"Riots' bitter legacy," (front page, Aug. 9) about the recovery process in the wake of the riots caused by George Floyd's death highlights some of the complex financial challenges in dealing with disaster recovery. While insurers are hard at work adjusting and paying claims, these events call attention to the need for everyone to learn more about the insurance-buying and claims-handling process.
While some policyholders have reported that they are upset with how their claims are being handled, the overwhelming majority of claims are being paid relatively quickly and to the customers' satisfaction.
The article reports that "insurance companies have informed the Minnesota Department of Commerce that they will be covering a maximum of $240 million in riot-related damage." That amount was actually just an estimate of what insurers were preparing to pay based on the number of claims received as of July 10. That number could easily go higher. In large catastrophe events such as this, initial estimates are often updated and increased as more claims come in.
Auto and homeowner's insurance claims are fairly simple, and the data shows most of those claims have already been paid. Commercial claims are much more complex. It simply takes more time to adequately determine the value of inventory, the cost of repair or rebuilding, the amount of income lost and other costs. These claims often depend on multiple contractors, estimates and records. It is a good practice to keep records in duplicate and away from the property you are insuring.
In many cases, the business owner, not the insurer, determines how a claim progresses. If the policyholder wants to rebuild, it's common that the claim is paid over several payments with the final payment made as the work is completed, which means some claims could remain "open" for a long time.
As far as claims being adequate to cover losses, it's important to remember that insurance policies are contracts. If a triggering event occurs, the policy pays up to the limits based on the policy's language.
In almost all commercial insurance policies, coverage includes losses to "rioting," "vandalism" and "civil commotion." Clearly these are almost all covered claims. But as is being discovered now, many businesses either deliberately underinsured to save on premiums, didn't update their policies as their businesses grew and changed, or only bought policies that covered the business in case it was sued by a vendor, customer or other third party.
Running a business is certainly not easy. It's much more than just opening the doors and taking people's money. A business owner has to prepare for many possibilities, including that they might hurt an employee or customer. They also face the risk they might lose their building or inventory in a man-made or natural disaster. But those risks can be reduced with proper insurance coverage. Calling an insurer, broker or agent to ask about coverage options is an easy first step that doesn't take much time.
The insurance professionals can help business owners fully understand their risks of doing business and give a range of options to help protect their investment. Often this will include suggestions that can help mitigate losses and keep premiums more affordable.
It's clear that the media, regulators and insurance industry need to do a better job educating consumers on the most prudent way to buy and maintain adequate insurance coverage so there will be greater understanding in the future.
The aftermath of the recent events is a tragedy indeed and the recovery is going to be difficult, but the insurance industry deeply values its customers, our policyholders. We take great care in safeguarding their investments and responsibly paying claims.
There will be more than a quarter-billion dollars of policyholder premiums paid out to help with the recovery in Minnesota. Our industry is committed to the rebuilding process and ensuring policyholders remain safe from potential financial ruin.
Aaron Cocking is president and CEO, Insurance Federation of Minnesota.
