AFTER-MATH: Calculating Sandy’s Swath
By Betty Flood and Katlin Nash, Cuyler News Service
New York Assembly hearings examine consumer info, response of industry, and risk management issues
ALBANY, N.Y.—The Assembly Insurance Committee started the Albany dialogue in earnest in recent hearings aimed to determine if policy holders are properly informed of their coverage needs and options following Superstorm Sandy. Committee Chair Kevin Cahill (D-Ulster) heard testimony from Department of Financial Services Superintendent Benjamin Lawsky, Independent Insurance Agents & Brokers of New York, and independent and public adjusters.
Assemblyman Cahill will be hosting roundtables in the areas of the state hardest hit by the storms in the coming months. These roundtables will provide additional insight into the process of insurance claims settlements following the storm.
“As a result of Superstorm Sandy, many businesses in Lower Manhattan are still shuttered and residential buildings are uninhabitable,” said Assembly Speaker Sheldon Silver (D-Manhattan). “The situation is simply unacceptable considering the high premiums many of our fellow citizens pay for their insurance coverage. This is a significant issue for property owners, business owners and residents throughout our city who are continuing to struggle in the aftermath of Superstorm Sandy. As we move forward, it is critical that we make sure that insurance companies do a better job of coming through with the assistance they are paid to provide.”
The Independent Insurance Agents & Brokers of New York Secretary Treasurer James D. Sutton praised the work that the insurance industry “did an admirable job” after Superstorm Sandy battered the New York City metro area last fall. A group spokesman also said that the federal government’s slow processing of flood insurance claims has tarnished the industry’s reputation.
Sutton noted that a shortage of claim adjusters certified to handle flood insurance claims delayed payment to policyholders. The federal government’s National Flood Insurance Program (NFIP) provides nearly all of the flood insurance sold in the U.S. All claim adjusters handling flood insurance claims must be certified by the NFIP.
Although the program sent certified adjusters from other parts of the country to the storm area, the volume of the claims overwhelmed them. “This poor response for flood claims has tarnished the public’s view of the entire industry,” he said.
“After a disaster like Sandy, families and businesses are at the mercy of insurance companies to recover and rebuild,” said Assemblyman Phil Goldfeder (DRockaway). “The slow response time to of insurance companies after a catastrophic event like Hurricane Sandy is negligent and utterly unacceptable. I commend Speaker Silver and the Assembly Standing Committee on Insurance for putting this hearing together. I look forward to working with the Department of Financial Services and my colleagues to hold companies accountable and provide residents the essential resources they need to recover from this disaster and any future event.”
“It’s time banks start taking action and step up to help their loyal customers,” said Goldfeder whose district was hurt badly by the storm. According to sources flood insurance checks were written to homeowners, but Chase Bank did not release the money while they waited to see if the funds would be spent on repairs. Goldfeder said “he wrote to the CEO’s of Wells Fargo, Bank of America, and Citi Bank Mortgage.”
“In Manhattan Beach, Brighton Beach and Sheepshead Bay, neighborhoods in my district that were severely impacted by Sandy, residents and business owners are still trying to recover from the devastation. Nearly four months after the fact, people are still struggling to rebuild their homes and reopen their businesses and for many of them, issues with insurance claims are the reason this process is taking so long,” Assemblyman Steven Cymbrowitz (DBrooklyn) said.
“Superstorm Sandy had a devastating impact on every facet of many New Yorker’s lives. Now, as they are trying to rebuild, many are facing difficulties collecting settlements for their insurance claims or discovering that their insurance coverage was insufficient to protect their property against this kind of large scale disaster. This hearing is an important first step toward addressing these issues and I will continue to work to ensure these protections in the future,” Assemblyman Dan Quart (DManhattan).
“As we endeavor to recover from Sandy, we cannot allow the insurance industry to delay or stifle our efforts. People who have lost everything should not now be forced to fight insurance carriers for their fair share of something that they paid for. Hearing first hand from victims about their insurance issues will help us to craft better legislation that will provide real relief for Sandy victims,” said Assemblyman Matthew Titone (D-Staten Island).
“The destruction of Superstorm Sandy was devastating to our families and businesses. It is important that we understand and streamline the types of coverage and claims processes with insurance companies to ensure that our families can rebuild quickly and our businesses can be operational keeping our thriving small businesses profitable. We must ensure that New Yorkers are prepared in the future with the right coverage and quick responses,” Assemblyman Moya (D-Jackson Heights). “When families pay their insurance premiums they deserve a claims process that is fair and timely. Too many insurers put the bottom line ahead of honoring claims, and in doing so, irresponsibly force those who have suffered the most to wait for a check to rebuild their lives,” said Assemblyman James Skoufis (D-Woodbury). “I have introduced legislation (A.1092) that would streamline the claims process once a natural disaster has been declared and expediently get victims the relief they need and deserve. Insurance companies need to be held accountable so that families are not fighting for settlements, months or even years, after a storm hits.”
“It is evidently clear that home and small businesses owners received the raw end of the deal from insurance companies after Superstorm Sandy. They were left in the dark for too long. I will join my colleagues in brining light to this predicament by pushing for transparent storm policies, and finding relief for all of those affected by Sandy,” said Assemblymember Rafael Espinal (D-Brooklyn).
Speaking before members of the New York State Assembly Insurance Committee, IIABNY Secretary-Treasurer James D. Sutton said, “many of those [insurance companies] serving their customers were also personally impacted by the storm,” he said. “Yet, they put the interest of their customers first.” Sutton pointed out the grades in the disaster response report card established by Governor Andrew Cuomo. Out of more than 389,000 insurance claims filed after Sandy, around one percent have generated complaints to the New York State Department of Financial Services. Sandy swept up the eastern seaboard in late October 2012. One of the most destructive storms in U.S. history, it caused billions of dollars in property damage and hundreds of deaths.
Sutton also addressed the future availability of homeowners insurance in coastal areas. He said insurance companies should have more flexibility in the degree and timing of rate changes and supported tax reforms to encourage insurance companies to create reserve funds for catastrophes. Sutton acknowledged that large hurricane deductibles are necessary for companies should use one uniform definition of the event that would trigger those deductibles. He cautioned that companies need assurance that they will be able to apply these large deductibles for events that trigger them, but also said that consumers should have the option of obtaining smaller deductibles for an additional premium. Assembly Speaker Sheldon Silver said “we need to make sure that insurance companies do a better job, a timelier job, of coming through with the assistance they are paid to provide. That is why I sponsored a bill creating a Homeowner’s Bill of Rights, which will help both homeowners and business owners understand what they are entitled to and make sure that insurance companies are responsive to policy holders,” he said. “Businesses throughout the South Street Seaport were wiped out and many are still shuttered completely. These businesses are reeling and in desperate need of help,” Assembly Speaker Silver.
“Many residential buildings all over Lower Manhattan were severely damaged. Some of them are still inhabitable. Knickerbocker Village on the Lower East Side, home to thousands of low and moderate income tenants, was hit badly by the storm and was let in a financial hole because of repair costs,” said Speaker Sheldon Silver.
Benjamin M. Lawsky, Superintendent of the New York State Deparment of Financial Services said “the homeowners, renters, and small business owners, and others who saw their lives upended by this storm are now looking to insurance to help them recover and restore their lives and homes. It’s the bargain consumers made each and every month they accepted those premium checks.”
“Right after the storm, Governor Cuomo directed us to ensure that insurance payments were maximized and delivered as quickly as possible. That’s what we’ve tried to do,” said Mr. Lawsky. “But there have been some limits on what we have been able to achieve because Sandy was primarily a flood event. Unfortunately, many people in flood-stricken areas did not carry flood insurance. And even for those who did, the coverage in many instances does not cover the full extent of the loss. Collectively, we are going to have to think about how we rebuild the shorelines in Sandyaffected areas. And the Administration, working with the Legislature, is committed to considering a wide array of possibilities even those that many at first blush seem a bit ‘outside of the box’,” said Mr. Lawsky.
“The Department has exercised close and careful oversight of the insurance industry throughout the Sandy recovery process. On November 1st, three days after the storm, Governor Cuomo announced that homeowners would not be obligated to pay potentially large hurricane deductible since Sandy did not have sustained hurricane- force winds when it made landfall in New York. The fact that hurricane deductibles could not be applied to claims saved individual homeowners potentially tens of thousands of dollars because hurricane deductibles are generally based on a percentage of the total replacement value of the home,” said Mr. Lawsky. “In November, at the Governor’s direction, the Department promulgated emergency regulations requiring insurer claims investigations to begin within six days (instead of the normal 15 days after receiving notice of a claim), and instructed insurers to accept such items as homeowners’ photos or videos to document losses,” explained Lawsky. “The Department also imposed a moratorium on the cancellation or termination of policies in storm affected areas or any reason including non-payment of premiums,” said Lawsky.
“The Department issued an emergency regulation relating to how much time insurers have to provide claimants with decisions on claims settlements. Under previous regulations, after a properly executed proof of loss, insurers have 15 businesses day to respond with a decision, or else provide the claimant a reason needed to additional time, which grants the insurer an automatic 90 day extension. There is no limit to the number of additional 90 day extensions that an insurer may utilize. Under the emergency regulation, insurers’ extensions will be shortened from 90 days to 30 days. In addition, the Department will require insurers to report to the Department weekly on every claim that has been extended past the initial 15 day window,” said Lawsky.
“The Department has also, at the Governor’s direction, developed a system of insurer report cards that reflect various data, including consumer complaints, as a means of ranking insurers’ performance in responding to the needs of their customers. The idea is to encourage a “race to the top,” so that both insurers and their policyholders have a sense of how the companies are performing on a comparable basis. The report cards, which are updated weekly, are available on a special Storm Sandy website, www.nyinsure.ny.gov, and on the DEF website,” said Lawsky.
“To speed the adjustment process and respond to the scope of this disaster, the Department acted in two ways: first, the Department issued 20,000 temporary independent adjuster licenses to bring in professional adjusters from more than 20 different states, some coming to New York from as far away as California. These temporary independent adjusters augmented the approximately 12,800 independent adjusters already licensed to work in New York,” said Lawsky.
“Throughout the period following Sandy, the Department has maintained constant daily contact with the insurance industry. Immediately after the storm, the Department initiated the creation of the IEOC-the Insurance Emergency Operations Center. The IEOC is a joint effort that brings together the resources of both the industry and Department so our collective efforts can be focused on specific emergency situations. The IEOC enabled the Department to communicate directly with insurance carriers representing 90% of the market in storm-affected areas, giving us the opportunity to identify and address specific problems and troubleshoot any difficulties by communicating directly and expeditiously with industry on a real time basis,” said Mr. Lawsky.
“The statistics show billions of dollars in insurance payouts to hundreds of thousands of consumers as of February 15 total private market insurers representing approximately 90 % of the insurance market in Sandy-affected areas have handled 423,000 non-flood claims. Of those, 87% of have been fully resolved resulting in payouts thus far of $3.6 billion, with a total of $4.6 billion expected.
“Superstorm Sandy was primarily a flood event, and thus while the claims process for flood insurance has been moving forward, it has lagged behind all other coverage. Anecdotally, we hear that approximately 50% of homeowners and businesses in the affected areas did not carry flood insurance. While DFS does not directly regulate flood insurance (it is administered by the National Flood Insurance Program), we are continuing to work without federal partners, as well as the insurers themselves, to speed flood claims resolution,” said Lawsky.
For residential property claims alone, there have been 287,000 claims of which 94% have been resolved resulting in payouts so far of $1.51 billion, with a total payout of $1.69 billion expected. For commercial property, there have been 26,000 claims, of which 73% have been resolved for a total of $304 million, with $934 million expected. (Commercial claims tend to be more complex, and involve modeling of losses and complicated questions of mitigation and causation.) Likewise, there have been 8,000 business interruption claims, 67% of which have been resolved resulting in payouts of $52 million, with $121 million expected.
For personal auto claims, there have been 96,000 claims and insurers have paid $1.32 billion. This represents 74% of claims resolved, most are total losses. While these claims are often open until title to the car can be obtained, nearly all are resolved. For commercial auto claims, there have been 4,000 claims and insurers have paid $132 million-representing 69% of claims being resolved.
“In terms of speed, an average the time for the date of a homeowner’s insurance claim until the claim is paid is approximately 20.5 days,” explained Lawsky. “But there is a significant range in insurance response time. The fastest insurer’s response time was 8 days on average; the slowest was 38 days. Now, some of this is based on the size of the insurer’s business, and thus the number of insureds and volume of claims. But if an insurance company has a large book of business it should ensure it has systems in place to process claims in well under 38 days.”
“To date, private market insurers representing 85-90% of the insurance market in Sandy-affected areas have handled 432,000 non-flood claims in the aggregate, 87% of which have been fully resolved. Those insurers have paid to policy holders$ 3.6 billion of the $4.6 billion that the companies ultimately expect to pay,” explained Lawsky.
“While achieving an 87% resolution figure may sound good, the remaining 10- 13% is likely to be the hardest part,” said Mr. Lawsky. “The Department has received more than 3,900 Superstorm Sandy-related consumer complaints, many of which are s till being investigated. Of the 3,900 complaints that DFS has processed, “dispute settlement offers compromise about 10%. DFS constantly monitors the quantity and types of new complaints it receives so that we can react quickly to emerging needs.”
“Not surprisingly, exclusions and other limitations in insurance policies themselves also affect settlement offers. The Department’s experience from Storm Sandy is that consumers do not sufficiently understand what is covered and excluded by their policies, and how the circumstances of a particular event will affect whether or not a loss is covered. Consequently, when coverage is denied due to a poorly understood exclusion or limitation, consumer dissatisfaction with settlements (or proposed settlements) grows.
“Three insurers-Narragansett Bay Insurance Company, Tower Insurance Company, and Kingstone Insurance Company are now being investigated to determine if they sent adjusters to inspect and/or process claims in a timely manner. In addition, the Department is responding to complaints regarding the conduct of other companies, so it is possible that there may be other investigations as well,” said Lawsky.
“The Governor announced that DFS had promulgated an emergency regulation to establish a nonbinding mediation program. This program is aimed at bringing prompt closure to disputed insurance claims. Under the program, insurers will have to notify their insurers of the right to mediate eligible claims; participate in mediations in good faith; and foot the bill for the mediator’s costs. The mediation will not affect the insured’s other legal rights, such as right to request an appraisal, the right to file a civil suit, and any other rights provided by law,” explained Lawsky.
“One of the sources of frustration for consumers has been the red tape they experience, not just with their insurance companies, but with their banks. Many Storm Sandy victims receiving insurance claims checks are facing a hurdle that they often had not anticipated: the check is issued jointly to the homeowner and that the homeowner’s bank or mortgage servicer, thus requiring the bank’s endorsement of the check before the homeowner may access the funds. This dual endorsement is a standard requirement of mortgage notes and insurance contracts, but to homeowners, it constitutes yet another round of red tape. Banks have, at times, been to slow in processing paperwork or have placed too many conditions on homeowners before disbursing funds, thus resulting in delays to home repairs. What this means is many homeowners, after finally getting through the insurance process, are facing a whole new round of red tape with the banks that are slow to endorse their insurance proceeds,” explained Lawsky.
“The Department sought data from banks and mortgage servicers to determine the value of insurance claims money being held back. As of late January, the banks and servicers representing 95% of the market were holding proceeds for 6,611 borrowers for a total of about $208 million. These numbers are rising as more insurance checks are issued and as servicers determine that more homeowners’ repairs need to be monitored since more money is now at stake for these homeowners,” said Lawsky. “In December, the Department reached an agreement with 10 major banks and mortgage servicers that enabled homeowners to get advance insurance settlement payment money faster. An advance check represents the initial insurance settlement payments sent to the homeowner, allowing the homeowner to start work,” said Lawsky. “The agreement on advance checks was generally successful in getting initial money to homeowners so they could start work on repairs. Now, however, most of those advance funds have been depleted and homeowners need the balance of the insurance settlement money to move ahead and complete repairs.”
The Department of Financial Service’s has taken a three pronged approach: – First, the Department asked servicers to adopt best practices, such as reducing administrative delays and minimizing documentation needed from homeowners.
– Second, the Department was successful in asking Fannie Mae and Freddie Mac to consider the scope of the disaster to ease their standards to get money to homeowners sooner. Fannie and Freddie own approximately 65% of New York mortgages.
Banks have been telling the Department that the Fannie and Freddie guidelines limit the amount of insurance money those banks could release to homeowners pending monitoring and completion of repairs. On behalf of the Governor, the Department asked Fannie Mae and Freddie Mac to announce emergency reforms to their rules to provide banks and mortgage servicers with even more discretion to release funds. Fannie and Freddie has issued guidance that for borrowers who were current on their payments before the storm and have less than 80% damage to their homes, banks and mortgage servicers have complete and unlimited discretion to disburse insurance proceeds and should apply the same practices to their Fannie and Freddie backed loans as they do to loans that such banks and servicers own themselves, subject only to quality assurance programs. This development alone is responsible for the release of tens of millions of dollars more to homeowners this week. – Third, the Department is working with the largest banks and servicers to help them reach their customers directly. These servicers will join the Department at Disaster Assistance Centers and the DFS Mobile Command Center where servicers’ representatives will be available to help homeowners’ complete required documentation; advise homeowners on procedures for releasing funds, and endorse checks.
“From our perspective, it is essential to (1) remain vigilant and deal with emerging problems as they arise; (2) keep the home-owner or small business owner in mind first; (3) stay on the ground to maintain a real-and real time- sense of what people are living through. The Department helps individuals one by one where necessary, but seeks to achieve systematic results where possible to maximum number of people,” said Lawsky.
James D. Sutton, Secretary-Treasurer IIABNY said “Delays in NFIP claims processing have been our primary concern. Whether the flood coverage is written directly with NFIP or through a write your own company, the adjuster must be NFIP approved. NFIP certified flood adjusters were brought in from other parts of the country, but were in short supply for the volume of flood claims generating from Sandy. In some cases, it has taken sixty days from the first report of claim until a NFIP approved adjuster visited the property. While the property insurers were held to a six day standard there is no such standard for NFIP. This poor response for flood claims has tarnished the public’s view of the entire insurance industry.”
“Inadequate building codes and land use policies exacerbate the problem of overdevelopment in coastal areas. The problem of affordability and availability of insurance in coastal areas is the result of social issues, insurance is merely a symptom of the problem,” said Sutton.
“Many in the industry believe that the homeowners’ product has been under priced as it has evolved,” said Sutton. “Rate suppression has affected the level of viability for this line of insurance. The market itself will adjust to the correct pricing given the opportunity. We support favorable state and federal tax treatment that would allow insurers to set aside catastrophe reserves and we support a mechanism that would allow insurers to quickly include increased reinsurance costs into their rates,” Sutton said.
“Trigger is defined as the event that causes a wind deductible to be activated. Companies vary on their own definition of “trigger” and include such events as named storms, category of storm or sustained wind speeds. A review of the chart of wind deductible filings on the Department of Financial Services’ website reveals multiple scenarios that could trigger the application of a wind deductible,” explained James Sutton. “Standardizing the triggering event only will make the use of wind deductibles more understandable for consumers while still allowing an important loss management tool for insurers. Insurers must also have reassurance that the wind deductibles that have been filed and approved by DFS will not be obviated by regulatory fiat.”
“Since Superstorm Sandy was a posthurricane cyclone when it made landfall, the higher deductibles did not apply, but it is imperative that consumers have options available to them before the next catastrophic event occurs,” said James Sutton.
“It is not unlike an individual’s responsibility to understand the tax code which can be accomplished with the help of professionals, such as accounts or tax preparers,” explained Sutton. “We look forward to working with the insurance companies, the Department of Financial Services, and the Cuomo Administration to further examine the industry’s response to Sandy and to develop new options to deal with future disasters.”
Michael Barrett, Legislative Representative for the Independent Insurance Agents and Brokers of New York said “the DFS set up a scorecard which you know complaints and that kind of thing. The ratio was miniscule. 1% out of hundreds of thousands.”
“So we are now working with the industry and the Department of Financial Services on ways that not only State government, but the industry can continue if and when future catastrophe’s hit. The other thing I would say is that one of the big problems from a public perception standpoint has been the Federal Flood Program. I think almost everybody believes that the Federal Flood Programs does not do a good job responding to disasters.
They are very unclear about settlements and what is covered and this creates a lot of I think bad publicity for the insurance industry, but it is really the Federal Flood Program that is generating that because of the way they operate. As you know the Department of Financial Services has no control over the federal flood programs so that is a bit of frustration for the regulators and for those of us in the industry.
