02
Aug
2018

Property Insurance Allocation When Storms Strike Back-to-Back

Risk Management Magazine

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PUBLISHED ON: August 2, 2018

The 2017 hurricane season was extraordinary not only in the extent of damage wrought by each storm, but also in the one-two punch suffered by various areas as major storms hit in rapid succession. This year may follow suit, with the National Oceanic and Atmospheric Administration forecasting 10-16 named tropical storms. That raises the question of how to allocate property damage and business income losses when more than one storm (or occurrence) causes loss and damage.

Hurricanes Harvey, Irma, Jose, Maria and other named storms of 2017 are estimated to have caused approximately $200 billion in damage. Unique to last year’s hurricane season were the geographic concentration and frequency of some of the most severe storms, particularly Hurricanes Irma and Maria. Hurricane Irma wreaked havoc on the Leeward Islands of the Caribbean, starting with the Virgin Islands east of Puerto Rico and reaching southeast to Dominica, before making landfall in the Florida Keys on September 10, 2017. Shortly thereafter, Hurricane Maria destroyed vital infrastructure and numerous homes in this same region, coming ashore in Puerto Rico on September 20, 2017. For policyholders in the path of both storms, the thorny allocation questions loom large as they navigate the insurance claims process.

Indeed, many buildings that were damaged, but not totally destroyed by Hurricane Irma, were then battered a second time by the high winds and torrential rains of Hurricane Maria. Correctly allocating the losses caused by those two separate occurrences is important in two scenarios: 1) if the policyholder has insufficient per occurrence limits to cover its entire loss, and therefore needs to take full advantage of a second limit available for Hurricane Maria, or 2) if there are sufficient per occurrence limits but there is a large per occurrence deductible that could eat into the available coverage if each storm is assigned a significant amount of loss. Of course, in each of those scenarios the policyholder and its insurance companies have contrary interests, which may make it particularly difficult to reach a consensus on how to allocate the loss.

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