By Bob Gourley
I hope that you were spared the wrath of Hurricane-turned-Tropical Storm Irene this summer. I hope that the rising rivers did you no harm. I hope that you weathered the inconvenience of loss of lights, electricity, telephone, internet, television, refrigeration, plumbing, and all of the other hardships inflicted by the unwanted visitor. But I do know of one bit of damage Irene caused you, even if all the storm did was dump some rain and blow some wind through your property…
The financial damage caused by Tropical Storm Irene was unlike any that we have seen in the Northeast in recent times. It was nowhere near the impact of Katrina back in 2005, which took more than 1800 human lives and cost an estimated $125 billion in damage. Still, Irene caused some deaths and created initial cost estimates of somewhere between $7 billion and $10 billion in damage. While not all of that loss was insured, enough of it will be covered that you can expect to see the full impact of this storm’s damage on your upcoming insurance premiums. Also, you can expect a massive shift to the region’s insurability as analysts pour over data to construct new risk assessments. These analysts will then prepare an insurance model that takes the damage into consideration moving forward. Finally, local and state municipalities will have to make major repairs that will be financed through a combination of local and federal tax dollars. I think we all know where that money comes from, don’t we?
Repair First, Prepare Second
Now that you’ve repaired your community, you will likely need to repair your budget estimates for insurance and tax burdens in the years ahead. This is where your community newsletter, HOA newsletter and/or community website can come in handy. There are already a great deal of articles published on the costs of this storm and the economic impact the region will suffer. You can share this information with residents in advance of discussing the likely increases to community expense.
Here’s what I think will happen and why:
- Don’t be surprised if your local and/or state taxes are increased as a result of this storm. Manpower and materials are expensive. Lots of both were needed for clean-up and repairs.
- Don’t be surprised if your flood insurance rates increase as a result of this storm. Flood insurance is underwritten by the federal government and resold through local insurers. In case you haven’t heard, the federal government is not cash rich right now and they will need to raise the money somehow.
- Don’t be surprised if your general policy rates increase as a result of this storm. Not all of the claims are going to be for flood. In fact, many of the claims will be for wind damage. There will be claims for losses in the millions of dollars. Those costs will drive renewal premiums higher.
- And, finally, don’t be surprised if there are fewer insurers for you to choose from after this storm. It is easy to lose sight of the fact that insurance is a business, meaning there is a pool of investors expecting to make money by charging premiums in exchange for providing coverage. If the business model turns unprofitable, you can expect some insurers to lose confidence in the profitability of the market and take their investment money elsewhere.
You don’t have to know everything about community association insurance to make informed decisions because you have friends in the business. Visit your local CAI Chapter website to learn more. When it comes to understanding insurance for your community association, it is truly in your best interest to work with a CAI member insurer as they are the local specialists in the condominium and common interest marketplace. CAI members are ready to assist you.