What have we learned in 10 years?
You’re most likely aware of the many unusual natural disasters that have occurred in the past decade. While most rational people seldom claim this is a “sign” of things to come, the scientific facts confirm that natural disasters have become more numerous in recent years.
Meteorologists and scientists maintain that these increases in natural disasters follow cyclical patterns, just as economic, stock market, and normal weather conditions function. Weather and geological events seem to ebb and flow in trends and patterns that repeat over time.
Those who have spent some time on our planet have experienced some of these trends. East coast residents have seen some years when two or more hurricanes have made landfall in their neighborhoods in short order. Midwesterners have dealt with numerous tornadoes in a single summer. West coast residents have encountered the wet and windy effects of “El Niño” multiple times in one year.
Home insurers have suffered from the effects of plentiful natural disasters in the past decade. It has not been an enjoyable experience for homeowners or insurance companies. The floods in New England and the Mid-Atlantic states in 2010, eclipsing weather records of the past 50 years, have reinforced the perception that natural disasters are increasing.
When you compare insurance quotes and coverage, you may note some differences, most of which are unwelcome. If you compare insurance rates, you should see only minor differences. However, home insurance quotes often include some troubling coverage and terms changes.
Home insurance coverage limitations and exclusions
Classic exclusions in home insurance coverage unrelated to recent natural disasters, including acts of war, earthquakes, nuclear hazards, and intentional losses have been expanded because of the plethora of natural disasters in the past decade.
Flood damage, once a component of home insurance coverage, is replaced by federal flood insurance. Those of you who have received a mortgage loan in the past decade have either purchased or been exempt from purchasing flood insurance. Those homeowners with property outside of a mapped “flood plain” have the option of purchasing federal flood insurance, but it’s not a requirement.
Other forms of water damage are often no longer covered. For example, the classic wind-driven rain, usually the result of severe thunderstorms, hurricanes, or cyclones, is typically still covered. However, water that “seeps through” foundations and damages your possessions is often not a covered event.
Therefore, while lightning storm damage should be covered, water that “seeps” into your home may be excluded. Flood insurance typically fills many odd gaps if the homeowner has this coverage.
What have homeowners and insurers learned?
Increasing natural disasters have influenced home insurers in two primary areas. One area is extent of coverage. For example, in the wake of the Katrina disaster, some major companies placed a moratorium on writing new homeowner’s policies in the area and around the U.S. for a short while.
During this period, insurance quotes and home insurance rates were available, but people could not activate coverage. While an unusual action, it displays how severe the potential losses became.
In other cases, some companies excluded additional disaster-related coverage, either temporarily or permanently. For example, some insurance companies began closer enforcement of the typical exclusion of losses caused by bad workmanship, faulty repair, poor construction materials, or defective maintenance. If proven, some companies would deny claims.
The other primary change is increased minimum deductibles. Most insurers have raised deductibles (sometimes along with premiums) significantly. In these cases, homeowners have no choice but to accept the changes or seek out other insurance companies with better terms. While this change is most prevalent for properties on both U.S. coasts, the heavy rains, floods, and tornado frequency in recent years has generated minimum deductible increases in many Midwestern states as well.
Homeowners have learned that some insurers will employ coverage, premium, and deductible increases even if the source reason, natural disasters, did not affect property owners directly.
For example, the Northeast has not suffered serious damage from a tropical storm in years. However, many insurance companies applied increased deductibles to these properties because of heavy casualty losses in other parts of the country. Small business insurance rates and coverage was also negatively affected nationwide.
Unlike most auto insurance rates, which typically reflect loss ratios in individual states (and sometimes specific zip codes), homeowner’s provisions have often been changed for properties unaffected by the many recent natural disasters.
In many cases, business insurance rates, life insurance rates, and auto insurance rates all reflect some fallout from insurer payouts from natural disasters. Therefore, people must either accept these changes as inevitable or diligently search for other insurers, who may have suffered fewer losses and maintained coverages and rates as before.