What natural disasters are covered by insurance? You might assume all of them, but that’s not the case.
Natural disasters, including hurricanes, floods, tornados, wildfires, and earthquakes, pose a significant financial risk to individuals and businesses. Insurance companies play a crucial role in alleviating these losses by offering policies that cover the damage.
While insurance is meant to provide financial protection in times of crisis, coverage for natural disasters is often complicated and varies depending on the type of disaster, the location of the property, and the specific terms outlined in an insurance policy. The severity, frequency, and unpredictability of natural disasters create major challenges for insurers, leading to exclusions, limitations, and high premiums in high-risk areas.
Each year, natural disasters wreak havoc on homes and land, yet much of the damage often goes uninsured. Natural disasters are high risk events, and with this can result in large financial loss, making it difficult for insurance companies to stay profitable.
A single disaster has the potential to bankrupt insurance companies and leave homeowners without coverage. To minimize payouts, insurance companies may exploit loopholes to avoid paying claims, citing insufficient evidence of damage, asking for proof the damage was caused directly by the natural disaster, and may deny your claim if you cannot provide enough evidence.
Insurance companies can also avoid these large payouts using reinsurance, or insurance for insurers, transferring risk of natural disasters to another company.
However, rising reinsurance costs often lead to increased premiums for homeowners, making coverage unaffordable for many. Those living in high-risk areas face even greater challenges, as insurers may refuse to offer or renew policies due to the uncertainty of potential losses.
If state regulations prevent insurers from raising premiums to offset these risks, companies may withdrawal from high-risk regions all together, furthering limited coverage options for vulnerable homeowners.
A current-ish disaster that highlights these issues is the Palisades Fire. The Los Angeles neighborhood is being devastated by this wildfire, while also dealing with the insurance nightmare that many of them are facing.
State Farm made the decision to drop over fifteen hundred homeowners from their policy in July 2024, about six months before the fires. Due to their high risk climate, insurance companies fled to avoid their concerns of large payouts, leaving thousands of people without coverage in the wake of this devastating fire.
But closer to home, in 2023, a tornado struck Point Place Toledo, Ohio, destroying homes and businesses, whisking away trees, and totaling cars in its wake. While there were no fatalities, it left the community in shambles.
A lifelong Point Place resident speaks on her experience and witnesses firsthand how her insurance company delayed payments, denied claims, and defended their actions, a known tactic used by insurance companies around the world.
“You don’t know the specifics of your policy until it’s too late.”
She highlights another large issue, homeowners mistakenly believing certain damages are covered, only to discover through fine print that they are left unprotected when disaster strikes.
“No matter what your coverage is or how much you spend on insurance, they will only pay what they deem necessary. The tornado left me with cracking and protruding nails in my ceiling, from the roof being lifted by the storm, and my insurance denied coverage due to lack of proof it had been caused by the tornado, calling it ware and tare. We also had this same issue with our masonry brick home, which was severely damaged by the 1 1/2 inch hail storm we got with the tornado, as they claimed it was historical wind and debris damage, even with the evidence I provided.”
The Point Place homeowner battled with her insurance company for over a year before finally receiving a small payout, one that didn’t cover the cost of her destroyed roof and exterior damage.
In the event of a natural disaster, getting back to any type of normalcy is difficult, and insurance companies often prolong the process as long as possible, with as little money as possible.
While insurance is meant to provide protection in the wake of natural disasters, coverage is often complex and limited for policyholders. The cases of the Palisades Fire and the Point Place tornado highlight the struggles many homeowners face when insurers deny, delay, and defend.
As natural disasters continue to increase in frequency and severity, the gap between coverage and actual financial protection widens, leaving many without the support they were led to believe they had.
It is crucial for homeowners to review policies, advocate for stronger and more reliable protection, and push for more transparent and fair insurance practices to ensure that, when disaster strikes, they are not left financially devastated.
Ultimately, the current state of natural disaster insurance is a ticking time bomb, waiting to unleash financial devastation on those who can least afford it.
