One Year Later: E&O Lessons Learned from Hurricane Ian

Hurricane Ian: A WAKE-UP CALL FOR INSURANCE AGENTS

On September 28, 2022, at roughly 8:35 p.m. ET, the center of Hurricane Ian’s eye made landfall near Cayo Costa, Florida, as a Category 4 storm. The storm caused catastrophic storm surge, damaging winds, and recordbreaking flooding across much of central and northern Florida and was responsible for more than 150 deaths.

The storm also caused OVER $112 BILLION (and counting) in damage,

making it the costliest hurricane in Florida’s history and the third-costliest in United States history. According to the National Hurricane Center, in Fort Myers Beach alone, an estimated 900 structures were destroyed, and 2,200 were damaged, and in Lee County, at least 52,514 structures were impacted, of which 5,369 were destroyed and 14,245 sustained major damage

As is the case in the aftermath of any storm, consumers filed claims for their Ian-related damages, and agents, as is sometimes necessary, submitted E&O claims. FAIA, in partnership with Swiss Re Corporate Solutions, reviewed E&O claims data related specifically to Hurricane Ian to identify key takeaways that may inform agents during future significant storms.

6 THINGS AGENTS NEED TO WATCH FOR

As agents are forced to adapt to a troubled market, it’s more important now than ever that agencies stay diligent not only when working with clients, but also when considering how best to protect their businesses from expensive claims. Avoiding claims starts with regularly checking in to ensure your bases are covered. We’ve put together some questions to help get you started:

1. Are you documenting all of your agency’s quotes and conversations?

2. Have you looked at your clients’ policy limits lately?

3. Have you gone back and reviewed files to make sure the re-writes didn’t leave any gaps in coverage that weren’t communicated?

4. Are you accurately accounting for changes like non-renewals and cancellations?

5. Do you have clear documentation of what’s happening with all your clients’ policies at any given time?

6. Have you looked at your own agency’s E&O limits to account for social inflation?

An analysis of the data shows that Hurricane Ian differs from other high-damage storms in recent years, particularly in terms of E&O claims.

In 2017 and 2018, Hurricanes Irma and Michael caused tens of billions in damages and primarily generated homeowners losses. Though HO losses are also Ian’s primary loss driver, this storm has produced more commercial property, wind, and auto claims than its predecessors.

SUPPORTING DATA

While Ian hasn’t yet produced the most E&O claims of any named storm in Florida, the dollar amount and severity of the losses are over $1 million higher due to more concentrated areas with highervalue properties.

E&O Claims Ian Irma Michael

of claims stemmed largely from mistakes by agents, like forgetting to renew a homeowners policy or failure to procure flood coverage in a timely manner. The second wave of claims mostly involves discrepancies in coverage and carrier denials. Data suggests the market is still riding out the tides of the second wave but based on the trends, we anticipate a third wave tied to under-valuation discrepancies is on its way.

...agents have had to rewrite more than 1 MILLION policies...

Allegations

Claimant alleges that the insured agency failed to replace a canceled wind policy prior to Hurricane Ian. (The carrier was exiting the market.) Neither the former nor the current property manager requested a replacement quote.

Failure to timely procure flood coverage for a multi-unit condo building when the existing carrier exited the market.

Insured is alleged to have failed to procure a 2nd flood policy for a 2nd building at the customer’s property and increased the wind deductible to 10% from the prior wind policy that had a 5% deductible.

The property carrier for a condo association non-renewed effective December 2021. The agent did not get any replacement quotes. Claimant received a nonrenewal notice, but apparently did not contact the agency after receipt.

Claimant’s HO policy was canceled in late spring. Insured was notified that underwriting guidelines were not met. Insured provided proof of compliance to the carrier, which denies receiving it.

Insured agency is alleged to have failed to provide an accurate ACV coverage limit for an RV damaged in Hurricane Ian. The allegation is that, when claimant bought a new RV, the policy was not updated with the ACV of the new(er) vehicle.

Citizens non-renewed claimant’s HO policy in August 2022. Claimant was replacing the roof, so Insured could not get coverage replaced until the roof was completed. That notification was not received before Ian hit.

Claimant’s wind policy was canceled. A replacement quote was obtained a month prior to Hurricane Ian, but never presented to the customer.

HO policy was canceled and Insured agency was notified, but no action was taken.

Here is a snapshot of some of the most common allegations that have cropped up in the aftermath of Ian.

Agencies facing claims after hurricanes are often alleged to have either failed in replacing coverage in a timely manner or when the current carrier non-renews the claimant, cancels the claimant, and/or exits the market entirely. Failure to call attention to a change in deductible, whether from a stated dollar amount to a percentage or from a lower to a higher percentage, is a common allegation with hurricane claims as well.

Condos also seem to be disproportionately represented among claimants, who have commonly experienced turnover in their property manager roles. Turnover in client offices means it’s even more crucial to have meticulous documentation, especially when the person the agent spoke to is no longer there.

Looking ahead to the future, data suggests claims for failure to provide accurate/sufficient limits due to under-valuation discrepancies related to Hurricane Ian may become more common as both economic and social inflation balloon the cost of insurance claims.

www.faia.com/memberservices