Gallagher reveals why underwriters are re-evaluating exposures

To prepare for future windstorms, brokers can help clients determine if they’re covered for the roof-ripping peril

Gallagher reveals why underwriters are re-evaluating exposures

Catastrophe & Flood

By Alicja Grzadkowska

The destructive aftermath of Hurricane Michael lingers in the Florida panhandle as residents and businesses continue to rebuild, and while the 155mph winds are long gone, the estimated insured losses could reach up to $11 billion. Because of the region’s tourist draws, it’s not just residential homes and personal cars that were impacted.

“There’s certainly a lot of personal lines damage, but there’s also quite a bit of commercial damage because a lot of hospitality and smaller commercial operations were very badly impacted,” said Alex Glickman, area vice chairman and managing director of Gallagher’s real estate and hospitality practice. “Then, of course, there is the air force base which was wiped out, so that’s going to be our tax dollars at work.” In fact, every one of the Tyndall Air Force Base’s structures were damaged, according to news reports.

It’s not only the direct damage to buildings that hurt businesses, but also the business interruption loss, Glickman told Insurance Business, and Michael was also a stronger hurricane than the one that preceded it, which is part of the reason for the heightened impact on properties in Florida.

“The problem with Florence was it was slow-moving, and you had a lot more damage by rain and flooding. [Michael] went relatively quickly, so this was a true hurricane loss with wind causing the majority of the damage,” said Glickman, adding that the storm will also force the insurance industry to rethink its approach to underwriting risk. “I do think Michael will have a greater economic impact most likely for commercial risks, but what it is pushing all of the underwriters to do is really re-evaluate the exposures in the entire southeast. The Carolinas got smacked twice in two and a half weeks, so that’s a pretty substantial exposure for a large area where you’ve got so much more building going on than we even had 10 years ago.”

With Michael bringing strong winds that ripped roofs off structures and dumped rain inside, consumers and brokers should be examining homeowners’ policies and whether they have coverage for this particular force of nature.

“Wind should be under a homeowners’ policy, but every homeowners’ policy is different, so one would surmise that there would be coverage,” explained Glickman. “Where it gets dicey is in the commercial marketplace, where wind is generally included under the All Risk, but you pay for it and there are typically sub-limits for wind, so even though you might be buying a $100 million policy for fire, you may not necessarily be getting $100 million of wind within that.”

Another catastrophe means another learning opportunity for agents and brokers to make their clients aware of what’s covered before the next windstorm hits.

“They live a life of magical thinking where they don’t think it can happen to them, so I think it’s incumbent on a broker to have a hard conversation with a client, whether they are personal lines or commercial lines – particularly if it’s commercial lines, you’re talking about big dollars – to make sure that the assets are modeled for wind and that’s it explained very clearly that you don’t have coverage unless you’re buying that peril,” said Glickman.

“Every policy is different and the other kicker with that is when you have a loss like this, the increased cost due to demand surge, which is increased cost of labor, materials, delay in getting permits, etcetera, can add anywhere from 15 to 30% more to the reconstruction cost.”

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