Weather-related disasters have increased significantly in recent years. While the debates around the causes persist, most agree climate change has played a role in driving these changes – and that they will continue and become more severe in nature. Higher temperatures, more water vapor in the atmosphere, and rising oceans are in the news on a regular basis. How do these changes affect the storage operator’s insurance coverage? Let us look at the short-term and long-term effects you can plan to see when looking for insurance today and in the future.
The combination of more frequent and more destructive weather patterns is causing insurance companies to evaluate their ability to insure certain risks and exposures. This is increasingly true for areas where severe drought is creating the perfect recipe for wildfires and brushfires to occur more frequently and spread rapidly – resulting in greater losses for property owners and insurance carriers. This is prompting changes in the insurance marketplace that the self-storage owner can anticipate in the short and long term.
Self-storage operators can expect to see changes in insurance availability and terms of coverage for their locations in higher risk areas, and in areas not previously considered to be higher risk of weather hazards including wind, hail, and hurricanes. Areas previously not considered high risk for wildfire in the past are now at much higher risk due to drought conditions. Some of the things owners should focus on when evaluating their insurance coverage include pricing, deductibles, limits, replacement cost, or actual cash value claim payments, as well as the insurance companies’ ability to pay claims. Let’s take a closer look at these issues.
Insurance companies have different financial strengths based on the premium collected versus the ability to pay claims. What is important about this to the self-storage owner? Knowing whether your insurance carrier will be able to pay your claims. Ask your agent what the carrier’s financial rating is when evaluating your coverage. Also, AM Best Company provides news, credit rating, and financial data for the insurance industry. Their ratings can help assess the financial strength of an insurance company and their ability to pay your claims.
One of the major weather issues affecting insurance coverage today is hailstorms. Hailstorms have been more frequent and the size of hail larger, causing more extensive damage to properties. Hail damages roofs, siding, doors, signs, and outdoor lighting, and anything else outdoors. Another weather phenomenon is Ice Storms. Obviously, these are common in the Northeast but with changes in climate, they are happening over the Midwest and other areas of the country more frequently now. As Texas and Oklahoma experienced last year, these ice storms can cause major damage, especially if buildings are in areas that are not prepared for this kind of adverse weather.
Insurance companies’ efforts to reduce loss from these types of occurrences (and ultimately retain the ability to offer insurance at a fair price) have included higher deductibles. One option an insurance company may require is a higher property deductible (an occurrence deductible). This occurrence deductible is applied to ANY loss that occurs to the property. Another option might be the application of a separate deductible that applies to losses caused by wind or hail, leaving the occurrence deductible at a lesser amount. These wind/hail deductibles often come as a percentage. The application of these deductibles vary by policy, so be sure you understand how the percentage is applied and how much of the loss you, as the property owner, will be responsible to pay should a loss caused by wind or hail occur. Another change you may see is a change in the terms of coverage in a policy. Instead of paying replacement cost for roof damage, the insurance policy may change to pay actual cash value. Paying actual cash value means a deduction from the claim payment for depreciation. Depreciation is based on the age and condition of the roof at the time of loss. Be sure you understand how your insurance carrier looks at roof damage and be aware of what you as the property owner will be liable for should this type of loss occur.
Wind, whether increased strong winds, tornados, or hurricanes are causing more and more damage as well. Tornados are becoming more rampant outside areas typically known to have these types of weather events. Insurance coverage for these types of losses are usually treated the same as hailstorms. One additional option an insurance company may impose on the property policy is to exclude the perils of wind and hail. In this case, you will need to work with your insurance agent to find a specialty insurance company that can provide a separate policy covering just the perils of wind and hail. It may cost more to have the two policies than it did in the past and deductibles may be higher than in the past.
The recent grassland fire in December that devastated a Colorado suburb is just the most recent example of how wildfires are becoming less discriminating on the seasons and causing extensive damage to properties previously believed to have minimal catastrophe exposure. Drought in the western states is causing properties far from forests to be increasingly at risk for damage from wildfires. Firestorms such as this and the fire that occurred in Paradise, California result when heat from a wildfire creates its own wind system. Embers from wildfires are picked up by the winds and carried for miles. Parched lands enable the fire to spark further. The increase in wildfires in recent years is causing increasing premiums and reducing coverage availability from insurance companies. Self-storage owners may find themselves paying higher premiums as insurance companies adjust these larger property claims. Owners may also find fewer insurance markets available from which to select their insurance coverage.
There have been so many of these catastrophic events in recent years, and insurance coverages have evolved and will continue to do so. You can expect to see continuing changes in insurance availability, pricing, and coverage terms. Working with an insurance agent who understands your self-storage operation can help guide you through this dynamic insurance environment.
