When Natural Disasters Strike | Wolters Kluwer Financial Services
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  • When Natural Disasters Strike

    Sheila Coolidge

    by Sheila Coolidge, Senior Insurance Compliance Analyst, Insurance Compliance Solutions

    Published June 07, 2013

    Tornadoes, tropical storms, wildfires and floods have all been in the news as we begin Summer 2013. Like Joplin in the spring of 2012, Moore and El Reno have become synonyms for tragedy. We cannot stop the seasonal cycle of severe weather but, as the Oklahoma Insurance Department has recently demonstrated, regulators can issue emergency guidance governing insurers’ treatment of affected policyholders. When a natural disaster occurs, property and casualty insurers must be ready to respond to regulatory expectations and implement disaster response preparation plans immediately.

    When extreme weather hits, insurance regulators in the affected state(s) generally issue temporary emergency guidance to insurers. Immediate emergency guidance is focused on consumer protection for those policyholders in the affected area. It may encompass temporary public adjuster licensing, restrictions on policy terminations and premium increases designed to keep current coverages in place and simplified claims processing. The regulator’s goal following a natural disaster is to provide guidance that ensures fair and timely help for consumers who have suffered losses and financial hardship. Anything less could be considered an unfair business practice.

    In the case of Superstorm Sandy, estimated to have caused $18.75 billion in damages primarily along the densely populated New York and New Jersey coasts, an extended series of orders suspended many laws for months in an all–out effort to help millions of consumers recover their losses and resume normal living. Additionally, for several months after Sandy hit, NY and NJ enacted mandatory claims settlement practices and mediation procedures for property damage claims that remained in effect for several months. Additionally, policy cancellations and premium increases were not permitted in specified counties hit hardest by the storm. Due to the scope of the disaster and extended recovery period, the NY DFS clarified its expectations for insurer treatment of storm victims. Insurers are required to provide policyholders with clear disclosure, including toll-free numbers to call, about available premium payment plans. Although insurers are not expected to forego premiums due forever, the clear expectation is to permit consumers the utmost flexibility to keep coverage in place while working out alternative payment plans.

    Underwriting requirements are often enacted in response to, or in anticipation of, natural disasters. Recent legislative and regulatory activity includes:

    • New Jersey has enacted new homeowners’ policy disclosure laws that are effective August 4, 2013. Upon homeowners policy issuance or renewal, insurers must provide “a consumer information brochure written in a simple, clear, understandable, and easily readable way” which explains the insurer’s hurricane deductible program, if any, and includes required information on flood insurance and any notable policy exclusions.
    • Mississippi requires all homeowners’ policy rate and form filings to provide required mitigation premium discounts and/or rate adjustments effective July 1, 2013. These adjustments for construction designed to resist and reduce loss due to hurricane or other catastrophic windstorm events, must be available to insureds building or locating new or retrofitted insurable property in specified counties.
    • Maine has enacted a new statute that will require insurers that use a hurricane deductible program to adhere to uniform policy standards regarding the applicability of hurricane deductibles. This law is projected to become effective on or about September 19, 2013, or 90 days following the legislature’s adjournment.
    • Rhode Island has issued proposed amendments to Regulation 110 covering Property Insurance and Weather Related Claims.
    • New York’s proposed SB 5664 would create a civil remedy for a policyholder to seek damages based on the “proving by a preponderance of the evidence that such insurer’s refusal to pay or unreasonable delay in payment to the policyholder of amounts claimed to be due under a policy was not substantially justified,” that has widespread potential application for policyholder/disaster victims. The proposed new insurance code section 2601-a includes a list of potential situations in which an insurer would not be substantially justified in either its refusal to pay or in unreasonably delaying payment, that include the insurer’s failure to:
      • provide the policyholder with accurate information concerning policy provisions relating to the coverage at issue
      • effectuate in good faith a prompt, fair, and equitable settlement of a claim submitted by such policyholder in which liability of such insurer to such policyholder was reasonably clear.

    As this post was published, we noted that the NY DFS uploaded Circular Letters Nos. 2, 3, and 4 to its website addressed to property & casualty, health and accident and life insurers on the timely topic of disaster planning, preparation and post-disater reporting.

    Although everyone hopes that activation will not become necessary, insurance organizations must be prepared to activate disaster response preparation plans and utilize all appropriate resources to secure operations and provide timely assistance to insureds in a widespread emergency.

    Editor’s Recommendation: Stay up to date with regulatory guidance and underwriting requirements with NILS INsource.

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