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IRC: Insufficient Auto Insurance Coverage Is a National Problem

By Max Dorfman, Research Writer, Triple-I

Nearly 16 percent (15.7) of U.S. drivers in 2022 had auto liability insurance limits that were too low to pay for damages or injuries they caused, according to new research from the Insurance Research Council (IRC), a division of The Institutes. 

The IRC report found that the underinsured motorist (UIM) rate increased from 12.6 percent in 2017, to a peak in 2020 at 16 percent, and remained elevated in 2021 and 2022. The 2022 rates, however, varied widely across the country, from 5.6 percent in the District of Columbia to 40.9 percent in Colorado. Other states with high UIM rates in 2022 included Nevada (39.4 percent), Georgia (37.3 percent), Louisiana (35.6 percent), and Kentucky (32.0 percent).

The IRC estimates are based on UIM and bodily injury (BI) liability exposure and claim count data collected from 10 major insurers representing approximately half of the U.S. private passenger auto insurance market. The ratio of UIM-to-BI claim frequencies yields a reasonable estimate of the proportion of injury-producing accidents in which the accident victim’s expenses exceeded the at-fault driver’s liability limits.

Auto insurers offer two types of coverage to protect policyholders: uninsured motorists (UM) coverage, which compensates accident victims for injuries or damage caused by a driver without liability insurance or from a hit-and-run driver; and underinsured motorists (UIM), which compensates the injured party for costs associated with injuries or property damage that exceed the at-fault driver’s liability coverage.

Once it is determined that the at-fault driver’s insurance will not fully cover damages, the accident victim files a claim with their own insurance company under their UM/UIM coverage.

“At the start of the pandemic, UIM frequency dropped as the shutdowns dramatically curtailed driving,” said Dale Porfilio, FCAS, MAAA, president of the IRC. “However, UIM frequency dropped less than BI. But by 2022, UIM claim frequency had returned to its 2019 level while BI claim frequency was still below pre-pandemic levels.”

Porfilio, who is also chief insurance officer for Triple-I, noted that, in today’s litigious society, having state minimum levels on uninsured motorist and underinsured motorist insurance does not provide adequate financial protection.

“Riskier behaviors like speeding and distracted driving, in combination with legal system abuse and economic inflation, all contribute to elevated UIM rates,” Porfilio added.

Learn More:

Background on Compulsory Auto /Uninsured Motorists

Uninsured Driving Dipped in 2022 After Pandemic Spurred a Multi-Year Risk

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CSU Researchers Project “Extremely Active”2024 Hurricane Season

Colorado State University hurricane researchers predict an “extremely active” Atlantic hurricane season in their initial 2024 forecast. The team cites record-warm tropical and eastern subtropical Atlantic sea surface temperatures as a primary factor for their prediction of 11 hurricanes this year.

Led by senior research scientist and Triple-I non-resident scholar Phil Klotzbach, Ph.D, the CSU Tropical Meteorology Project forecasts 23 named storms, 11 hurricanes, and five major hurricanes during the 2024 season, which starts on June 1 and continues through Nov. 30. A typical Atlantic season has 14 named storms, seven hurricanes, and three major hurricanes.

The 2023 season produced 20 named storms and seven hurricanes. Three reached “major hurricane” intensity. Major hurricanes are defined as those with wind speeds reaching Category 3, 4 or 5 on the Saffir-Simpson Hurricane Wind Scale.

“We anticipate a well above-average probability for major hurricanes making landfall along the continental United States coastline and in the Caribbean this season,” Klotzbach said. “Current El Niño conditions are likely to transition to La Niña conditions this summer/fall, leading to hurricane-favorable wind-shear conditions. Sea surface temperatures in the eastern and central Atlantic are currently at record-warm levels and are anticipated to remain well above average for the upcoming hurricane season. A warmer-than-normal tropical Atlantic provides a more conducive dynamic and thermodynamic environment for hurricane formation and intensification.”

One hurricane and two tropical storms made continental U.S. landfalls last year. Category 3 Hurricane Idalia struck Florida’s Big Bend region near Keaton Beach on Aug. 30 with wind speeds of 115 mph. It was the third hurricane, and second major hurricane, to make a Florida landfall over the past two seasons. Idalia caused storm surge inundation of 7 to 12 feet and widespread flooding in Florida and throughout the Southeast. 

“The widespread damage incurred from Idalia last year highlighted the importance of being financially protected from catastrophic losses – and that includes having adequate levels of property insurance and flood coverage,” said Triple-I CEO Sean Kevelighan. “Beyond Florida, we saw significant impacts from Idalia in southern Georgia and the Carolinas. All it takes is one storm to make it an active season for you and your family, so it is time to prepare as the 2024 Atlantic hurricane season’s start nears.”

With this forecast in mind, now is ideal time for homeowners and business owners to review their policies with an insurance professional to ensure they have the right amount and types of coverage. That includes exploring whether they need flood coverage, which is not part of a standard homeownerscondorenters or business insurance policy.

Flood policies are offered through FEMA’s National Flood Insurance Program (NFIP) and dozens of private insurers.

Homeowners also can make their residences more resilient to windstorms and torrential rain by installing roof tie-downs and a good drainage system. Installation of a wind-rated garage door and storm shutters also boost a home’s resilience to a hurricane’s damaging winds and may generate savings on a homeowner’s insurance premium.

Private-passenger vehicles damaged or destroyed by either wind or flooding are covered under the optional comprehensive portion of an auto insurance policy.

Learn More:

Triple-I “State of the Risk” Issues Brief: Hurricanes

Triple-I “State of the Risk” Issues Brief: Flood

FEMA Highlights Role of Modern Roofs in Preventing Hurricane Damage

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

INFOGRAPHICS

What are Hurricane Deductibles?

How to Prepare for Hurricane Season

How to File a Flood Insurance Claim

Is Your Business Ready for Peak Hurricane Season?

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Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Property owners in Lee County, Fla., could lose their flood insurance premium discounts under the National Flood Insurance Program (NFIP) Community Rating System (CRS), according to a recent announcement by FEMA.

CRS is a voluntary program that recognizes and encourages community floodplain management practices that exceed NFIP minimum requirements.  Over 1,500 communities participate nationwide.

FEMA informed leaders in the affected communities – which include Cape Coral, Bonita Springs, Estero, Fort Myers Beach, and unincorporated Lee County – that they would begin losing their discounts starting October 1. Under CRS, these communities currently receive discounts of up to 25 percent. Unincorporated Lee County and the City of Cape Coral get the biggest benefit due to their Class 5 ratings. Rates will increase by approximately $300 annually for the 115,000 homeowners impacted by FEMA’s decision.

“This retrograde is due to the large amount of unpermitted work, lack of documentation, and failure to properly monitor activity in special flood hazard areas, including substantial damage compliance,” FEMA said in a statement. 

FEMA officials told the Miami Herald that the problems began shortly after Hurricane Ian in 2022, when federal teams visited the communities hit the hardest and looked at the properties they thought were most likely to be substantially damaged, including older homes built in flood zones, some with previous flood damage.

“What the team found, unfortunately, is there was a lot of unpermitted work, lack of documentation,” said Robert Samaan, the regional administrator for FEMA’s Region 4, including Florida. “It was just a failure to properly monitor the activity in the special flood hazard area.”

FEMA shared with the Herald three letters it sent Lee County in 2023 — one in February, one in June and one in December — asking for information on the number of damaged homes and warning that not providing the information could result in the county losing its flood insurance discounts.

In recent months, a number of Florida communities, including Miami-Dade County, have benefited from lower flood insurance premiums as a result of improved CRS scores that reflect resilience-related investment. CRS has become particularly beneficial as NFIP pricing reforms – known as Risk Rating 2.0 –that more closely align premium rates with property-specific risks – have contributed to rising premiums for some property owners. Before these reforms, it was not uncommon for lower-risk owners to be subsidizing higher-risk ones through their premium rates.

Rising NFIP rates have been accompanied by another trend: increased involvement by private insurers in the flood insurance market.

“Florida has the most robust private flood insurance market in the United States, which provides consumers with numerous options for coverage,” said Mark Friedlander, director of corporate communications for Triple-I. “Nearly a third of Florida flood policies are written by private carriers, and many private flood insurers offer better pricing and more robust policies than NFIP. It’s worth taking the time to shop for coverage and obtain multiple quotes.”

As recently as 2018, private insurers provided only 3 percent of flood coverage in Florida.

This growth mirrors a national trend. Between 2016 and 2022 the total flood market grew 24 percent – from $3.29 billion in direct premiums written to $4.09 billion – with 77 private companies writing 32.1 percent of the business, up from 18 companies writing 12.5 percent. Private insurers are accounting for a bigger piece of a growing pie.

Florida’s Office of Insurance Regulation has heavily promoted the availability of private flood insurance in the state over the past several years, and many private flood insurers are domiciled in the state, Friedlander said.

“We are committed to helping these communities take appropriate remediation actions to participate in the Community Rating System again and work towards future policy discounts,” FEMA said in its statement.

Earlier this year, Sea Isle City, N.J., had its Class 3 rating restored after a brief demotion in 2023. Sea Isle City and Avalon are the only towns in the state to have Class 3 ratings.

Learn More:

Coastal New Jersey Town Regains Class 3 NFIP Rating

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts Thanks to Resilience Investment, Thanks to Resilience Investment

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Triple-I “State of the Risk” Issues Brief: Flood