Law increases consumer protections on storm claims

While storms such as 2011’s Tropical Storm Irene and the April-May 2010 flooding are memories, albeit painful still for some, such climactic weather events are becoming more frequent. Because of the damage they can cause property, a new state law was designed to provide additional protection to homeowners who have hurricane insurance.
Approved in June 2012, the bill also includes additional consumer protections for the processing of insurance claims for hurricane damage. The new law will take effect in January and will apply to policies issued or renewed on or after that date.
In the past, General Assembly members have said that in the wake of Hurricane Katrina in 2005, the reinsurance market – where insurance companies go to buy coverage to protect against excess losses – disappeared, causing insurers that provided homeowner insurance in Rhode Island to leave, especially in coastal areas.
Legislators have said that many homeowner policies were canceled and other insurance companies changed from a dollar-based to a percentage-based deductible for storm damage. That action left homeowners facing exorbitant costs for any damage from future storms.
In addition, some homeowner policies were not renewed; other insurance companies changed their traditional dollar-based deductibles for storm damage to a percentage-based deductible based on the value of the property, leaving homeowners facing the potential for enormous costs for any damage from future, serious storms.
In some cases the percentage was 3 percent; for a $500,000 house on the coast, that could result in a deductable of $15,000.
Rep. Brian Patrick Kennedy, D-Hopkinton, who helped co-sponsor the new rules, said the changes were made to help homeowners. “What ended up happening is that a lot of people complained to the R.I. Division of Business Regulations. They had suffered losses and in many cases, while some companies grumbled when it came time to pay the loss, and when it came time to renew the policy, insurance premiums increased proportionately,” he said. Kennedy said the complaints prompted the legislation approved by the General Assembly. “The division recommended it and their stance was that they are not going to allow [compensatory increases] to take place,” he said.
For example, during Tropical Storm Irene, some areas of the state were without power for a full week, leaving both homeowners and commercial establishments filing claims for spoiled food. The next year their rates went up to cover that cost. When some submitted claims for $400 in food losses, their insurance company levied a $500 rate increase for reporting the loss. “Those people did nothing wrong; that is money they were entitled to,” Kennedy said.
According to Randy Bottella, president of Reliable Collision Repair & Randy’s Auto in West Warwick, his company fared well with Tropical Storm Irene but was devastated in the 2010 floods. He has since rebuilt his shop at a cost of more than $1 million, thanks to flood insurance. He owns several parcels in the area, the northeast corner of the town that is along the Pawtuxet River and subject to flooding.
He is also familiar with rising hurricane premiums. “That’s exactly what insurers were doing at the time,” he said. “I was buying a different piece of property at the time but because of the timing with Irene the coverage went through the other person’s policy. I haven’t had enough repetitive losses at my property to warrant the hurricane insurance.”
The new rules address a host of issues designed to protect homeowners. In the case of a declared disaster, insurance companies can no longer remove the loss-free credit on a policy because the weather was a widespread event affecting many consumers. The legislation also limits “de minimis” surcharges against a policy, where a company adds a rate increase proportional to an incidental or nonprimary loss. The legislation also says a hurricane deductible can be charged only once per hurricane season. Mark A. Male, executive vice president of the Independent Insurance Agents of Rhode Island in Warwick, agreed that the new rules were necessary.
“The expansion of the rules of the hurricane deductibles is certainly pro-consumer, and in that vein we certainly support them,” he said.
Concerning the deductibles, Male said he too had heard of companies raising their rates to cover their loss. “Some of our members warned people that filing those types of claims could eventually put themselves in harm’s way because it would effect their loss-free credit,” he said.
The new rules also establish a mediation process as an alternative for dispute resolutions for claims arising from a hurricane where the owner and the insurance company will work to resolve potential claims.
The department will also draft a regulation to address the declaration of a catastrophe in Rhode Island in which homeowners may not be able to receive notice from insurers. This regulation would provide the necessary procedure for reporting requirements for claims related to the emergency, provide a grace period for payment of insurance premiums, and provide a temporary postponement for cancellations and non-renewals for insurance policies.
Under the new law, the department will promulgate a regulation to address the declaration of a catastrophe in Rhode Island in which homeowner’s may not receive notice from insurer’s due to the inability to be in the structure. This regulation from DBR will provide the necessary procedure for reporting requirements for claims related to the emergency, will provide a grace period for payment of insurance premiums, and provide a temporary postponement for cancellations and nonrenewals for insurance policies. •

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