Hurricane Ida leaves insurers and homeowners reeling

According to the Private Risk Management Association, the increasing severity of tropical storms is becoming the new normal, with each year producing another record-breaking hurricane season after another.

August’s Hurricane Ida was the fifth most powerful storm to strike the U.S. and ninth named storm of the 2021 Atlantic hurricane season. With maximum winds of 150 miles per hour, the storm resulted in estimated damages of at least $50 billion, leaving more than 1 million homes and businesses in the south without power. Catastrophe risk modeller RMS estimated that onshore and offshore insured losses in the Gulf of Mexico alone may total between $25 billion and $35 billion.

Allstate reported CAT losses of $876 million, with $692 million of net losses due to Hurricane Ida. Allstate is the second largest provider of homeowners insurance in Louisiana.

State Farm initially pledged to cover loss-of-use claims regardless of the type of evacuation order given across Louisiana prior to the storm, however, the carrier stated that it would not pay loss-of-use claims where no express civil authority order was in place. As a result, the carrier might have to pay a fine or lose its license in the state for its failure to comply with the commissioner’s orders to cover ALE costs for victims.

The category 4 storm hit Louisiana on the 16th anniversary of Hurricane Katrina, the costliest tropical cyclone in U.S. history. State Farm, Allstate and USAA announced plans to pay policyholders additional living expense (ALE) coverage to policyholders in Louisiana who evacuated their homes in the aftermath of the storm. Farmers deployed members of its catastrophe claims team to assist those affected by the hurricane.

Louisiana is typically the biggest source of claims for State Farm, with the insurer paying out $1.3 billion in claims in the state just in 2020.
Louisiana is one of the costliest states for Allstate, with hurricanes and tropical storms accounting for 82% of all the company’s catastrophe claims in the state in the past 20 years.
The storm caused nearly 100 oil and chemical spills in the state, with a broken pipeline pouring crude oil into the Gulf of Mexico.
A New Orleans sewer system was impacted, resulting in the release of hundreds of thousands of gallons of wastewater into the Mississippi River.

Louisiana’s insurance commissioner suggested that insurers should “waive the language contained in their insurance policies requiring mandatory evacuation to trigger civil authority coverage”¹ as well, due to some parishes issuing varying mandatory evacuation orders.

In addition, the Louisiana department of insurance also adopted emergency rule 47 for residents for the rest of the month, which provides cancellations, nonrenewals, nonreinstatements or other notices before Aug. 26 as null and void with no force of effect. The only exceptions include those acts or practices dealing with fraud or intentional material misrepresentation by the insured.

As Ida moved up the East Coast, shutting down transit systems and washing away streets on the way, New York governor Kathy Hochul directed the Department of Financial Services to contact insurance companies in the state to expedite claims after the flash floods. Since only properties in a region that are designated as “flood-prone” by FEMA are required to have flood insurance, the aftermath of the storm exposed an insurance gap in the area of residents and business owners might not have coverage.

Nearly 170,000 electricity customers lost power in New York, New Jersey, Pennsylvania and Connecticut.
The tropical storm reported a combined death toll of at least 80; most fatalities in New York occurred in basement apartments and most New Jersey fatalities occurred in vehicles overtaken by flooding.²
Ida caused damage to about 94% of oil and gas production in offshore Gulf of Mexico facilities.

Just a few weeks before, the New England region was hit by tropical storm Henri, which brought heavy rain, 40 mile-per-hour winds and at least $4 billion in losses. The back-to-back events are raising concerns that disastrous weather could become commonplace across the country, even in places that aren’t historically considered at-risk.

As insurers and state officials continue to determine how to provide relief to residents in hard-hit regions, it seems like there’s no time to catch up before another storm is on the horizon.

Tropical Storm Nicholas is expected to hit the Gulf Coast this week with winds predicted to reach 60 miles per hour, with recent reports stating that the storm was moving “erratically” along the coast of Mexico. Texas governor Greg Abbott placed rescue teams and resources in the Houston area and along the Texas coast, and the Louisiana governor declared a state of emergency ahead of the storm’s arrival as the region continues to recover from Ida and 2020’s Hurricane Laura.

Insurers and state officials address harrowing 2021 Atlantic hurricane season

Hurricane Ida leaves pockets of the nation without power and underwater, insurers and state officials look to each other for answers.

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