In 2017, massive flooding from Hurricane Harvey generated some $19 billion in insurance claims. The series of winter storms that swept through Texas in February are expected to surpass that, becoming the costliest in state history and possibly the largest insurance claim event ever in the Lone Star State.
The Insurance Council of Texas expects hundreds of thousands of claims due to the widespread geographic area ravaged by the storm. Unlike a concentrated area damaged by a tornado or hurricane, these storms and frigid temperatures covered the majority of the state for more than a week.
The uncommon Texas deep freeze caused power blackouts, burst pipes and water damage to hundreds of thousands of homes and businesses—not to mention the unusually slick roads and highways that caused massive pile-ups and auto accidents.
“We expect insured losses for U.S. P&C [property and casualty] insurers to total in the billions of dollars, with claims from homeowners, commercial property and auto lines of business,” according to commentary by Moody’s Investors Services.
Business owners are sorting through the damage, from frozen pipes and water damage behind walls to rolling power outages interrupting their ability to serve customers as usual.
Kathy DeGrandchamp, risk management consultant with BOK Financial Insurance, Inc., has fielded a variety of questions from business owners about how to move forward after storm damage.
“One of the biggest challenges is that businesses—and homeowners alike—will often encounter the exact same circumstance as their neighbor, but with different insurance companies, they will have a completely different experience and response to what their policy covers,” she said.
Because each situation is unique, there are no catch-all answers, but DeGrandchamp offered four tips for business owners trying to pick up the pieces.
1. Understand it will take a while.
The extent and broad nature of this storm means it will take a long time for insurance companies to make their way through all of the claims.
“In addition, I expect one of the biggest challenges in this situation will be finding people to make the needed repairs,” she said. “There will be significant strain on contractors needed to help rebuild across the state.”
2. Get organized.
Photograph all damage and record detailed information about issues when you discover them. If you can find someone to do the work, contact your adjuster before you begin to make the repairs. Be sure you aren’t starting work until you know what documentation the insurance company is going to need to pay your claim. Get estimates for all work in writing and keep copies of all receipts.
“With the scale of this event, insurance companies may be more reliant on business and property owners to document their damage. It may take a while for adjusters to work through loss settlements if it’s hard to get to the property due to pandemic-related travel limitations or other restrictions,” she said.
3. Don’t try to go it alone.
DeGrandchamp recommends sitting down with your broker to walk through your policy and understand what’s covered and what’s not. “Every element of a policy could have nuances, and it’s important to understand those contingencies as you navigate this process.”
4. Consider upgrades when making repairs.
When working through a loss and looking ahead, she recommends considering opportunities to implement measures to prevent future loss. For example, could you install generators, water detection devices or back-up batteries to help mitigate future loss? Insurance may not pay for the cost of the upgrades, but simple loss-prevention measures may save you money or losses down the road.
In that process, be sure to document the upgrades and share those with your broker right away to ensure you have an accurate valuation on your policies for adequate coverage in the future. In addition, she suggests business owners be prepared to tell your story to the underwriter to get the most favorable terms on your insurance policy renewal.
Business Interruption
One of the common elements of a business insurance policy is business interruption insurance. Business interruption insurance and related coverages will apply differently from carrier to carrier. As always, there are many factors that determine if a policy covers claims related to these storms.
Consider these scenarios:
- Is there direct damage to your business (i.e., a broken pipe that caused water damage or a tree that fell on your business)? Most insurance policies require direct physical damage before they will pay business interruption coverage.
- If utility outages impacted your locations, did it cause direct damage to your business due to service interruption (i.e., equipment failure, spoiled food/medication/materials, exploded emergency sprinklers, etc.)? If so, your business may have coverage under policy coverage extensions.
- Loss of utility service as a result of rolling brown-outs may prove tricky in the claim settlement process. If the rolling brown-outs were a result of choices made by the service provider, your loss of service may not be covered under the business interruption provision of your policy.
- Extra expense may come into play if you (the policyholder) incur additional costs in order to resume normal business operations. Again, keep track of all of your expenses and save your receipts.
- Is a utility provider considered a vendor through your insurance policy? Definitions in your policy have a direct impact on how coverage applies.
- Did you suffer enough damage to your building or property that you are now subject to building ordinance changes? If so, additional coverage from your policy may apply.
- See more common terms and situations here.
In addition, for businesses that suffered interruption losses as a result of the storms, loss valuation may prove more challenging than in the past. The pandemic changed revenue flow for a lot of businesses. Business owners might not be able to look at year-over-year profits or monthly or quarterly trends because changes in business operations as a result of COVID-19 changed the reliability of that information.
“This situation is going to be a game-changer for the insurance industry,” DeGrandchamp said. “In a hard cycle like we are in now, big catastrophic claims like this are not going to direct us toward relief anytime soon. But, knowing how to advocate for yourself and be proactive will work in your favor.”
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