The cost of nature’s wrath: 3 potential changes to insurance policies stemming from recent natural disasters

The cost of nature’s wrath: 3 potential changes to insurance policies stemming from recent natural disasters

On May 8, 2017, a record-breaking hail storm slammed tennis ball-sized hail onto Denver residents during the busy rush hour, resulting in $1.4 billion in damages. It was the state’s most expensive natural catastrophe in history. In August and September, hurricanes Harvey and Irma battered Texas and Florida with unprecedented rain and flooding, inflicting up to $200 billion in damages – a number that’s still on the rise. And these are just a few of the ways that Mother Nature’s fury has plagued Americans in 2017. If it seems as though there are more catastrophic weather events now than ever, you’re right. Since 1970, the amount of natural disasters has quadrupled worldwide. And when these storms strike, insurance claims soar. As a result, changes may be coming to the way insurance companies cover hail and flood claims, even affecting people who weren’t victims of a recent event. Here are three changes you may see to homeowners insurance policies in the future:

Changes to add-on coverage

Colorado’s Front Range is located in the center of “Hail Alley,” which receives the highest frequency of large hail in North America. But as large hail events become even more common and extreme, Coloradans may find that this form of nature’s wrath is no longer included in a standard homeowners insurance policy. Like flood insurance, homeowners may be required to buy hail coverage as an add-on policy, instead. This trend could also spread to other parts of the country for frequent climate-related events, depending on regional weather history.

The long-term effects of this year’s hurricanes, particularly Harvey’s ravaging floods, won’t be known for quite a while. But we do know that much of southeast Texas was not included in FEMA-mapped high-risk flood zones. And only around 1 in 5 homes damaged by hurricane Harvey’s flood waters were covered by flood insurance. And many of the 100,000 flood claims that were filed under the beleaguered National Flood Insurance Program (NFIP) didn’t sufficiently cover repair or replacement costs. So it’s possible that Houston’s historic flood event will spur Congress to enact overdue reform on the National Flood Insurance Program as a whole, including updating FEMA flood-zone maps. In the future, flood insurance may not only be required in high-hazard flood areas, but also on properties well outside of 100-year flood zones. Reforms may also include allowing private insurers to provide more flood coverage, easing the burden placed on the NFIP.

Stricter rules on claims

Insurers may begin shifting costs to consumers by placing stricter rules on how claims are paid after a storm. For example, some Colorado homeowners insurance policies already impose a 1% deductible for hail damage. This means that if a home is worth $400,000, the owner must pay $4,000 out-of-pocket towards hail-damaged roof repair or replacement. Insurance companies may also begin settling roof claims on an actual cash value or depreciating-value basis. If this trend continues, more Colorado homeowners may only receive a percentage of the cost to replace their roof after future hailstorms.

Higher premiums

In the past year, insurance companies have paid out billions of dollars to repair or replace damaged property caused by natural disasters. It makes sense for insurers to increase future premiums to offset the costs, especially in the hardest-hit areas. In fact, Colorado’s devastating year-after-year hail events could spell significant percentage increases in homeowner’s insurance renewal premiums next year. And while it’s too early to predict the effects of hurricanes Harvey and Irma, insurance rates will likely increase in Texas and Florida. But even customers in neighboring states could see a hike in premiums since some insurers calculate rates regionally.

As costly natural disasters increase across the country, many could see changes to their homeowners insurance policies. Colorado’s latest hailstorm and hurricanes Harvey and Irma could be the confirmation the insurance industry needs to make sweeping reforms across the board.

Whether it’s hail, water, or wind, Mother Nature can wreak havoc on your property. Our specialized team of insurance professionals stay on top of every change in the industry, so you don’t have to. Let us analyze your association’s risk exposure and recommend the coverage solution that is right for you, so you aren’t caught paying the price.

Call us today to begin your insurance review!