Windstorm, flood events show need for broad property insurance protection: ACE Group

A number of windstorms and flooding events both north and south of the border underscore the need for broad property insurance protection, suggests a new white paper from ACE USA, the U.S.-based retail operations of ACE Group.

“Recent extreme windstorms and flooding events – from Superstorm Sandy to the devastating floods that deluged Calgary and Boulder, Colorado – underscore the need for broad property insurance protection,” states the paper, Innovations in Flood Insurance Protection, released Nov. 15.

“In the aftermath of Superstorm Sandy, many corporate risk managers whose organizations had experienced a flood loss found their companies facing a new exposure. Because the financial limits of their existing insurance policies were exhausted, they were responsible for additional financial losses in the event of another flood,” Jeremiah Konz, report author and senior vice president of ACE North American Property & Specialty Lines, says in a statement from ACE Group, one of the world’s largest multi-line property and casualty insurers.

Many businesses were unable to obtain additional coverage or were forced to reinstate limits of existing policies at much higher cost, stricter coverage terms or substantial increases in deductibles, ACE Group reports. “A standalone insurance policy designed to reinstate limits after a loss can be an effective tool for risk managers confronting similar situations in the future,” the paper adds.

The paper points to recent massive flooding that devastated Calgary, Toronto and Boulder. “For businesses experiencing losses caused by such flooding, their property insurance programs provide great financial recourse. But, as the insurance market’s reaction after Superstorm Sandy demonstrated, once the available limits afforded by the property insurance policy are exhausted or have eroded, the businesses may experience difficulty reinstating these limits to the previous levels of protection.”

As an example, “whereas a $30-million limit was previously attainable, some risk managers were offered as little as $5 million of this vital protection,” the paper states of many companies in the midst of renegotiating their property insurance policy renewals.

ACE Group reports, however, that there have been innovations in flood insurance coverage post-Sandy. Flood reinstatement coverage provides excess of loss insurance above the remaining limits of protection in the underlying property insurance policy.

“With flood reinstatement coverage now available, risk managers unable to acquire their customary policy limits at renewal have the option to buy coverage to build back or build additional high-hazard flood limit for improved protection,” Konz says in the statement.

In effect, notes ACE Group, the insurance augments the limits remaining in the insured’s property insurance policy, even in cases where the limits have been completely exhausted. Coverage terms, conditions and premium charged are based on each insured’s high-hazard flooding exposures, the statement adds.