Return on Insurance
Oct 1, 2007 12:00 PM, By Jennifer Popovec
Over the past few years the U.S. coasts have been hammered by hurricanes while the Midwest escaped disaster. In August that changed. The Midwest region sustained severe property damage from a huge storm system that dumped more than 15 inches of rain over the course of 10 days. The storm, accompanied by several tornadoes, swept through Illinois, Indiana, Iowa, Minnesota, Ohio and Wisconsin. In all, 21 counties in Minnesota, Ohio and Wisconsin were declared federal disaster areas. Preliminary figures estimated damage to be in excess of $1 billion.
Rushford, Minn. was among the worst hit, suffering an estimated $38 million in damages. The suburb of Winona, which is wedged between two levees — one on the banks of the Mississippi River and another on Rush Creek — saw its downtown submerged by several feet of water. Rush Creek poured over its levee and the other levee prevented the water from draining into the Mississippi River. No one expected another flood in the town of 1,800 residents. The levees were built in 1962, the last time the small town flooded; therefore, most property owners didn't have flood insurance.
Citing the hard-hit businesses, Rushford city administrator, Windy Block, told Minnesota Public Radio that what happens to those businesses will affect the town's ability to recover.
Mike Beach, assistant vice president and executive general adjuster for McLarens Young International, a global claims management and adjustment company, says, “Not only are the buildings destroyed, but the contents of the shops are lost. Property owners without insurance coverage will likely never recover from these losses — they'll be unable to rebuild.”
Looking for trouble
Beach spent September filing flood claims in Minnesota, seeing firsthand the damage the Mississippi River wrought on the nation's heartland. In addition to having flood insurance, property owners throughout the Midwest, now dealing with the aftermath of that weather-related event, also see the need for a disaster recovery plan.
Throughout the Midwest, property owners of every size face similar challenges. However, those with adequate insurance coverage and a disaster plan will be better positioned in the aftermath of such an event — when, and if, it occurs again.
Pete Bell, CEO of Cotton Companies, one of the largest disaster preparedness and restoration organizations in the U.S., recently deployed restoration teams and trucks to the Midwest to work on flooded commercial buildings. The Houston-based company was involved in the cleanup after Hurricane Katrina and the September 11 terrorist attacks in New York City.
“A lot of people think that insurance companies make decisions for their property after a disaster, but it's the property owner's job to make the decisions to mitigate the damage and get the property back to its operating conditions,” Bell says. “After a disaster, you don't want to be looking in the Yellow Pages trying to find a contractor to fix your building. You need to have all that in place before something bad happens.”
A study on the cost-effectiveness of mitigation strategies conducted by the Multihazard Mitigation Council of the National Institute of Building Sciences found that for every dollar spent on pre-disaster mitigation, four dollars are saved. Pre-disaster mitigation includes everything from emergency preparedness to having adequate insurance.
Increased insurance costs
While having a disaster recovery plan may lessen some of the angst associated with maintaining communication with employees, clients and vendors, the anticipated spike in insurance costs in the nation's midsection will be cause for concern among commercial property owners.
“In the past, insurance companies were willing to leave the Midwest alone because it has been safe ground for them — they've felt comfortable there because there were no hurricanes or earthquakes and they looked at the Midwest as being the safe part of their portfolio,” says Robert Levin, CEO of Globe Midwest/Adjusters International, a national loss consulting and appraisal firm based in Southfield, Mich.
However, Levin expects insurance companies will soon introduce similar coverage limitations and deductibles in the Midwest that are prevalent in hurricane-prone regions. “Since they've been getting away with it in the coastal states, I expect the insurance companies will start to apply it to the Midwest,” he says. In fact, many national insurance carriers like Allstate Insurance Co. and State Farm exited many of the markets vulnerable to hurricanes.
