WSJ Your Money Briefing - Homeowners Rebuilding After Helene Face Limited Insurance Coverage

Episode Date: October 9, 2024

Property insurers have scaled back natural-disaster coverage and raised premiums to make up for steep losses as a result of more frequent storms. Wall Street Journal reporter Jean Eaglesham joins host J.R. Whalen to discuss how recent hurricanes could reshape insurance coverage.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges. The Goldman Sachs podcast featuring exchanges on the forces driving the markets and the economy. Exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Here's your money briefing for Wednesday, October 9th. I'm JR Whelan for the Wall Street Journal. As Florida braces for Hurricane Milton, damage assessment and cleanup from Hurricane Helene continues. Some homeowners filing insurance claims are discovering the payout will be considerably less than what they were expecting. We've seen with previous big hurricanes a lot of litigation, a lot of disputes from homeowners

claims. And the indications from the early claims that have been decided on Helene is that a lot of getting close to that payment. So that means, unfortunately, people are walking away empty handed. We'll talk to Wall Street Journal Insurance Industry reporter, Jean Eaglesham, after the break. after the break. This podcast is brought to you by CME Group, the world's leading derivatives marketplace, offering the widest range of global benchmark products across all major asset classes. CME Group, where risk meets opportunity.

Some homeowners who were hit by Hurricane Helene are finding that not all damages to their property will be covered by their insurance policy. Wall Street Journal reporter, Jean Eaglesham joins me. Jean, why would the amount of coverage in someone's policy be different than what they expect? Well, one big reason is perils that are excluded. So the typical homeowners policy won't cover a lot of flooding damage. Another thing is that in recent years, we've seen home insurers

restrict the coverage they get. That's in response to sort of high losses they've had from natural catastrophes. So you're seeing things like much higher deductibles, which is the first percentage of losses from win claims that you have to pay. So areas where we're seeing changes are things like for roof damage, and a lot of switch now from giving you

the replacement cost of the roof to giving you the cash value. That can be a big difference. We're also seeing things like limitations on the total amount of interior water damage. We're seeing higher deductibles for certain types of wind damage. So the first percentage you have to pay for claim might save increase from 2% to 5% or even higher even 10% in some of these very vulnerable areas. When did insurance companies begin making these changes?

Over the last three or four years, insurance companies have suffered consistently quite high losses on their home insurance. That's due to a combination of increased losses from extreme weather like hurricanes, but also high inflation, more people living in these vulnerable areas. So the insurance responded to those losses

by in some cases pulling coverage altogether, but also more generally on policies by limiting restriction coverage they offer. We've seen images of major flooding from the most current hurricanes. How does flood insurance factor into someone's homeowners policy? Typical homeowners insurance policy unfortunately doesn't cover flooding.

It doesn't cover what they call water damage from the ground up. People will need a separate standalone flood insurance policy for that and unfortunately very very few people who were hit by these recent hurricanes do have such coverage. Was it ever common for flood insurance to be part of a homeowners policy? Flood insurance was excluded from homeowners policies quite a long time ago, decades back. Essentially insurers decided they just couldn't afford to cover it. And that's why the federal flood insurance program was set up over 50 years ago. So people really do need that federal cover or they need

certainly a separate standalone flood insurance policy to be covered for these kind of catastrophes. How are these changes likely to impact homeowners who are in the path of Hurricane Helene? Homeowners are going to find they're going to struggle to get payout payments from the insurers company and we've seen sadly with previous big hurricanes, like Hurricane Ian, a lot of litigation, a lot of disputes from homeowners' claims, and the indications from the early claims

that have been decided on Helene is that a lot are getting closed without payment. So that means, unfortunately, people are walking away empty-handed. Were the changes to policies clear in the write-up of the policy when people signed up? The insurers will say that all these restrictions and coverage limits are there in the policy that if anyone reads it they will be aware of

that. A lot of people don't read the small print. Is it reasonable for people to be aware of some of these very big deductions for example? So a hurricane deduction of say 5% that's a lot of money you have to find before you get coverage for wind damage. Should the insurers be doing more to flag that? Certainly consumer advocates would say yes they should and would maybe question either way that it's reasonable for companies to be able to impose these kind of limits. How have regulators responded to insurance companies making these changes? In a lot of states there are limits on the amounts of

deductibles for example that insurers can impose for hurricanes so regulators will say they are providing overview of this. Their concern is that they're not just trying to protect individual policyholders they also want to keep the insurers in the state and what the big companies say is unless they're not just trying to protect individual policy holders, they also want to keep the insurers in the state. And what the big companies say is unless they're allowed to have these kind of limits, they simply can't afford to provide cover for hurricanes at all.

So there's some very vulnerable areas, properties along the Gulf Coast where they couldn't offer home insurance unless they're allowed to impose these kind of restrictions. So that's the sort of balancing out the regulators are trying to do. Many of the inland homeowners who experienced severe flooding from Helene hadn't faced a threat like that before. How could that change their insurance coverage plans going forward? Helene has again really exposed this risk of flooding.

The fact that even though you're outside, well outside a flood zone, maybe in this case hundreds of miles from the coast, you can still be very vulnerable to severe damage from floods. And the National Flood Insurance Program, which is a federal program, says that a good proportion of its claims always come from people outside flood zones. So the message they're trying to get across is to everyone please be aware of this risk, even if you're in line, even if you're outside of flood zone, people do need flood insurance. A large area of Florida is now being battered by Hurricane Milton. How could that storm reshape the future of hurricane coverage?

Sadly, again, we're seeing the threat of very serious floodings. The combination of the two hurricanes may potentially make insurers be even tougher in terms of restrictions they impose. Again, there's going to be concerns around this terrible shortfall between the number of people at risk of flooding and the number of people who have separate flood insurance. So probably we'll see calls to reform that, maybe to make flood insurance mandatory for more people. Climate-driven change combined with inflation, combined with more people living in harm's way, are all combining to send catastrophe losses to levels we've never seen before.

That's WSJ reporter Gene Eagleshuhn, and that's it for your money briefing. We'll be back tomorrow with WSJ's Catherine Hamilton to discuss the long-term effects hurricanes can have on your personal finances. This episode was produced by Zoe Culkin with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening.