Why So Many Consumers are Under- or Uninsured for Disasters

According to the National Centers for Environmental Information (NCEI), 2017 was a year that set a record for economical loss due to natural disasters for U.S. residents. Folks lost their homes and possessions in hurricanes, strong winds, heavy rains, and fires. Hurricanes Irma and Harvey set records for strength and rainfall. Heat records were recorded in California where fires raged.

One reason for the record loss is that consumers are either uninsured for the particular disaster or type of loss, or underinsured for the damages they suffered. Consumer Action reports that this is true despite the fact that approximately two-thirds of all U.S. residents live in areas with a moderate to very high risk of experiencing a natural disaster.

Rumors float that California, known for its earthquakes, will soon experience a massive quake. In 2017, Oklahoma had 623 earthquakes that measured higher than 3+ on the Richter scale. Florida has not had a major earthquake in 10 years, but one could hit there any day. Residents of Maryland and Virginia frequently face damage from hurricanes, tornadoes, and excessive flooding.  Why, when it is pretty well known that when these disasters do hit they cause consumers so much loss, are homeowners and renters not adequately insured?

Reasons Consumers Are Uninsured or Underinsured for Natural Disasters

A Switzerland based research firm studied natural disasters around the world and analyzed why people are inadequately insured for natural disasters. The main reasons they found include that consumers:

  • Do not accurately perceive the risk. Despite statistics, people still think, “It cannot happen to me.” As researcher Carolyn Kousky, Ph.D. said when writing for The Hill, “People tend to be optimistic when the sun is shining.”
  • Lack knowledge of how insurance works. They are unaware of what coverage is actually included in the policy they have purchased.
  • Do not understand the exclusions of their policies.
  • Tend to undervalue their assets when purchasing homeowners’ or renters’ policies.
  • Do not understand the difference in replacement cost and actual cash value when they purchase coverage.

How Insurance Agents Can Help

Insurance agents need to be sure their clients are educated on the terms of the policy they have purchased on what the exclusions are. They need to be fully aware of the benefits of adding coverage for natural disasters, and they need to be informed about the risks of not including specific types of coverage.  

One option for consumers in certain areas is a wind deductible buyback. This works for when a high deductible results in a huge consumer payment. If buyback coverage has been added, the insurer will pay a large portion, if not all, of the amount of the deductible.

Providing local and specific risk information to the homeowner or renter about what losses have been sustained at their particular location in the past, and what the ramifications may be for the future is also important.

About Wilmington Insurance Agency

Wilmington Insurance Agency delivers comprehensive coastal property solutions. We are a Managing General Agency and provide independent insurance agents with property and liability insurance solutions for residents and businesses primarily in Maryland and Virginia. We work alongside our sister company, Wilmington Insurance Company, established in 1996 and providing Property & Casualty commercial lines business, homeowners, and condominium insurance in the state of Delaware. To learn more about how we can help you to expand your book of business in the coastal market, contact us at (302) 231-2800.