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It has been 25 years since Hurricane Andrew swept through South Florida leaving $26.5 billion (1992 USD) of economic damage in its deadly wake. Of that astonishing figure, only $15.5 billion was insured, dumping the remaining $11 billion economic loss on American society.

But what impact would Hurricane Andrew have if it struck today?

A new report from global reinsurer Swiss Re reveals that a similar event today would totally dwarf the losses experienced a quarter of a century ago. The company modelled the outcome of the exact same storm in 2017 and found that economic losses would be estimated at $80-100 billion in current US dollars, of which only $50-60 billion would be covered by insurance.

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Swiss Re also studied a scenario in which Andrew’s track shifted 20 miles north today, to directly strike Miami. Losses in this case would range from $100-300 billion, making it the costliest natural disaster ever in the US. Again, just over 50% of the damage would be covered by insurance, leaving a huge shortfall to be made up by taxpayers and the government.

“The results serve as a wake-up call to the insurance industry, homeowners, small businesses, public officials and the private sector,” said Marla Schwartz, atmospheric perils specialist, Swiss Re. “A common response is ‘sticker shock,’ as some of the numbers are hard to fathom and rather unsettling. Although it is certainly difficult to wrap your mind around an economic loss in the range of USD 300 billion, it is critical in order to truly address present-day hurricane risk.”

The levels of underinsurance are some of the most shocking statistics in the Swiss Re report. For lower-income residents or smaller enterprises in Florida, underinsurance can be blamed on the cost of coverage (premiums and deductibles), according to Schwartz.

“In emerging and developing markets, there seems to be a rather low level of risk awareness and risk culture,” she added. “Some people in these markets have never had insurance before or are not familiar with insurance products, so it is difficult to penetrate these markets with traditional products. This highlights the need to develop innovative products that address the unique needs of underinsured communities or those with historically poor risk awareness.

“Additionally, the US has not experienced a major (Category 3 or greater) hurricane landfall since Wilma in 2005. This extended quiet period can lead to complacency, and insurance take up rates begin to drop as memories of hurricanes fade. However, it is critical to point out that this quiet period does not translate to decreased risk: it’s not a matter of if a major hurricane will barrel through South Florida, but when.”

Preparing Florida for Andrew’s second strike requires team work, communication and education, according to Schwartz. Brokers need to share this “profound protection gap” with clients so that they fully understand their risk and have as much mitigation and protection in place as possible.

“Overall, our findings have the same take-away message for primary insurers, consumers and brokers,” Schwartz commented. “It is more important than ever to better understand hurricane risk, to learn about new solutions that address the protection gap, and to consider if insurance instruments are sufficient to cover financial needs in the event of a significant loss, like an Andrew.”

The majority of homeowners do not view internal water leak damage as the most concerning home threat, despite the fact that water leaks are a more frequent risk than fire and theft, a new Chubb survey revealed.

“The time between when a leak occurs and when it is discovered is the single greatest factor in determining the amount of damage,” said Fran O’Brien, division president of Chubb North America Personal Risk Services. “As a result, leaks that occur while you’re away result in greater amounts of damage, in terms of both cost and severity.”

Nearly 80 percent of homeowners overlook threat of costly water leaks while on vacation, the survey found.

Instances of water damage have been rising dramatically. In the past 10 years, the frequency of sudden pipe bursts has nearly doubled. In 2015, water damage accounted for nearly half of all property damage, according to the Insurance Information Institute. Chubb’s new Homeowners’ Water Risk Survey measures homeowners’ attitudes toward home protection, the risks they’re most concerned about and what they are overlooking. The online survey of 1,200 homeowners finds that just 8 percent of homeowners correctly identify August as the month with the most water leak events, and when subsequently heading out on a late-summer vacation, just 22 percent shut off the water main (despite 88 percent knowing where it is located within their home).

While homeowners are particularly vulnerable during the summer travel season, the study finds many face year-round water exposures. For instance, despite the fact that 91 percent of homeowners rate themselves as “vigilant” or “doing an okay job” at preventative home maintenance, and that close to half (45 percent) have or know someone who has experienced a water leak in the past two years, only 18 percent have installed a water leak detection device.

Windshield-replacement schemes are causing a spike in the price of auto insurance throughout Florida, the state’s insurance commissioner has said.

The schemes, which are most rampant in the Tampa Bay area, involve drivers with cracked windshields signing over insurance benefits to repair contractors. Some of those contractors then charge insurance companies inflated prices for their work.

Insurers say that the “assignment of benefits,” as the practice is known, has become a magnet for fraud and abuse, according to a report by local news station ABC 27. That fraud and abuse often occurs through no fault of the policyholder.

Florida law mandates that windshield-replacement claims cost nothing out-of-pocket for insured drivers. That creates an opportunity for repair contractors looking to bilk insurers, ABC 27 reported.

“Consumers are told that there is a crack in their windshield, and ‘We can replace it right here in the parking lot for you,’” Florida Insurance Commissioner David Altmaier said. “‘We just need you to sign this form, please.’ What this is, is an assignment of benefits. They replace the windshield, and there is a dispute between the windshield company and the insurance company that goes to litigation. It begins to start to drive costs up.”

Altmaier said that there were 19,000 “assignment of benefits” windshield-claim lawsuits in Florida in 2016 alone. A decade before, there were less than 500.

Dozens of antique vehicles were destroyed when a fire swept through a garage outside the southern Illinois community of Staunton.

Staunton Fire Protection District Chief Rick Haase says about a third of the building that served as Country Classic Cars’ showroom and warehouse was engulfed in flames when firefighters arrived late Tuesday.

Firefighters from 13 departments tackled the blaze. Haase says the majority of the personnel were used to shuttle water to the site, which had no access to fire hydrants due to its rural location.

Business owner Russ Noel estimates about 150 classic cars likely worth millions were damaged.

Investigators with the Illinois State Fire Marshall’s Office were on scene Wednesday to look into the cause of the blaze. Haase says determining the origin of fires in a single large room is difficult.

Researchers again boosted the number of storms the Atlantic may produce before the hurricane season ends as a missing Pacific El Nino and warm waters present favorable storm conditions.

As many as 16 named storms may form in the Atlantic before the hurricane season ends Nov. 30, Colorado State University forecasters said in a report Friday, each with the potential to disrupt agriculture and energy markets. Of those, eight could become hurricanes and three major systems with winds of 111 miles (179 kilometers) per hour or more.

Agriculture in Florida, the world’s largest producer of orange juice behind Brazil, is vulnerable, while an estimated $28.3 trillion worth of homes, businesses and infrastructure are at risk in 18 Atlantic states, according to the Insurance Information Institute. Oil and natural gas rigs in the Gulf of Mexico are also exposed.

Overall, “conditions are more conducive than not for a more active season,” Phil Klotzbach, lead author of the report, said by telephone. “I think the biggest story this year is that we are not going to have El Nino.”

Without an El Nino in the Pacific, wind shear across the Atlantic that can tear apart tropical storms and hurricanes won’t be as severe, Klotzbach said. As a result, storms fueled by abnormally warm water in the Atlantic may have more time to develop and strengthen.

The forecast for storm activity has inched up from 11 in April, 14 in June and 15 last month, mainly because an El Nino that can dampen Atlantic systems has failed to emerge in the Pacific. The basin produces 12 named storms in an average season, with the most powerful ones usually forming between Aug. 20 and the start of October.

The potential for more storms translates into a 62 percent chance of a hit along the Atlantic coastline, higher than the 20th century average of 52 percent, Klotzbach said.

In June, relatively weak Tropical Storm Cindy managed to shut down 17 percent of Gulf of Mexico oil output and forced evacuations of rigs and production platforms. The rise of onshore fracking for gas has lowered Gulf of Mexico output to 4.1 percent of total U.S. production this year, down from 14 percent about a decade ago, Energy Information Administration data show.

“I think we care more about the remnants of tropical storms cooling down the Texas appetite for natural gas, rather than the storm impact on supply,” said Teri Viswanath, managing director for natural gas at PIRA Energy Group in New York.

The Atlantic has produced five storms so far this season, a threshold that typically isn’t crossed until Aug. 31, according to the National Hurricane Center. The first hurricane, which hasn’t happened yet, usually occurs by Aug. 10.

Last August’s prediction for 15 storms hit the actual number on the head. In 2015, Colorado State predicted eight storms with 11 ultimately forming.

U.S. teenagers are more reckless after their first few years of driving, often becoming overconfident in their abilities and putting themselves at higher risk for accidents, a new study shows.

More than half of high school seniors have car accidents or near misses, compared with 34 percent of sophomores, according to the study conducted by Liberty Mutual Insurance Co. and the group Students Against Destructive Decisions.

More people, including “hyper-connected” teenagers, are distracted by their phones while driving, and insurers are seeking to counter reckless behaviors amid an increase in car accidents in recent years. According to the study, 75 percent of high school seniors “feel confident” in their driving abilities, and 71 percent use a phone behind the wheel. The study said the misplaced confidence could stem from parents who taper off punishment for poor driving after their kids have a year or two of practice under their belts.

“Older teens are still inexperienced drivers — even if they feel otherwise,” Mike Sample, lead driving-safety consultant at Liberty Mutual, said in the report. “Using an app behind the wheel, even glancing away for a second, can impair your driving ability and set off a chain reaction that could lead to a near miss or crash.”

Phones aren’t the only issue. Driving while drowsy, speeding, having multiple passengers and browsing music become more prevalent as new drivers gain confidence.

Sam Bessette, a 16-year-old from Topeka, Kansas, said she sticks her phone in the cupholder of her 2009 Ford Escape while she drives.

“My mom is very against it,” Bessette said of distracted driving, “despite the fact she uses her phone all the time. But she tells me she’ll take my car.”

Bessette said she’s a “fairly good” driver, and her friends trust her behind the wheel. She was in a fender bender once, when the driver in front of her slammed on his brakes. She said she’d just barely glanced away to change the radio station and didn’t have enough time to react.

Dr. Gene Beresin, a senior adviser on adolescent psychiatry at SADD, said teens naturally gain confidence as they drive more.

“As a result, it is even more important for parents and teens to have conversations about safe driving practices to avoid potentially putting themselves and others at risk on the road,” Beresin said in the report.

Liberty Mutual, the third-largest U.S. property/casualty insurer, surveyed almost 3,000 teens from high schools across the country and 1,000 parents of young drivers for the study.

The insurer encourages parents to continue teaching their kids, even after they get licenses. Also, adults can use tracking devices that monitor driver habits and reward teens for safety behind the wheel, the Boston-based company said.

The Florida Office of Insurance Regulation has approved the following companies to participate in the October Citizens Property Insurance Corporation take-out period.

For the Oct. 17, 2017 Personal Residential Take-Out Period:

• Safepoint Insurance Company – approved to remove up to 35,000 personal residential policies (20,000 Personal Lines Account/15,000 Coastal Account)
• Southern Oaks Insurance Company – approved to remove up to 15,000 personal residential policies (5,000 Personal Lines Account/10,000 Coastal Account)

This approval brings the total number of potential personal and commercial residential policies approved for take-outs in 2017 to 139,244; the actual number of policies removed from Citizens so far in 2017 was 13,460 as of July 11. These take-outs are part of ongoing depopulation efforts to reduce the number of policies in state-created Citizens and transfer them back into the private insurance market. Policyholders who receive a take-out offer may choose to remain covered by Citizens through the opt-out process.

Citizens policies generally fall into three categories: Personal Residential (PR), such as a single family home or mobile home; Commercial Residential (CR), such as condominiums or apartments owned by a company or a condominium/homeowners association; and Commercial Non-Residential (CNR), such as a traditional business. Policies in those three categories fall into one of the following Account Lines: Citizen’s Personal Lines Accounts (PLA) and Commercial Lines Accounts (CLA) are mostly non-coastal properties; and the Coastal Account (CA) is coastal properties.

The companies approved to participate in a personal residential and/or commercial residential take-out along with the number of policies approved for removal are available on the OIR webpage. Typically, monthly approvals are posted to this webpage within a week of Citizens’ deadline for OIR to issue an approval.

Source: Florida Office of Insurance Regulation

Assistance provided by insurance experts working Florida’s Insurance Consumer Helpline led to the recovery of more than $16.6 million during the first half of 2017, according to a statement by Chief Financial Officer Jimmy Patronis.

Helpline experts answered more than 141,000 calls from Floridians during the first six months of the year and aided in the recovery of funds that included insurance claim payments and premium refunds that consumers sought the Department of Financial Services’ help collecting.

The Insurance Consumer Helpline is a free service offered to all Floridians that assists callers with financial and insurance-related matters including disaster preparation and insurance fraud, as well as questions and complaints regarding auto, home, health, life, and small business insurance.

According to DFS, one such claim related a homeowner after they received payment following Hurricane Matthew. The Pinellas County consumer contacted the helpline when her insurance company denied coverage for additional damage that had been discovered. Even after sending in additional documentation, she was unable to resolve the issue. Upon calling the company, helpline experts were told that a simple processing error was to blame, not a denial. The company promptly processed the claim, paying out an additional $4,700 to the consumer.

Another customer in Brevard County contacted the Helpline when medical claims payments related to treatment for her son never arrived. The company explained to helpline experts that the payments had been processed but the company could not explain why they had not been received. A widespread system error was discovered and the company realized that payment checks for 53 consumers had never been mailed. In total, more than $24,000 in unmailed payments went out to the 53 consumers, including the original caller.

Patronis said calls to the helpline also create a record of complaints on if a company is engaged in a practice that leaves a lot of consumers feeling mistreated. That alerts regulators and gives the public a way to keep track of companies that may be be stirring up problems.

Insurers have widely feared the entrance of big tech players like Amazon into the market - but now one major insurer has actually secured a partnership with the online retail giant.

US insurance giant Nationwide has teamed up with Amazon Alexa as part of its SmartRide safe-driving scheme. Clients of the scheme will be able to use special plug-in devices to access personalized driving information that might help to bring their insurance premiums down.

Members of the usage-based insurance program can gain telematic information through Alexa via devices like Amazon Echo, according to a report by The Columbus Dispatch.

Sam Rassekh, Nationwide’s vice president of enterprise digital optimization, said in a statement: “We recognize that digital voice technologies are becoming an increasingly popular method of communication, enabling consumers to quickly gain access to information, products and services through voice-recognition technology.”

The statement continued: “The Nationwide skill for Amazon Alexa gives our members an exciting way to connect with us. And, we are encouraged to know that the data they receive about their personal driving habits through the SmartRide capability within the Nationwide skill serves the greater purpose of promoting safe driving.”

Florida’s home insurers hope the public doesn’t blame them as they implement rate increases, initiate coverage changes and nonrenew policies.

They say they have no choice after the Florida Legislature for the fifth year in a row failed to address the crisis in water damage claims abuse.

“We keep saying help us try to solve this problem,” said Michael Carlson, president of the Personal Insurance Federation of Florida.

Since lawmakers reneged on enacting reforms, insurance carriers are now taking matters into their own hands and the state’s regulator is warning consumers to be prepared.

“We will continue to see homeowners’ insurance companies raise their rates for our consumers in a best-case scenario, and in a worst case scenario just simply stop offering their products in certain regions of the state,” Insurance Commissioner David Altmaier told the Florida Cabinet last month.

Altmaier said that worst-case scenario has the potential to “undo a lot of the great work” that has been done in depopulating the state-run insurer of last resort, Citizens, which has taken the brunt of the abuse, particularly in South Florida.

“This remains one of our number one priorities on the property and casualty side,” Altmaier said.

He was referring to escalating assignment of benefits (AOB) abuse from unlicensed water remediation and roofing contractors working with attorneys to cash in on a homeowners’ insurance policy for water damage claims. The problem has begun to spread to other segments of insurance, with auto glass claims using AOBs also on the rise.

The Florida Department of Financial Services has stepped up its abuse investigations. Former Florida CFO Atwater told Insurance Journal in May before he left office that the DFS is counting on the industry to alert it to any abuse it sees happening.

“This is a real financial crime. These people are making money off of these really exploited AOB claims –it is just sophisticated robbery from thousands of people who are having to embed that cost in their next premium payment. It is real,” Atwater said.

Insurance carriers say the marketplace has no choice but to respond by moving to cover the costs.

They are raising rates for homeowners’ policies across the state but say that is not enough after several years of the unchecked AOB abuse. So they are also appealing to the Florida Office of Insurance Regulation (OIR) to be able to do more.

“AOB will ultimately be addressed by the marketplace if lawmakers don’t do anything. The question is how harmful is that to a policyholder that isn’t out to cheat an insurance company – and it is harmful,” said Scott Johnson, who has worked on insurance issues for 40 years and currently runs his own consulting firm, Johnson Strategies. “AOB is the worst crisis I have seen.”

Citizens led the pack in lobbying for reform this past session, warning Florida lawmakers that without it the insurer’s policy count will start to climb again after years of depopulation efforts, and that homeowners could expect to see statutorily allowed rate increases of up to 10 percent for the foreseeable future.

Last month the warning became a reality when Citizens announced it would seek an overall statewide rate increase again this year, citing AOB as the reason.

Citizens also said it would submit a series of policy changes to the OIR that it hopes will reduce claims costs for nonweather water losses.

Among the major policy changes is a $10,000 cap on water loss repairs for customers who decide not to participate in Citizens’ Managed Repair Program.

Other policy changes include expanding obligations to third parties that accept an assignment of benefits. Currently, contractors who accept an assignment are not bound by the same obligations, including allowing Citizens adjusters to inspect a claim in a timely manner or providing proof that a loss has occurred.

“We were hoping for legislative change and a surgical solution,” said Barry Gilway, Citizens president/CEO and executive director. “Given that this did not occur in 2017, we cannot wait for the trends to worsen and take no corrective action.”

Commissioner Altmaier told the Cabinet that OIR is discussing changes to policy forms “in an attempt to curb what we believe are an unacceptable rise in costs in this market.”

Many insurers in the state are watching and waiting to see what happens with Citizens proposals, and will base their own requests to OIR on what is approved for Citizens.

“We will see further rate increases being filed [by insurers]. But as far as doing their due diligence as an insurance company, they will pursue whatever avenue they can get,” said Logan McFaddin, regional director for the Property Casualty Insurers Association of America (PCI).

Managed Repair, Preferred Vendors, Premium Discounts

Citizens is already employing one strategy – a managed repair program that provides its policyholders with free water extraction and drying services if they have a nonweather-related water loss. The Citizens Managed Repair Program also includes access to a network of licensed contractors through Contractor Connection. Policyholders can use the network to find a contractor to repair damage to its pre-loss condition with repairs guaranteed for a minimum of three years.

Citizens policyholders who do not want to use the program can hire their own contractors to do permanent repairs, but reimbursement may be limited to $10,000 starting in 2018, if approved by Florida regulators.

Other companies are exploring managed repair or preferred vendor programs as well.

Castle Key Insurance Co. and Castle Key Indemnity Co., Allstate Insurance subsidiaries that write about 2 percent of Florida’s homeowners market, offer preferred vendors to customers in the event of a claim.

“Who the customer chooses to work with on repairs is entirely their decision, however we do make vendors available if the customer does not have a contractor of choice,” said Cathy Mayo, Allstate Florida Region’s Field Corporate Relations manager.

“Preferred vendor programs are definitely helpful because an insurer is not going to use a vendor that turns around and sues them – it gets rid of that motivation to have an attorney enter the agreement,” said PCI’s McFaddin. “Other insurers could follow what Citizens does if they can make headway with OIR.”

In a statement to Insurance Journal, OIR said it wouldn’t comment on the Citizens filing, but anticipates that a public hearing will be held for Citizens annual rate filings, “where this issue may be presented in more detail by the company.”

OIR did say that it has approved some managed repair programs for other carriers in the past as allowed under Florida statutes, but hasn’t seen any new filings recently.

Those outside the industry – including public adjusters and law firms – have voiced opposition to such programs, saying they restrict policyholder rights.

Johnson says that response is not surprising.

“Guess I would say that too if I was a public adjuster or trial attorney. What is fair to them is something that inflates the claim by at least 20 percent because that’s how they get paid. What’s fair to an attorney is if there is a controversy. They need the conflict because that’s how they make their fees,” Johnson said.

He noted that more than half of water losses have been handled by firms that don’t use an AOB and there have not been consumer complaints on the work done. Preferred vendor programs are a tool for carriers to minimize their AOB losses, he said.

“Insurance companies are responding to the crisis by doing what they can to guide people to providers that don’t use AOBs,” he said.

Tampa-based VetCor, which provides restoration services across the state, works with 17 carriers as a preferred vendor and said it has never used an AOB on more than 2,200 jobs in its three years in business.

“There are disreputable contractors saying they can’t perform work because of big bad insurance carriers. That is accurate if you are going beyond the scope of needed work. These contractors are creating an adversarial relationship,” said Paul Huszar, president, VetCor LLC, which provides new careers for military veterans no longer on active duty.

Huszar said his business relies on referrals from carriers, which he said are “usually legitimate claims from people who need help.”

He said his company has found itself becoming an advocate against AOB abuse, including letting carriers know if they see abuse taking place.

“There have been a few incidents where we have been called to put a tarp on a roof and we get out there and there is no damage. The customer says, ‘someone told me to put a claim in and I’ll get a new roof.’ If we see that we call the insurance company and let them know something smells funny. We represent consumers if we think it’s fraud and we represent carriers if they are getting screwed,” he said.

Huszar said all affected parties need to work together in fighting AOB abuse, and managed repair and preferred vendor programs are just one option until lawmakers take up the issue.

“The companies have to do something to combat uncontrollable rising claim costs from AOB,” he said. “But frankly, without legislation this problem is not going to be solved.”

Companies are also looking at premium discounts for customers who take proactive measures to protect against water damage, such as outfitting their homes with water damage protection systems.

Neil Schwartzman is the owner of the Coral Gables, Fla.-based company H20 protection, which sells PipeBurst Pro water damage prevention technology.

The Whole Home Water Detection product works by detecting when a pipe bursts and shutting off the main water supply almost immediately to prevent water damage.

Schwartzman said there has been increased interest from carriers in the last several months as they try to find new ways to reduce AOB losses.

He said several dozen, mostly high-value homeowner carriers, already offer incentives to have this type of a program.

He is currently working with several Florida insurance carriers seeking approval from regulators to offer premium discounts when a system is installed.

“If the [water damage protection] discount was available to all in Florida, then systems would be installed [and] the number of water damage claims would be reduced significantly,” Schwartzman said.

What Comes Next?

The industry and regulators agree that substantial progress has been made in educating on the abuse. Commissioner Altmaier said this year’s visibility and media attention has put his office in a good position for proposals to be heard during the 2018 legislative session.

McFaddin said the industry did an “impeccable job” staying on message this session and supporting the OIR and Citizens proposal, which died shortly after being introduced in a Senate committee.

Even though the reforms failed, McFaddin said the industry learned that working together is an effective strategy and that needs to continue.

McFaddin added that at least next year the industry won’t have to “waste time educating the legislature” about the abuse because it is now widely known and watched.

“Will we get something done for sure, 100 percent?” she asked. “I can’t say that, but I am hopeful – optimistically hopeful.”

Former CFO Atwater said the industry did a better job of getting its message out this session, but there is still “tremendous rate sensitivity” among consumers.

The industry, he said, has not effectively communicated why AOB abuse is translating into higher rates and, until then, consumers will not support legislative efforts.

“I think consumers believe that the rates come [because] the insurance company just wants more rates and the government just keeps giving it to them. I don’t think that most consumers understand that these losses are required to be built into the rate filing. And they’re going to be granted,” he said.

He urged the industry to share with the public “the actual evidence that it has in its databases” on the magnitude of the losses that are being built into rates.

PIFF’s Carlson said carriers’ data is out there through OIR’s data call done in 2016, and Citizens plethora of public information on rising losses, claims and litigation. He said some lawmakers have accused the industry of not being transparent to avoid fixing the issue.

“What else do you need us to give you that you don’t have? I fear that is a political request and not a policy request,” he said.

Until the next session, the industry and regulators say all they can do is continue to beat the drum about AOB abuse and take steps to protect company solvency and their policyholders.

“I do believe there is light at the end of the tunnel,” Altmaier told Florida Cabinet members. “I do believe there are ideas on the table that not only maintain consumer protections and their ability to have their claims paid, but also protects their ability to pay affordable insurance rates and shop insurance products across a wide range of carriers.”