Inside Insurance: Disaster recovery for homeowners and renters

Inside Insurance: Disaster recovery for homeowners and renters

November 3rd, 2011 in Business Diary

By David Colmans

One of the most often asked questions by reporters after significant disasters such as the spring 2011 tornadoes is, "Are insurance rates going up?"

The question seems to be a natural conclusion when millions of dollars in damage occurs in any given community. What often surprises reporters is the answer.

The short answer is "no," but other factors can cause confusion and misunderstanding.

A case in point: After the spring storms, the calls started coming about what will these multi-state disasters do to insurance rates?

In Georgia, the state's insurance commissioner and his staff regulate insurers including a process for submitting rate increases or decreases. In order for a rate increase to be approved, the company must submit a rate request form that, among other things, gives the company an opportunity to mathematically justify the rates requested based on several factors that include previous years of experience in the state.

This is a key factor because previous is not what happened two or three month ago, but what has transpired over the last 10 to 15 years. Insurers must provide considerable data to justify why an increase in rates is justified, and insurers smooth out the high variability of weather losses by studying many years, not just two or three.

What sometimes creates the misperception of rates being affected by recent developments is that the Insurance Department may grant a rate change shortly after a significant disaster that had been under review since months before the recent disasters.

To the media and some in the public, the rate increases appeared to be related to the recent catastrophes, but in fact, one had nothing to do with the other.

Georgia has the benefit of a very aggressive property and casualty insurance market due to the number companies that do business in the state. That is very good for consumers from a competitive standpoint.

What many reporters often do not consider is the same thing that confuses the public. In the last few years, we have all seen a significant decline in the real estate market, and news reports continue to report decreases in the market value of virtually all homes.

While that reality is very disappointing to all homeowners, the market cost of a home is not related to the cost to rebuild or significantly repair a damaged or destroyed property following a devastating storm, fire or other calamity.

In fact, while home prices have gone down, construction prices continue to rise due in large part to the availability of building materials. One important factor to consider is the per square foot cost to rebuild after demolition.

Most of us do not even consider the amount of money insurers must pay out for additional living expenses to the home's occupants for the many months it takes to rebuild such as monthly rental fees and cost of meals.

Homeowners and renters also face the complex issue of determining what personal possessions were destroyed or lost in the event. This is why both homeowners and renters who obtain renters insurance must have an accurate home inventory to speed up the recovery process since documenting what the homeowner or renter lost is necessary.

What those who are affected by significant weather events, fires or even major burglaries know is that documentation is vital and it takes time to get back to "normal."

Reconstruction of buildings and replacement of personal possessions are to a great degree a function of what your homeowners or renters insurance policy provide the insured. Reviewing your policies every year or two with your insurer is well worth the effort for planning as well as piece of mind.

Talk with your insurer to better understand what the insurers expects and what you can expect when the process of disaster recovery is underway.

David Colmans is the executive director of the Georgia Insurance Information Service. Contact him at (770) 565-3806 or by email at