AIRROC’s Boston Regional this year was co-hosted by Locke Lord and Pro. Held in the Prudential Center, the attendees learned from a diverse faculty and were treated to a keynote from Elizabeth Dwyer, Deputy Director and Superintendent of Banking and Insurance for Rhode Island. We also had an insightful presentation on Hurricane Maria and its effects on Puerto Rico, a report out on some significant court decisions, and an in depth look at the legislative activity surrounding runoff statues, and a session on social media and ethics. More highlights follow.
Hurricane Maria
Ralph Rexach, Managing Partner at Rexach & Pico, on the effects of Hurricane Maria on the island of Puerto Rico. This devastating storm sliced across the country on September 20, 2017, causing widespread power outages and catastrophic landslides and taking the lives of thousands of residents.
Rexach & Pico is a premier law firm specializing in insurance regulatory matters in Puerto Rico. This firm was founded by Ralph Rexach, the former Insurance Commissioner of Puerto Rico. This firm and its staff survived the 135 mph winds and torrential rains while operating under generators for many days. According to Rexach, the key to survival is being prepared for these once-in-a-hundred year events. Over the past century, Puerto Rico has experienced eight major hurricanes, including Hugo, George, and San Felipe, each causing billions of dollars in losses.
Hurricane Maria was classified as a Total Involvement Event, with the entire island experiencing hurricane winds, 100% power outage, and cell phone/telecommunications tower disruption. Air and sea ports were in a state of disarray. The National Weather Service reported extreme structural damage from high winds, as a well as the destruction of crops and animal farms. The insurance estimates top $30 billion dollars, with total losses more than double that figure.
After Hurricane San Felipe in 1928, the country started adopting and building codes. These codes have continually evolved to meet current standards. The challenges lies with getting everyone to agree on standards and the government’s enforcement. Hurricane Maria will bring about additional calls for reform due to the devastations with condos and resorts.
The history of insurance on the island dates back to 1893 mortgage laws requiring property owners to purchase coverage. It was in 1937 that the FHA required all new property to be constructed with reinforced concrete. Over time, the government has become more involved in regulations and the industry has benefited from changes in codes. Claims resolution has seen a 90-day standard for decisions on claims submitted. There were over 250,000 claims initially filed after Hurricane Maria and approximately 10% are still unresolved.
Rexach discussed mandatory catastrophe reserving for insurers, referencing Chapter 25 of the Insurance Code. The Commission establishes a set percentage (usually between 1% and 5%) as related to exposure. Insurers are also required to purchase reinsurance to protect exposures not covered by CAT reserving. Rexach later explained the role of adjusters during a catastrophe, as well as the relaxing of licencing requirements and issuance of emergency adjuster permits. The presentation touched upon other developments such as the Triple S announcement and pending legislation in the Senate.
It is interesting to note there were 14 active insurance companies writing hurricane coverage prior to Maria. That number dropped to twelve and may continue to decline. Most of the insurance coverage is with the German companies and not much comes from the United States.
For the full article, refer to page 16 in the Winter 2018-2019 issue. https://www.airroc.org/assets/docs/matters/AIRROC_Matters_Winter_2018-2019_vol_14%20_No_3.pdf
