When a major natural disaster occurs, such as a hurricane, much of our focus is on our families and our own safety. However, insurance companies can take big hits following major disasters, which often send their stock prices into immediate decline. As major natural disasters like hurricanes continue to devastate communities in Texas and across the nation, it’s important to examine why and how the insurance industry is impacted by such large-scale natural disasters and what it can mean for overall recovery after these major events.
How Natural Disasters Impact Insurance Companies
According to the NOAA National Centers for Environmental Information (NCEI), in 2023 alone there were 28 separate billion-dollar disasters. An alarming trend that shows no sign of slowing down, as there have already been 11 billion-dollar events in the first half of 2024. While there are many reasons as to why these extreme weather events are occurring, it’s evident that they will only continue to increase over time – but what do these major losses actually mean and how do they impact insurance providers?
In the immediate aftermath of a catastrophic event, stock prices for property and casualty insurers can take an initial hit. But usually, these stock prices lag for the first two to four weeks as investors assess damages and earnings per share adjusts downward. But that doesn’t last long, as a major catastrophe loss tends to mean higher near-term premiums. And that expectation of higher premiums tends to drive stock prices back up. Within just a few months, stock prices are often higher than they were before the hurricane or other catastrophe event. The increase in premiums also benefits property and casualty brokers, who also benefit from the higher premiums.
For insurance companies, the profitability of storms isn’t limited to major events. During hurricane season in particular, property and casualty stocks have historically outperformed, rising an average of 3.5 percent since 1993. This also takes into account the average amount of hurricanes that happen each year, with around 18 storms making landfall annually since 1851. The decade of 2000-2010 was particularly notable as it averaged 18 hurricanes per year, including seven major Category 3+ hurricanes making landfall in the United States. Though it might be easy to think 2017 was a busy storm season with Maria and Harvey, only nine land-falling hurricanes occurred between 2011 and 2017. However, in 2020 the Atlantic hurricane season had as many as 30 named tropical cyclones, including 14 named hurricanes.
Though one may think insurance companies are at an overall loss when disaster strikes, they are still businesses that sometimes thrive from these bad situations. While stock prices may decline in the immediate aftermath, once the disaster claims payouts become certain, premiums begin to rise. The stock price rebounds and becomes much higher, reaping more profits for insurance companies. This advantage presents a stark contrast to the businesses and families that are left to rebuild.
Basic Steps to Ensure Your Business Personal Property is Protected for Insurance Purposes
Although insurance providers will continue to face major financial hurdles due to losses from natural disaster events, they are still likely to turn a profit in the aftermath once premiums have risen. Because of that, business owners must have substantial property insurance in the event of damage or loss. Additionally, proof of contents and personal property must also be shown to establish the true amount of loss to the insurance carrier. By creating an inventory of possessions early on, the claims process will be much easier to navigate and likely increase the likelihood of a potential recovery. The items covered under this “business personal property” coverage will usually include furniture, fixtures, equipment, and other non-realty. For a business that leases its operating premises, “business personal property” can also include tenant improvements within the leased facility.
Here are some basic steps to ensure your inventory is as complete and accurate as possible:
- Include Basic Information – Describe each item, noting when and where it was purchased, the make and model, what was paid, and any other helpful details. Tax records showing the depreciation of capitalized items are often helpful in forming this list.
- Keep An Inventory Outside of the Building – Make at least one backup copy of the inventory document and store it separately somewhere away from the structure, such as in a safety deposit box or on a cloud-based server. One easy way to make a backup of a paper list is to take pictures of it with a smartphone, thus ensuring both a paper and digital copy.
- Keep Proof of Value– Maintain records of sales receipts, purchase contracts, and appraisals and keep them with the inventory list. Business owners may also want to include the estimated cost of replacement.
- Record Serial Numbers – Make a formal note of serial numbers found on the back or bottom of office hardware and electronic equipment.
- Take Pictures or Videos – Having photos and video records of all covered items will provide evidence needed in the event of a claim for loss.
When to Obtain Legal Counsel for a Property Damage Claim
While the property damage claims process has many requirements and deadlines in place to ensure it runs smoothly, this does not always happen. Insurance providers often attempt to utilize bad faith tactics to delay the process by refusing to pay legitimate claims or refusing to investigate and process them within the period mandated by the TPPCA.
Insurance companies often use bad faith tactics as a means to make further financial gains because paying out valid claims costs them money. While a policy lays out terms and conditions regarding when the insurer will pay a claim, carriers will use tactics like delaying the claims process, underpaying the full amount owed to the policyholder, or denying the claim entirely. This is because the insurance industry has two major expense categories: payment of claims and operating expenses. The percentage of money paid out in claims as a percentage of premiums is referred to as the “loss ratio,” while the percentage of premium income paid toward expenses is the “expense ratio.” When a greater sum is taken in on premiums than is paid out in claims and expenses, an insurance company generates underwriting income. The lower these combined ratios are, the greater the net underwriting income.
When these bad faith tactics are utilized, it can be incredibly frustrating for the policyholder, especially when they have adhered to all the deadlines to properly file a property damage claim and have it investigated. In these situations, it’s best to seek out and retain knowledgeable legal counsel who can help policyholders receive the compensation they need to fully recover after the damage has occurred.
Commercial Property Insurance Claim Attorneys
Although insurance companies face millions of dollars in claims, the reality is that they try to limit payouts as much as possible by utilizing bad faith tactics. When this happens, you need an experienced natural disaster claim lawyer who can hold the insurance company responsible and get you what you are rightly entitled to under your policy. Contact the commercial property insurance claim attorneys at Raizner Slania today for a free consultation to discuss your natural disaster claim.
