Tropical storms and hurricanes can cause severe damage to properties in coastal locations. According to the NOAA Office for Coastal Management, the average hurricane costs $22.8 billion in damages. So, knowing how to properly insure hurricane-prone locations can be challenging.
To explain coverages for coastal locations and how they work together, we brought return guest, Casey Carter. Casey is the VP of Business Operations and has over 8 years of industry experience. Welcome back!
What are the unique challenges associated with insuring coastal properties?
Coastal properties are unique because, like you said, there is an extreme chance that you’re going to see damage from hurricanes or named storms- they’re kind of one and the same, depending on which company you’re working with. Flooding damage is also going to be much greater the closer you get to the coast. The ocean is a big body of water and that water coming in towards your property is going to cause damage. So, hurricanes, named storms, and flood damage, are all a much greater risk when you get towards the coast.
How do investors with properties on the coast ensure that they have proper coverage for hurricanes?
Depending on what company you’re working with, they again could have a different name for hurricane coverage. So, you want to make sure that you have a keen eye on your policy and are most importantly asking your agent, “Do I have coverage for this?” With NREIG, for example, we have Named Storm coverage. It’s for any storm given a name by the National Weather Service, which could be tropical depression, tropical storm, cyclone, hurricane, or any of the sort. You have other companies that are just going to straight up call it Hurricane Insurance. So, you want to make sure that that coverage is stated or endorsed in the policy itself. If you don’t already, it could come with a separate wind and hail deductible or it could be the same as your current deductible. Either way, you want to absolutely make sure you have coverage for hurricanes if you are living along the coast.
Again, you’re also going to be at a higher risk for a flood. So, make sure that you have coverage for floods, which is going to be any rising water from a natural source. If it rains so much that that water starts to pile up from the ground – that’s going to be flood damage.
So, Flood is a completely different coverage from Named Storm coverage?
That is correct. They will be two separate policies. If you live along the coast, your agent should be giving you quotes for both of those coverages.
We see insurance companies have exclusions regarding locations in different tiers along the coast. What is a tier?
Tiers are classifications used to define coastal areas and determine the risk of a tropical storm or hurricane. You want to make sure that you understand how the company you are with defines this. I sound like a broken record, but your agent is going to be the best person that can explain those things to you.
Tiers can be classified by distance from the coast, or they can be classified by different counties. Here at NREIG, we like to make it very clear-cut. We have determined which counties are going to be Tier 1 and Tier 2. Then, anything more inland is going to be Tier 3. With us, Tier 3 locations automatically include Named Storm coverage.
With Tier 1 and Tier 2 properties, you have the option to include coverage. Some investors may think they really don’t need Named Storm coverage because they’ve owned these properties for 25 years and no named storm or hurricane has ever hit and it’s not going to. That’s the investor’s decision to take on that risk, and if you’re in those tiered locations, you can choose and say, “I don’t want that coverage.” Many times, you’re going to see your premium drop because of that. You just have to know, as an investor, that you’re taking on that risk.
How do investors know what tier their property is in?
The best way to figure that out is to contact your agent or ask them for a map. Each state may have different appetite guides and policy restrictions.
If you have a policy that excludes name storm or hurricane coverage, is there a way to add that coverage back on?
Yeah, absolutely. Asking your agent for that coverage is going to be your best route. They may have to shop your policy in order to find that coverage for you or possibly just endorse it on to the policy you currently have.
But specifically, with NREG, it’s as simple as giving us a call and asking for the coverage to be added to your property. Now, once you do that, you need to understand you can’t add, remove, and add the coverage back on during hurricane season.
The same goes for Flood coverage too, because that, of course, is a risk. You can get that coverage added to your policy, but you need to understand they are different lines of coverage, and you need to see both of those terms on there. As with any policy and any investor, it’s just really understanding what your risk tolerance is and what you are willing to deal with.
Again, if you think that a hurricane is never going to hit your house and you have money to fix a few roofs without dipping too far into the bank, Named Storm coverage may not be for you. However, it’s a completely different mindset for somebody who has one property, works a nine to five, and is slowly building up their portfolio. The risk appetite is completely different for those two investors.
How do floods impact coastal areas differently than others?
Again, you’re closer to the water. There’s no bigger body of water than the ocean. And when it comes in force, like a storm surge, it’s a huge issue. You don’t just have to worry about the wind and hail that is pounding the side of your house or your roof. There’s also a four-foot storm surge coming towards your property. Named Storm coverage won’t cover the storm surge, you want Flood Insurance for that.
What can investors do to help prevent damage to their coastal properties?
You can look at it as different sections of your house. There’s the roof, where you can use roof anchors. On the lower portion of the property, use storm shutters or board up the windows. Make sure the doors are secure. Sandbags can also help water not seep into the property. Of course, there are more ways to mitigate damage, those are just a few.
— Game Segment: Is it Covered? —
We’ll share some property damage examples related to hurricanes, and you’ll tell us how and if these would be covered.
A hurricane’s strong winds rip off the roof and the rainwater from the storm damages the interior of the property.
The hurricane comes in, you have Named Storm coverage on your policy, and the initial peril is going to be the wind, which is covered under Basic and Special Form. When that rainwater comes in from the roof being ripped off by high winds, it’s potentially covered under your policy under the wind and hail peril.
During a named storm, strong winds picked up a tree branch and hurled it through the window at your property. The window was shattered, and rainwater leaked in during a separate storm the next day, causing damage to the interior of the property.
That’s a tough one because you have an initial peril that would be covered (wind), but there’s a separate occurrence that comes into play too. That one is going to be a little tougher. Most likely in that case, because it’s a separate occurrence that caused that damage on the inside with that second storm, that one’s going to be up for debate and potentially not covered. You would likely need Flood coverage for that.
A storm surge causes water to seep into the property, damaging flooring, furniture, and more.
If you have Flood coverage, storm surge is included in that. That’s exactly what we were trying to preach a little bit ago. If you believe that you’re at risk for that damage, that’s something that you absolutely want to make sure that you have.
Shingles on the roof of your property were worn down from years of exposure to the elements, causing a slow leak from the roof into the attic. Heavy rain from a named storm caused water to seep through at an even higher rate. After the storm passes, you notice water damage, structural damage, and mold.
In many cases what insurance carriers might see is that there wasn’t a sudden impact of damage here. It took a long period of time for that roof to wear down. And typical wear and tear is NOT covered on insurance policies. The storm damage would have to be extremely significant for that to be covered. But in many cases, that wear and tear will exclude that peril from paying out in this instance.
Watch the full interview here!
