Michael Carlson: The truth behind closed property insurance claims

The federal price tag for Hurricanes Milton and Helene has topped $2B.

Floridians are still grappling with the devastation left behind by Hurricanes Helene and Milton, trying to restore their lives, homes and communities.

For many, the damage feels relentless, with some still rebuilding from previous storms like Debby (2024), Idalia (2023) and Ian (2022). In the aftermath, time, resources and a coordinated effort will be essential for full recovery. Property insurers play a critical role in this recovery process, actively working with homeowners to evaluate, process and pay claims as swiftly as possible.

Unfortunately, recent media stories and self-interested statements by some insurance industry critics have created confusion, leading consumers to believe that property insurers are unjustly denying claims.

The narrative being created, based in part on an article citing data from Hurricane Ian claims, overlooks a key issue: much of the damage from Ian was caused by storm surges, which is generally not covered by a standard homeowners insurance policy. The result is that consumers are being misled into believing flood claims are covered and are denied by insurers without proper justification.

There are several valid reasons (OIR CRF 24.01.A) why a claim may be closed without payment. One of the most common reasons is that the cost of the claim falls below the deductible amount, which is the portion of the insurance that is the homeowner’s responsibility. If the damages cost less than the deductible amount, the insurer is not obligated to pay for those damages. A second common reason is when there is no coverage for the losses claimed – for example, some insurers exclude pool cages from coverage. If a homeowner files a claim for damage not covered by the policy, the claim will be denied and closed without payment.

There is a timely and even more important reason why a property claim may be closed without payment: if the claim is for damage caused by storm surge or local flooding, it is generally not covered.

Many consumers do not know that their standard homeowner’s policy excludes flood damage. If they file a claim for damages caused by flooding, it will be appropriately denied, and the claim will be closed without payment.

Unfortunately, several recent storms – Ian, Debby, Helene and Milton – have caused significant flood damage, resulting in a higher volume of claims closed without payment. This is exacerbated by a federal requirement that must be met for a storm victim to seek emergency assistance from the Federal Emergency Management Agency (FEMA).

After major hurricanes, FEMA provides disaster assistance to those affected. However, to qualify, homeowners must file a claim with their insurer first, even if they know the damage is from flooding and not covered by their policy. The denial of the claim requires FEMA to step in and provide financial assistance. This requirement ensures that homeowners can receive the aid they need, but it also increases the number of claims closed without payment.

To make matters worse, most homeowners do not buy private flood insurance or insurance from the National Flood Insurance Program (NFIP), and they are not protected from damage caused by storm surges and localized flooding from a storm. The numbers are alarming: According to NFIP data, 8 out of 10 households are not protected by flood insurance.

Insurers are required by law to treat consumers fairly and honor the insurance policy terms. If an insurer has a pattern of closing claims without payment, the Office of Insurance Regulation (OIR) has the authority to conduct a market conduct exam of that company to determine whether its practices meet legal requirements. If OIR determines that an insurer has violated Florida law, it can impose a range of penalties, including high fines and even suspend the insurer’s business license.

The misinformation campaign about claims closed without payment increases stress for homeowners trying to rebuild after recent storms. Insurance industry critics should focus on educating consumers on the importance and value of flood insurance and providing information that will enhance recovery efforts.

PIFF members remain dedicated to their role as financial first responders, standing by their commitment to help customers recover and rebuild after a storm.

___

Michael Carlson is the president of the Personal Insurance Federation of Florida.