Seeking answers for insurance crisis left in Milton, Helene’s wake

As the cleanup continues from hurricanes Milton and Helene – one of the most devastating series of hurricanes to ever hit the U.S. East Coast – and predictions of more frequent and stronger storms continue, insurers, academics, and environmentalists are hoping states and municipalities finally get serious about the insurance crisis left in their wake. Otherwise, they say, insurance companies will have no choice but to raise rates to unaffordable levels or abandon markets entirely.

Some of the keys to minimizing the insurance crisis plaguing high-risk areas like Florida, the Gulf Coast, and other regions could lie with such mundane things as zoning boards, building codes, and architectural designs.

“There has to be a give, and that give has to be about building standards and more resilient infrastructure,” said Andrew Hoffman, the Holcim Professor of Sustainable Enterprise at the University of Michigan. “We have to change how we build. The real estate sector moves so slowly, particularly in the home building area. Almost everything we build is stick frame, which is dumb because it not the most solid or strong construction technique, especially if you don’t use proper bracing to hold down the roof and walls.”

Speaking at a seminar this week sponsored by The Conversation, an online nonprofit news journal, Hoffman said the homeowners insurance market is going to get increasingly expensive, assuming residents can even find an insurer willing to write them a policy, due the insurance crisis.

“The real estate industry has been holding back progress,” he said. “Now they need to start to be more proactive and push it forward.”

Changes in home design, utility lines needed

Changes in home design as well as a push to move more utility lines underground could significantly limit the damage caused by hurricanes. By Thursday, hurricane Milton had knocked out power to more than 3 million customers, flooded barrier islands, and tore the roofs off hundreds of buildings.

Not only are storms becoming dangerously stronger, but they are also hitting more populous areas. Before Milton hit, Moody’s said about 235,000 commercial properties were in the direct path of the storm and estimated the value of the potentially exposed properties at $1.1 trillion. While the final damage estimates are still being tallied and are expected to come in far lower, Moody’s said its figures provide a sense of the scope of the real estate value in the storm’s path, which included multifamily homes and apartments, offices, industrial buildings, hotels, and retail establishments.

Experts said the unquestionable evidence of changing weather patterns, as well as the increasing frequency of damaging storms everywhere, will likely cause insurers to be even more demanding for building code changes and architectural upgrades, as the crisis worsens.

“Many of us in the industry would agree that we can really use the help of the zoning boards in terms of where people can build and with what type of materials,” said Lanie Raphael, president at B. F. Saul Insurance, in Bethesda, Maryland. “Many insurance carriers already have specific guidelines for properties along the coast and they won't insure homes that are within a certain distance to the coast or a certain number of years old.”

'Non-admitted market' has role to play

Raphael also expects to see more insurance carriers turn to what is called the “non-admitted market,” the largely unregulated surplus lines that allow for specific individual premium calculations. Doing so may help stabilize markets where carriers have determined are too risky to insure in the usual fashion.

“We call it flexibility of rate and form,” she said. “They can determine the rate that they want and can change the insurance contract. So, they might be able to put an exclusion on there for wind coverage, or they may limit the amount of roof damage that you can have. And so, it helps the insurance company control some of their costs. It may be considered non-traditional insurance, but I think that's where most of the market on the coast is definitively headed.”

Rather than risk being uninsured, Raphael said, many homeowners will investigate whether they can get a quote from a non-admitted carrier.

“Many insurers have wised up and said, ‘well, let's not miss the boat, let's open up our own non-admitted insurance carrier,’” she said.

In the face of the insurance crisis, Raphael and others also stress that consumers need to better educate themselves about the details of their insurance policies, what they need, what’s covered, and what’s not.

“Aside from knowing your insurance policy, what the fine print is, and knowing your risks, there is also knowledge about what you can do as a homeowner or as a renter practically in that property that you live in to reduce your risk,” said Melanie Gall,  an assistant professor in the Arizona State University School of Public Affairs where she co-directs the Center for Emergency Management and Homeland Security. “Do I have the right type of roof on my house for the environment that I live in, for example. Because very often it's not necessarily something that we think about. So, I think if people could educate themselves more about what actions they can take, aside from evacuation and putting up sandbags, what can I do physically to my home, I think that also would be tremendously beneficial.”

Consumers often don’t realize they are not covered for flood damage with a traditional homeowner’s policy and find out too late that it had to have been purchased separately.

“If you’re buying your policy online, there’s no window that pops up to remind you you’re not covered for flood damage,” said Raphael.

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].