons based on our personalities, our risk tolerance, and our desire for stability. In other words, why ask why?

Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.  

Swimming in Denial

By Mark Goldwich

Nile Crocodile courtesy of  simpsonstreetfreepress.org

There’s an old joke: “Denial is more than just the name of a river in Egypt.” For consumers of property insurance the joke has a cruel, updated variation: Denial is the name of a strategy insurance companies seem to use to avoid paying for the damage caused by rivers (among many other things).

In this blog, we’ll see how surprisingly indifferent the insurance industry is to a big problem – namely, that so many consumers believe, wrongly, either a) that their policies protect them against damage from floods, or b) that their property is not at a significant risk for flood damage. Before we go any further, please understand one very important  thing: Insurance companies don’t pay flood claims..

In case you just fell down from shock, and are now returning to consciousness with limited capacity, let me say it once again. Insurance companies do not pay for flood claims. Flood claims are ultimately paid by the Federal Government.

If you have flood insurance, that’s who you really bought it from: the government. The insurance companies simply adjust the losses. The handling standards are strict, and if the insurance companies mess up (i.e., overpay), they have to pay the money they overpaid policyholders back to Uncle Sam. (This leads us to an interesting side question: If the insurance company is going to err on a flood claim, can you guess which way they are going to lean?)

This situation is something that should concern you, since the reality of damage from flooding is looking like something more of us are going to have to prepare for in the coming

years. According to the web site World View of Global Warming, “Meteorologists already see an increase in severity of storms, rainfall, and floods …” They go on to observe that “These anomalies from what we think is ‘normal’ are expected to continue around the world.”

Regardless of your stance on global warming (and its potential causes), regardless of what you believe, or don’t believe, about natural weather cycles, the moral of the story is the same: Think. If you think you’re not likely to be affected by a flood … think again. If you think your homeowner’s policy covers you against flood damage … think again. I

have personally witnessed the tragedy of property owners being without flood insurance. You don’t want any part of it.

Q&A:

If I was told by someone I trust that I didn’t need flood insurance, doesn’t that pretty much end the discussion?

No. People are told all the time -- by insurance companies, attorneys, or occasionally by representatives of mortgage companies or other “experts” -- that they have no need for flood insurance. All too often, this advice is simply incorrect. Sometimes what they say (or mean to say) is, “You are not required to carry flood insurance.” That is not the same as you not needing it.

• How would that bad advice affect me?

Let’s say that your home is covered for wind damage, but not covered sufficiently for flood damage – because some “expert” told you that it wasn’t ‘required’, because you didn’t buy the right level of coverage, or because you thought, incorrectly, that flood damage was included in your homeowners’ policy.  And let’s say a hurricane tears through your neighborhood. Let’s say that the wind from the hurricane rips the roof off your house – followed, of course, by torrential rain, and then by a flood. (That’s the sequence of events we all remember from Hurricane Katrina in 2005.)

When your insurance company reviews the claim, it’s quite possible that it could deny all payment, on the argument that the damage to your house was caused, not by wind, but by flood.

• What if I’ve got an eyewitness who will swear that he saw the wind rip the roof off my house. Is it still possible that the insurance company could deny my claim

for wind damage?

Yes.

• Is that a hypothetical example, or is this something you actually know for sure that someone has experienced?

It’s not hypothetical. It actually happened to a neighbor of one of my clients. The existence of the eyewitness made no difference whatsoever to the insurance company’s decision. Again the best policy is to consider the insurance company your adversary.

Ponder that example for a minute. What are the odds against someone actually seeing your roof get torn off, before the floods come? Yet for some companies, that’s still not enough!

• What exactly do insurance companies expect to get as proof of wind damage? Well, my personal view is that they don’t really want to see evidence in this situation. It’s not like they launch a huge investigation to find out exactly what took place in your neighborhood: “Hmm … you appear to have a point here, Mr. Policyholder. Let’s get to the bottom of this. Was it wind, or was it water? XYZ Insurance has an obligation to set the record straight once and for all!” That’s not the kind of discussion you’re going to hear.

For the purposes of establishing their own responsibility (or lack of responsibility) for wind

 damages, the insurance companies appear to expect homeowners to have video cameras trained on their homes twenty-four hours a day, seven days a week, so as to record actual damage from windstorms as that damage occurs. As a practical matter, that’s about what you would have to be prepared to provide them. If you don’t have tangible proof of this kind – proof demonstrating beyond a shadow of a doubt the precise nature of the damage your property sustained – then it’s entirely possible that the insurance company could choose to deny your claim. In the aftermath of a hurricane, they’re likely to insist that water caused the damage in question, not wind … when they’re talking to people who don’t have flood insurance.

• Is that kind of nitpicking out of line?

The attorney general of the state of Mississippi seemed to think so. In the afterma

th of Hurricane Katrina, he took insurance companies to court. In Mississippi (and indeed in many other corners of our nation), it seems that a huge number of homeowners don’t have, or can’t get, adequate flood insurance on their homes, and are thus ill-equipped to respond to the denial games that insurance companies play after major natural disasters.

More denial next time…

Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.