IRMA TESTS STRENGTH OF INSURANCE SECTOR

Losses to properties in Texas alone will be US$65b to US$75b, says risk agency

BUSINESS owners who are trying to get back on track after hurricanes Harvey and Irma now face a different sort of challenge: trying to recoup lost income from their insurers.

Exclusions in the fine print of policies, along with waiting periods and disagreements over how to measure a firm’s lost income, make business interruption claims among the trickiest in the industry.

“I think the whole thing is a ripoff,” said Thomas Arnold, an optometrist in Sugar Land, Texas.

He said his business, Today’s Vision, was shuttered for almost five days after Hurricane Harvey struck because nearby flooding kept employees and patients from getting there.

Arnold said he paid US$1,083 (RM4,537.27) per month for coverage. But after he filed a claim, he said the US unit of Zurich Insurance Group AG, rejected it because his business was not physically damaged.

Zurich Insurance does not comment about specific claims, said the company. It added that business interruption coverage generally required “direct physical damage” to a property for a payout.

Devastating storms are hitting the US with increasing frequency. Risk modelling firm AIR Worldwide predicts losses to all properties from the flooding in Texas alone will be US$65 billion (RM272.3 billion) to US$75 billion, regardless of whether they are insured.

The income lost by shuttered firms makes up a significant chunk of overall losses from a natural disaster and can hobble the pace of a community’s economic and social recovery.

Hurricane Katrina in 2005, for example, caused about US$25 billion in insured commercial losses, of which US$6 billion to US$9 billion has been attributed to business interruption, said AIR on its website.

The National Flood Insurance Programme (NFIP) does not offer a business interruption component. The programme is used by homeowners, but it also covers commercial structures for up to US$500,000 in damage, with another US$500,000 for the contents.

That is why companies able to afford the additional protection of business interruption insurance, usually large and mediumsized firms, often purchase it despite the potential for unsuccessful and drawn-out claims.

“Insurers are craving information now,” said Ernst & Young LLP leader insurance claims (Americas) Allen Melton.

“They want to know how big a claim we are looking at and what the issues are.” Reuters