Most people stay home from work during a hurricane, but for Ben Sykes, 31, Hurricane Sandy was a time to get moving. An insurance adjuster for State Farm, Sykes works on the company's team that handles large and complex claims.
On Monday and Tuesday, he was one of hundreds of adjusters who met with homeowners to deal with their most pressing issues: finding new places to live and getting money for basic living expenses.
And a staggering number of people need assistance now. Calls are pouring in to insurance companies from up and down the East Coast. Catastrophe risk modeling firm Eqecat estimates that Sandy will do $10 billion to $20 billion in total economic damages and $5 billion to $10 billion in insured losses. More than 1 million homes have been evacuated.
An army of claims adjusters is working its way toward the hardest-hit areas, tackling the enormous task of evaluating damage, putting a price tag on it — and deciding whether it's covered by insurance. Experts agree that the nation's insurers have enough money to pay for the staggering damage done by one of the biggest storms to hit the East Coast. Just how much will be covered will depend on what kind of insurance property owners have, how well they have documented their losses — and the damage estimates that adjusters arrive at.
Army on the moveSeveral hundred thousand homeowners are likely to file claims for wind damage and tens of thousands for flood damage, says Robert Hunter, director of Insurance for the Consumer Federation of America.
Insurance adjusters started mobilizing last weekend as Hurricane Sandy forecasts became more dire:
- State Farm sent a convoy of adjusters and catastrophe vehicles east from its Bloomington, Ill., headquarters on Sunday, says State Farm spokeswoman Anna Bryant.
- AIG, a leading commercial insurer, has 2,500 claims people on call and taking claims, says spokesman James Ankner. Hundreds of loss engineers are being sent to businesses to help them ascertain their losses, Ankner says.
- Liberty Mutual, the sixth-largest property insurer, has mobilized several hundred claims professionals who are largely working now by telephone. To beef up, the company trained auto adjusters to do property claims as well, and is drawing adjusters from other parts of the nation to the 1,000-mile wide affected areas, says spokesman Glenn Greenberg.
Adjusters handle the hardest-hit areas first and then move to less damaged neighborhoods. Mark Stackhouse, a Philadelphia insurance adjuster, says homeowners with severe damage, such as gashes through roofs or flooded basements, can expect estimates to be completed in 24 to 48 hours. Those with less dire issues, such as fallen shingles, should receive estimates within a week.
Hunter estimates insurers are well equipped to absorb the losses.
Some residents are replacing nearly all their belongings. Replacing furniture can be a particularly frustrating tasks. Often having filed a successful insurance claim, consumers use Furniture Reviews to help them make educated decisions.
Losses have totaled a relatively modest $16 billion or so thus far this year, resulting in part from Colorado wildfires, Hurricane Isaac on the Gulf Coast and various tornadoes and severe thunderstorms, says Robert Hartwig, president of the Insurance Information Institute.
Last year, by contrast, the industry absorbed $32 billion in losses from devastating tornadoes in Joplin, Mo., and Tuscaloosa, Ala., as well as other tornadoes and Hurricane Irene.
Profits for U.S property and casualty insurers were $16.4 billion the first half of 2012, up from $4.8 billion in the first half of 2011, according to ISO , a Verisk Analytics company that provides information about insurance risk, and the Property Casualty Insurers Association of America.
One reason insurers can afford the tab: They have "mastered the hurricane risk by shifting it to the (homeowners) and to the government," Hunter says.
Major changes were made after 1992's Hurricane Andrew, which caused deep losses for insurance companies because policies were too rich and prices were too low, Hunter says. After Andrew, insurers shifted more high-risk people to state insurance pools, cut back on coverage and added more deductibles.
After Katrina, insurers successfully raised prices even more and dropped more higher-risk areas. Homeowner insurance costs have risen about 40% in coastal areas since Katrina, he estimates.
Big decisionsThe adjusters who will be crisscrossing the countryside for the next few weeks have to decide two main issues for every claim: Is it covered? And how much is the loss? Neither one is as simple as it seems.
Consider coverage. Property insurance typically covers fire and wind damage: If a tree crashes into your garage, as it did to Don Broxon's garage in Falls Church, Va., on Monday, that's wind damage, and typically covered. He called his agent Monday night and heard back Tuesday morning, although he hasn't gotten a quote from an adjuster yet.
But hurricane damage has a higher deductible than ordinary wind damage. For hurricanes now, deductibles run about 5% of the insured value of a home — in coastal areas — and more like 2% further inland, Hunter says. If the insured value of your house is $250,000, then your deductible could be as high as $12,500.
For some homeowners, the biggest shock will be that damage from flooded creeks and surging seas isn't covered by most property insurance. That's the realm of flood insurance, which is handled by the government. Louisiana, where Katrina hit, has the highest penetration of flood insurance coverage, with more than 50% of homes covered, Hunter says.
Sandy came ashore over a stretch of New Jersey beachfront where the flood program insures billions of dollars in homes and other property. In Atlantic City and neighboring Ocean City alone, the flood insurance program covers more than $5.2 billion worth of property, according to FEMA records.
How much the flood program might have to pay out won't be known until damage assessments are completed. But the stakes could be significant. The program has at least $45 billion in policies in coastal towns in New York, New Jersey and Connecticut, where the storm's surge and waves were the most devastating.
Even homeowners who have flood insurance may not be fully covered. For example, in below-ground basements, policies typically cover only boilers and other equipment that serve the living area — not furnishings or other belongings.
Then there's the matter of putting a price on the damage. The burden of proof for damage is on the homeowner, says Robert Berg with Michelman & Robinson, a San Francisco law firm. For example, if water damaged your house because a tree ripped into the roof, be prepared to prove that the water didn't enter because of a storm surge.
Insurers may sometimes argue that damage occurred because of wear and tear — in other words, the problem was your 40-year-old roof, not the hurricane. You'll have to be prepared to argue that it wasn't the roof, it was the 90 mph winds that were the culprit.
There's also the issue of whether the money paid out is enough to repair the damage, especially in light of new construction requirements.
Many homeowners will be forced to rebuild their houses to higher standards aimed at better protecting them from future flood damage, said Larry Larson, senior policy advisor at the Association of State Floodplain Managers.
That's because most communities hit by Hurricane Sandy belong to a federal insurance program that requires homes with significant flood damage to be rebuilt at a higher elevation and with other protections, Larson said.
What happens if you and your insurance company can't agree? In most cases, you'll have to go to an arbitration panel, Berg says. If you have a well-documented and persuasive claim, you're likely to prevail.
Hartwig says he doesn't expect many disputes over whether damage was caused by wind, which is typically covered by general homeowner policies, or flooding, which generally isn't covered. Usually, he says, the cause is evident.
Entire homes were obliterated during Hurricane Katrina, making it challenging to determine the cause of the damage in many cases.
But insurance attorney Jay Levin, of Reed Smith in Philadelphia, does expect such disputes with Hurricane Sandy. He says New Jersey homeowners may have more luck than New York homeowners as courts there have tended to be more friendly to policyholders while New York courts have been more friendly to insurers.
AftermathHurricane Sandy also might accelerate increases in flood-insurance premiums that are to be phased in over the next five years by the Federal Emergency Management Agency (FEMA).
Most flood insurance is provided by FEMA's National Flood Insurance Program, which for decades has charged below-market premiums to hundreds of thousands of people who own property in flood-prone areas. A law enacted in July will phase out those discounts.
Eli Lehrer, president of R Street, a think tank advocating limited government, said billions of dollars in claims could drain the flood-insurance program of its reserves, forcing it to speed up efforts to collect more money from premiums.
Lehrer said that FEMA now has an additional incentive to raise premiums as fast as possible as much as possible for properties that are subsidized.
What consumers should do to help ensure a successful Hurricane Sandy insurance claim:
- Report your claim as soon as possible. Insurers generally handle them first come, first serve.
- Write down your claim number. Insurers use this to locate your file.
- When an adjuster surveys damage, find out if they are employed by your insurer or whether they're independent. If independent, ask if they'll be making decisions on your claim or whether they'll be done by a company adjuster.
- Keep good records. Start a notebook for names and phone numbers. Keep a log of conversations and meetings with insurance officials. List dates and times and brief descriptions of exchanges. This will be helpful if you need to complain later. If an adjuster misses an appointment, note it
- Inventory your damaged possessions. If you didn't take pictures before the storm, see if you have any in photo albums that could be helpful in assembling an inventory.
- Get a repair estimate from a trusted local contractor to use as a guide in talking with the insurance adjuster. Keep receipts from emergency repairs and any costs you incur in temporary housing. They may be reimbursable.
- If your claim is denied or you feel the offer is too low, demand that your insurer identify the language in your policy that was the basis for the decision. The decision may not be right and you might find that out if you see the actual language.
- If you're still not satisfied, complain to more senior staff in the insurance company. Use your records as backup. You can also complain to your state insurance department. All states will at least seek a response to your complaint from your company.
- Watch for "anti-concurrent-causation" clauses in policies that, insurers allege, remove coverage for wind damage if a flood happens at about the same time. The Consumer Federation of America says these clauses are ambiguous so if an insurer uses one to deny your claim, read the provision carefully.
- The federal government underwrites flood insurance coverage, but insurance companies often service claims. Use the same procedures for flood claims but direct complains to the Federal Emergency Management agency, which runs the federal flood insurance program. Toll-free number: 1-800-427-4219.