With Matthew serving as the season’s inaugural hurricane wreaking havoc on Florida, the insurance infrastructure is set to be tested. It calls to mind an insurance proposal that I recently reviewed.
My client was upgrading his second home in Florida. He decided to sell one, which was “fully wind-protected” by a top brand insurer and buy another, bigger and closer to the water but “fully unprotected” from hurricanes.
Using his real estate broker, he got an insurance quote for his new home. When the cost of insuring the old, smaller, fully-protected home was more in premium than the new home that was fully unprotected, he was confounded.
How is that possible?
He sent the quotes to me to examine. First off, the insurance company that wrote the proposal I would describe as a “micro-insurer” because it had 40 different reinsurance agreements. (Forty!) There is no saying who would be providing coverage in the case of a claim. In addition, the real exposure here is a hurricane. A major weather event calls for a dynamic, rapid response by the insurer’s claim department. With 40 agreements, my guess is the claim department in this case would be supported by “independent adjustors,” not staff adjustors, which is a problem. And not a problem you want to sort out after the hurricane hits.
I advised my client to consider getting wind protection (shutters/hurricane glass etc) and buy coverage from a non-Florida domiciled insurer. Ideally, he will piggyback the coverage off the insurance company we use for his home up north. I am glad he brought the quote to me, and I am pretty sure with more hurricanes on the horizon, he will be glad he did too.