Insurers: Rebuilding A Mixed Bag

By Christina P. O’Neill, Banker & Tradesman

New construction springing from still-barren hillsides in Central and Western Massachusetts in the aftermath of last year’s crippling tornadoes is evidence of property and casualty insurers at work. But the picture varies across the commonwealth.

The ability of property owners to rebound is a reflection of their financial stability, the quality of their insurance coverage and of the parity of market costs versus replacement costs before the storms hit last June 1.

In Sturbridge, the insurance claims process appears to have gone smoothly. Independent agent Richard McGrath says policies “worked the way they were supposed to.”

Insurance carriers’ catastrophe teams moved quickly after the storm to find temporary housing for displaced homeowners, and McGrath’s namesake company, McGrath Insurance, was able to cut checks for temporary assistance in the first 24 to 48 hours after the storms.

McGrath said his company handled 78 tornado claims in all, with the main push to replace damaged structures with like/kind accommodations. Many homes have already been completely rebuilt, and most of his policyholders were back home by Thanksgiving, he said.

But many were less fortunate.

Limited Coverage

Public adjusters also descended on the hardest-hit towns after the storm, making claims to property owners that they could get larger insurance settlements in exchange for an eight to 10 percent cut for the adjuster.

But there was a tradeoff: The extra time the adjusters took to process claims. As the clock ran, property owners who signed with the public adjusters encountered expenses from the loss of use of their properties.

Additionally, much tree clearing work remains to be done throughout the affected areas, which is worrisome to all municipalities affected because of the fire hazard posed by dry, dead wood. The average homeowners’ policy is limited in tree removal coverage, relative to the abundance of trees in the Northeast.

A year after the storms, substantial trunks are stacked like cordwood on bare ground in Sturbridge, Southbridge, Brimfield and Monson. In Springfield, tree canopies were ripped out, and many streets that were once tree-lined are now mostly bare.

Insurance premium pricing moves in cycles. A cycle of years with few claims and therefore few demands on reserves frees up insurers to offer discounts in order to attract new business. But a year like 2011 – in which Massachusetts was well above 100 percent on its loss ratio – brings the need to increase premiums in order to replenish reserves. Property and casualty insurance premiums are rising this year, not just due to the tornadoes but also because of Hurricane Irene and the freak snowstorm in late October that damaged tree crowns that still had all their leaves. Insurers are offering discounts to offset premium increases, McGrath said.

Repair Vs. Replace

In Springfield, where the storms impacted a 6.2-mile-wide area, the picture is more mixed. Some neighborhoods have rebounded well while others are still struggling. The city’s South End now has a lot of “missing teeth” in its building landscape, according to Nicholas A. Fyntrilakis, vice president of community responsibility at Springfield-based Massachusetts Mutual Life Insurance Co. and head of the city’s Rebuild Springfield initiative.

The city’s Maple Heights/Six Corners neighborhood, one of the city’s oldest, was originally built as worker housing to service the Springfield Armory. Today, it’s described in Rebuild Springfield planning documents as having many abandoned properties, substandard housing, low education rates and high crime rates.

Discussions have ensued with FEMA regarding the demolition of more than a dozen homes in the neighborhood. Fyntrilakis says that a lack of adequate insurance and the inability or unwillingness of property owners to do repairs and upgrades is being addressed by Rebuild Springfield.

FEMA is frequently called in after a disaster in instances where there is insufficient or no insurance in place. It typically pays 75 percent of all demolition costs on projects it approves.

But the agency denies the assertion that the Maple Heights/Six Corners homes are structurally deficient, and instead wants them repaired. The city, potentially on the hook for the entire cost of demolition and lacking the funds to proceed without knowing if it will be reimbursed, has retained a consultant to negotiate with FEMA.

The repair versus rebuild argument has emerged elsewhere in Springfield. An impasse between the Diocese of Springfield and its insurer, Catholic Mutual, regarding the rebuilding of Cathedral High School and repair of St. Michael’s Middle School has gone into arbitration.

The Diocese says damage totals $70 million and says its consultants have declared Cathedral a total loss. But the insurer doesn’t agree, and is offering $15 million to repair, not rebuild. A decision in the arbitration is expected in August.

The city has facilitated a conversation with the Massachusetts Commissioner of Insurance, but many issues have to be worked out.

“It’s a mixed story,” Fyntrilakis told Banker & Tradesman. “There are good things happening [in some neighborhoods]. In others, the jury is still out.”