New insurance products needed for this critical Southern risk: Report

New insurance products needed for this critical Southern risk: Report

New insurance products needed for this critical Southern risk: Report New insurance products that address a variety of earthquake and tremor-related events may help improve coverage take-up rates in Oklahoma and other southern states, a prominent reinsurer has said.

In its August report, Swiss Re said the influx in hyrofracking-related earthquakes has made accessing earthquake insurance both more important and more difficult for consumers. Price is a steep barrier for quake coverage, and only 15% of property owners in the state are estimated to have policies. What’s more, due to high deductibles and certain exclusions, Oklahoma Insurance Commissioner John Doak estimated only eight out of every 100 quake-related claims was paid in 2014.

While very few carriers have exited the earthquake market in the area, these problems still remain.

“Since deductibles are typically applied to each individual event, small- to medium-repeated events can build up sizable uncovered damages over time,” Swiss Re said. “The cost to repair these damages can be a large financial burden to many homeowners and businesses.”

The reinsurer instead called for insurance professionals to begin considering products that incorporate an aggregate cover for those suffering multiple small losses, or decreased deductibles and decreased limit of cover option for those concerned about small levels of damage.

Doak reviewed the Swiss Re report, and said that while he is a “fan of innovation,” he is concerned that lower deductible products would be cost-prohibitive for many, as their premiums would likely be higher than the catastrophic coverage currently available in the state.

“If there was a product out there, I would love to see it,” Doak told NewsOK. “I would like to make sure it was priced adequately to support the damages and the company was financially solvent.”

On the ground, Doak and other insurance professionals are combatting common misconceptions about coverage that may keep residents from purchasing a policy.

Moratoriums prohibiting the issuance of new earthquake policies anywhere from three days to two months after an event are causing confusion among consumers. While moratorium guidelines vary among insurance companies, many are triggered after quakes of at least a 5.0-magnitude and are in effect within 100 miles of the epicenter.

Residents, however, believe the restrictions to be much harsher.

“While touring earthquake damage in Pawnee, several residents said they didn’t think they could purchase earthquake coverage for six months,” Doak said. “That’s just not true. We reached out to the industry and couldn’t find one with a moratorium longer than 60 days right now. In fact, several companies are already selling new earthquake insurance policies.”

The commissioner urged consumers to “stay in touch with your agent” rather than relying on rumors.

Andrew Castaldi, head of catastrophe perils at Swiss Re Americas, stressed the importance of continuing education training for agents in selling quake coverage in a recent interview with Insurance Business America.

“I would expect that at renewal or anytime in between, agents inform their insureds of the possible increased risk and suggest various ways to reduce that economic burden,” Castaldi said. “This would start with adding an earthquake endorsement to the policy.”

While acknowledging the cost burden that keeps many home and business owners away from coverage, he noted that “the alternative can be more costly.”

Related stories:
Agents should double-down on quake coverage following Oklahoma tremor
Record quake makes state order frackers to close wells