A Second Disaster Strikes: Will FEMA Pay Again?

ADJUSTERSINTERNATIONAL.COM 5 In his testimony, Serio described the market conditions that existed after 9/11: • “Coverage for acts of terrorism is no longer available for the largest commercial risks and its availability in the small and medium-sized markets is spotty and, where available, is offset by dramatic increases in rates .” • “This coverage…is now endorsed by terrorism exclusions and…premiums have dramatically increased … as availability in the traditional admitted market has declined .” • “ Governments , too, are finding it either problematic to secure coverages or afford the premiums that are being charged.” • “ Hospitals were the first New York business sector to experience significant difficulties in obtaining adequate and affordable property coverage for their facilities post-September 11th.” (For example, on renewal, one philanthropy operating several metro hospitals was able to obtain only 20 percent of the coverage limits of its expiring policy, experienced broad terrorism exclusions and a tighter “occurrence” definition in the renewal policy, and faced premiums three times higher from 23 insurers who collectively provided one-fifth of the organization’s pre-9/11 coverage.) • Real estate developers and trusts encountered problems in obtaining lending for major projects due to covenants contained in indentures, which required adequate insurance. • Even sports teams had trouble securing terrorism insurance. After 9/11 insurers were “offering significantly less coverage at substantially higher rates to professional sports teams in all venues. The New Jersey Sports and Exposition Authority, which managed Giants Stadium, saw its insurance costs more than triple — to $2.4 million.” Concluding his testimony, Superintendent Serio said, “The insurance industry does not have the capacity to absorb repeated losses such as the one inflicted on September 11th. The catastrophic nature of, and the potential of unlimited losses stemming from, this exposure make it impossible for the industry to bear the risk. Secondly, insurance rates are assumptions of loss frequency and severity. The frequency and severity of terrorism losses are impossible to predict…making it nearly impossible for the industry to develop an appropriate premium.” In summary, 9/11 demonstrated in dramatic fashion the volatility of the property insurance marketplace, the expansion of policy exclusions, the crippling lack of availability of adequate property insurance coverage and costly increases in premiums. However, FEMA has neither publicly addressed nor changed its obtain and maintain requirements as they stood before 9/11. Whether a disaster is man-made or natural, obtain and maintain requirements continue to pose major hurdles for the operating budgets and risk management decisions of Public Assistance Program applicants.