Busy Tornado Season Brings New Risk Modeling for Insurers
An active start to the tornado season, with many storms striking outside the traditional Tornado Alley, has the insurance industry adapting with new catastrophe risk models that policyholder advocates warn could mean higher premiums for homeowners in areas with increased tornado activity.
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Alan Rubin, a member of Blank Rome's severe weather emergency recovery team, told Law360 that homeowners in newly affected areas will be able to buy insurance, but at a higher rate for tornadoes as those risks increase. As a similar example, he recalled the insurance bankruptcy crisis for Florida after Hurricane Andrew struck in 1992.
At the time, Hurricane Andrew was the costliest U.S. natural disaster and a wake-up call to lawmakers, homeowners, insurers and regulators about insuring property in Florida. Eventually, Florida lawmakers introduced Citizens Property Insurance Corp., the state's insurer of last resort, to provide wind insurance for homeowners. The National Flood Insurance Program also became the primary underwriter for flood insurance in the Sunshine State as many carriers stopped writing for the risk after Hurricane Andrew.
"It's going to get to that point where tornadoes occur over and over again. Insurance companies won't want to insure," Rubin said. "States will have to come up with a plan to cover the delta on what the private insurers aren't willing to cover for these folks down the road."
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Policyholders complain the claims process is a problem and place the blame on claims adjusters. When a tornado hits outside Tornado Alley, homeowners can come across less-experienced adjusters who don't understand the unique circumstances of a tornado, and those adjusters might miss structural damage, policyholder attorneys said.
When there is rushing water, insurers on the same property might fight over whether the damage was caused by flooding or wind. Rubin of Blank Rome said this is a large problem for policyholders as insurance carriers look to avoid responsibility.
"Insurance companies are always looking to shift the responsibility to the other insurance companies. But the person sitting with their house destroyed doesn't want to hear that," Rubin said.
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"Busy Tornado Season Brings New Risk Modeling for Insurers," by Shawn Rice was published in Law360 Insurance Authority on April 27, 2022.