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Insurers Discuss Crane Collapses, Other Contingencies Of Hurricane Irma

Now that Hurricane Irma has passed through Florida, there is one thing on the minds of countless property owners: their insurance policies.

Condominiums in South Beach's exclusive "South of Fifth" neighborhood.

Insured losses from the storm are projected at a record $65B, according to catastrophe modeling firm AIR Worldwide.

“It's been 12 years since we've had anything remotely close to a storm like this, and people are saying, 'Oh my God, I hope my policy is right,'” insurance broker Arthur J. Gallagher & Co.'s South Florida president, Zeb Holt, said. “But this is why people buy insurance. It's our time to shine.”

“This storm is going to separate the bad insurers from the good ones,” Lisa Neumayer, Holt's colleague, said.

Neumayer said Arthur Gallagher & Co. only brokers policies with A-rated insurers that are financially sound, and thus admitted to and regulated by the state, but other “non-admitted” carriers operate in Florida, too. Those companies insure high-risk properties but may not be financially sound themselves.

“There are going to be insurance carriers that collapse,” Neumayer said. “[Or,] next year on renewals, they could hike premiums 100%, like the Wild West.”

Holt and Neumayer said property owners should consider updating their insurance policies, take advantage of innovations in the industry and enlist brokers' help to pressure insurers to pay out claims.

“Clients want everything insured, as cheaply as possible,” Holt said. “The insurance companies want to sell policies with no coverage and make them as expensive as possible. Us, we're the broker in the middle who understands where that equilibrium is.”

In Florida, Gallagher has placed policies for more than $100B in property values. Its clients include Broward and Miami-Dade counties and private entities like Encore Capital Management. Gallagher has helped find insurance for everything from underground wastewater tanks to the new runway at Fort Lauderdale airport, which goes over a tunnel on a major road.

Following Irma, Neumayer suggests that property owners take lots of photos and execute steps to mitigate damage, like covering broken windows. It is possible to get reimbursed from insurance companies for things like that. Usually, insurance adjusters contact claimants 24 to 48 hours after they have filed a claim, she said, but because there is a backlog from Hurricane Harvey hitting Texas two weeks ago, that time frame is now 72 to 120 hours. Prices of labor and materials for rebuilding are expected to spike because of the storms.

South Florida's barrier islands like Palm Beach and Miami Beach are vulnerable to hurricanes.

Projects currently under construction might be among the most damaged by Irma, Neumeyer said. Typically, lenders funding such projects require developers to hold what is called builder's risk insurance during the construction phase. It is valid until a building gets its certificate of occupancy, after which a regular policy should be in place.

“But some won't [get builder's risk insurance] until the building starts to go vertical,” she said. “They can argue that saves money on premiums, but early work can include excavation, foundation, pilings, fencing, cranes — that's a lot of exposure.”

As Irma approached, officials advised that construction cranes are built to move with the wind and could withstand winds of 145 mph – but not a Category 5 storm with 180 mph gusts. Indeed, at least two cranes snapped Sunday. One was at the Vice condominium, under construction on Biscayne Boulevard in Brickell. That condo is a project by New York-based Property Markets Group. The other crane was a Related Group project, Paraiso Bayviews, at 600 NE 30th Terrace in Edgewater.

In 2008, Miami-Dade passed an ordinance requiring greater regulations for wind load standards on hoists and cranes so that the public could be protected during hurricanes, but crane owners and contractors successfully fought the measure in federal court, arguing that construction sites are already closed to the public and the local regulation conflicted with federal protections under the Occupational Safety and Health Act.

If a crane were to cause damage, Neumayer said, there could be conflict about which insurer would pay out claims among the property owner's insurer, the contractor's insurer or the insurer for the company that owns and rented out the cranes.

Surely, many business owners will be wondering whether they can recover income they lost because of Hurricane Irma. For example, builders might have halted work for a week to prepare for the storm, but still be liable for costs like equipment rental.

“They may or may not be covered, depending on how the policy was written,” Neumayer said.

Holt said companies can purchase business interruption insurance, but it only covers loss of income because property has been damaged, not because customers fled town.

“That's one of the biggest areas that's misunderstood,” Holt said. “There has to be direct physical loss to the location.”

So-called contingent business interruption coverage can cover loss of income, he said, but that typically kicks in only if the supply chain has been interrupted, like when a seafood restaurant is affected because boats were destroyed and seafood cannot be obtained.

“We looked into how to design [such loss-of-income policies] when Zika hit Miami, but we couldn't really find anything on the commercial market,” Holt said.

All policies have triggers that make them kick into effect, like officials' declarations of hurricane watches, hurricane warnings or evacuation zones. Holt and Neumayer said that policies can now be written based on parametric triggers and cover more than property or structures.

“A good example is beach erosion,” Holt said. Imagine an oceanfront hotel, where “people don't come to the hotel any more because the beach washed away. A policy would be structured to pay when the wind speed hits a certain amount. There are wind anenometers throughout South Florida. A policy would be designed to say which stations and independent third party you'll get wind readings from, and as soon as that wind speed hits, the policy is triggered.”

Ultimately, it is up to the insurer whether to pay or deny a claim, but sometimes a broker can help sway such decisions because it brings so many clients to the insurance company. Gallagher has a claims advocacy team made up of former adjusters who have worked for insurance companies in the past and understand what they are looking for.

“Insurance, it's the foundation of our economy,” Neumayer said. “Imagine there was $300B worth of damage and no insurance. What would you do? The economy would go under. That's the fascinating part, how important insurance is.”