Hurricane season is starting up in Florida, which could also be called “insurance claim denial” season. Just when you need help the most, insurance companies do everything they can to withhold payment. Insurance is a business, and the way they make money is by keeping as much of it as possible. After Hurricane Irma, insurance companies denied almost a third of all claims, mostly because the assessed damage was less than the deductible on the policy.
New insurance options are now available in Florida that could fill in the gaps for certain homeowners. Are they right for you? Read on for more information.
What Is Parametric Insurance?
With a traditional hurricane insurance policy, insurance companies will pay for certain kinds of qualified damage above a certain threshold. They’ll fight tooth and nail to disqualify as much damage as they can, of course, which is where aggressive legal representation comes in. This process can take a while, though, and most Floridians grudgingly accept it because it’s the only game in town.
Parametric insurance is different. Instead of arguing over what’s covered and what’s not, your payment is purely based on something easy to measure -- a parameter -- that’s determined ahead of time. In the case of StormPeace, the California insurer that’s just entered the Florida market, they’ll pay you based on how strong the storm was when it passed your house and how close it was. After you receive payment, you have 45 days to prove that damage occurred.
- It’s fast. Instead of waiting weeks or months for a payment, most parametric insurance payments land in your bank account in a few days.
- It’s easy. Because you don’t have to prove anything ahead of time, you can focus on the immediate disaster and sort out the administrative details later.
What’s The Catch?
Good question! The most important thing to understand is that this kind of coverage isn’t designed to replace your traditional policy -- it’s supplemental. You’re only allowed to buy as much insurance as the deductible limit on your regular policy. It’s capped at $60,000 in the case of StormPeace, which doesn’t come close to covering total property loss. The money comes fast, but it’s less.
You also pay for convenience. When you compare the money you put in versus the money you get out, you’re paying more for parametric coverage than you are for traditional coverage. Of course, they deal with different regimes of damage, so they’re meant to fit together; not to compete.
Also, just because a hurricane blows through doesn’t mean free money -- the burden of proof still exists. If your house is high and dry after a major storm and they’ve already sent you a payment, you’ll have to send it back. The insurance industry isn’t known for its philanthropic bent, and these insurers are no different.
Even with those caveats, parametric insurance can still be a good idea. While you’re aggressively pursuing a claim through your traditional policy, you’ll have all sorts of immediate expenses and needs, which parametric insurance is well-positioned to deal with. The time and expense of getting a fair payment from your traditional policy hasn’t gone away, at least for now. However, these new offerings might make it a little easier to bridge the gap.