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With a second major hurricane aiming for the Gulf Coast, �鶹��Ƶ Today is resharing this story originally posted in 2022, showcasing the value and importance of �鶹��Ƶ's insurance studies program in light of recent devastating weather events. 

As residents in Florida and other states affected by recent hurricanes work to get their immediate needs met and assess the damage to their homes and cars, they are also contacting their insurance agents to determine whether their policies cover their losses.  

Some of those agents may be �鶹��Ƶ graduates of the Ambassador Crawford College of Business and Entrepreneurship or the university’s insurance studies program, where students learn about all the facets of the insurance world, including how to respond to natural disasters. 

We asked �鶹��Ƶ’s William Billik, Ph.D., an assistant professor at the Ambassador Crawford College of Business and Entrepreneurship, some basic questions about hurricane insurance and whether the insurance industry would make a good career for �鶹��Ƶ students.  

Billik has been an instructor in �鶹��Ƶ’s Finance Department since 2010, teaching Advanced Portfolio Analysis, Intermediate Investments, Business Finance and Applied Financial Management Strategies. He also co-advises the student-managed investment fund, the Golden Flash Asset Management group at the undergraduate level, and Financial Management in the MBA (Master of Business Administration) program. 

Here is what Billik had to say: 

Does homeowners’ insurance cover hurricane damage and flooding? 

“Homeowners Insurance” will provide coverage (payments) for losses depending on the force which causes the damage. If the damage is caused by wind, then the homeowner’s policy will cover the loss to the extent permitted by the policy. If there is water damage from rain to the property because the wind event created the opportunity for the water to enter the property, then those damages are also covered.  

However, damages from flood waters are not covered by the standard homeowner’s policy. Often, the most significant damage created by a tropical storm, or a hurricane, is from storm surge and other rising waters. To have coverage for these losses, homeowners must purchase a separate flood insurance plan which is operated by a federal and sometimes state governments. Unfortunately for many people, they do not carry flood insurance either because they are unaware of the gap in coverage with their homeowner’s policy, or because they believe they are not at risk of flood damage.  

I have seen reports that the rising waters caused by Hurricane Ian caught many people by surprise; they never expected the surge to reach as far as it did. Some of these people may have not had flood insurance due to the expense (the premium payments can be quite high depending on where the property is located) or because they did not think they would need the coverage. 

What are some of the pitfalls that people may encounter as they file insurance claims? 

As with any property damage claim, insureds face two risks in filing their claims: inadequate coverage and inadequate documentation of loss. Standard homeowners’ policies place limits on the amount of coverage, particularly for contents. The value of coverage for contents is determined as a percentage of the value of the structure. So, for some people, the value of their home’s contents may be significantly more than the standard coverage provides. Additionally, standard policies place dollar limits on payments for certain types of items, particularly lost electronics, jewelry, collectibles and cash. Many people are not aware that they need to purchase extra coverage (sometimes called “riders”) to cover the value of these types of possessions. Also, less expensive policies may not cover the replacement cost of the home and its contents. These policies only pay the market value of the lost property, and re-construction/replacement costs are almost always greater than market value. So, purchasing a lower premium policy may significantly reduce the amount an insured can recover in the event of a loss. 

Secondly, the insured must be able to document their loss, particularly of unusual or high-value items. Insureds who do not keep a record of what is in their home may find that the insurance company will not provide payment for many lost items. The lesson here is to document your home well before you may incur a loss. This is much easier today when we can take a video of the different rooms and closets of our homes and upload them to the cloud. In this instance, the video would provide documentation of the insured possessions. 

Insureds should also be careful of characterizing the nature of the loss. As noted, homeowner’s policies do not cover flood damage. An insured who files their initial notice of loss and summarizes the loss as occurring “in the flood,” may be giving a less scrupulous insurer an opportunity to deny the entirety of the claim. Homeowners are better off simply stating they incurred loss and damage as the result of a storm and let the investigators show loss by flooding. 

What is occurring with the insurance industry in Florida? Are insurance companies going out of business because of the enormous amount of hurricane claims in recent years? 

The broad underlying principle of insurance is the “pooling” of risk. If we all get together and create a fund to cover our losses due to events beyond our control, we will all have to pay less than we would if we did not “pool.” But this only works if our risks are uncorrelated. In other words, if my house has a fire, it is unlikely that my neighbor’s house across the street will burn. Our losses are uncorrelated. However, with events like hurricanes, wildfires and earthquakes, due to the widespread damage that these types of events incur, losses become more correlated. More people have losses, and the losses are more severe. The probability of loss among insureds is high and so is the severity of their losses. The insurance companies cannot spread out the risk sufficiently, and therefore cannot continue to operate without raising premiums to a point where homeowners cannot afford the payments. Florida has also had some problems with what is called “moral hazard.” Moral hazard is where people engage in a behavior that they would not otherwise engage in but for insurance. A point of contention has been roof replacement, where roofing companies file insurance claiming storm damage to replace older roofs. Wear and tear would not be considered as a covered event under homeowner’s insurance, so the homeowners and their contract argue that the roof was not worn, but damaged.  

Coverage availability is likely to get worse in Florida as its population grows, more housing units are created and those units become more expensive. Even if environmental conditions like the frequency and severity of storms do not increase and sea levels do not rise, Florida can expect to have increasing storm losses. This will drive the price of homeowner’s insurance higher and drive more insurers out of the state.  

Is an automobile covered by hurricane insurance? 

Yes, if you have purchased “comprehensive” coverage under your automobile insurance. Autos typically are excluded from homeowner’s policies and must be covered by a separate, specific auto policy. Then within the auto policy, the insured must elect to have comprehensive coverage, which, of course carries an additional premium. Minimum coverage insurance plans do not include comprehensive coverage. Comprehensive coverage is not collision coverage. So, car and truck owners must know exactly what their policy covers, or the damage sustained by their vehicle in a storm will not be covered by insurance. 

Is the insurance industry a good career for students to consider and does �鶹��Ƶ offer good programs for those interested in the field? 

The insurance industry, like some other lower-profile industries in finance, is in urgent need of new talent. Many insurance professionals and executives are approaching retirement and there is not a large pool of talent to move up into those positions. So, there is a trend toward needing new, recent college graduates in the field. Additionally, the insurance industry employs a wide range of skills. People with degrees in finance, actuarial science, math and statistical analysis are needed, but so are those with marketing or computer science skills. Insurance is about trends, probabilities, and reaching a large, diverse group of people. So, anything you can do in those areas will make you an attractive candidate for work in the insurance industry. 

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