A Comment from a previous post, How Ike Insurance Claim Help is Supposed to Be, provided insight to the understanding of the claims process from two adjusters in the insurance industry. The comment is worthy of repeating here:

Good day Chip: Per our discussions, my personal receipt of memo below is the most "real time" authentication I secured from trusted and experienced adjuster friends who were thrown into the TWIA adjusting fray, fully validating your points and the tendency to cast exclusion style chaos into the face-to-face adjusting responsibilities. Hope this is helpful. Mark Phillips

Documentary Provided by:

Dateline: October 31, 2008
Relayed To: Mark Phillips, Loss Consultant

The problem we have encountered as adjusters in relation to this storm is the wind/flood/surge problem; something we’ve encountered very little in the past. We had to get online and do a little research to make ourselves more aware of exactly how surge happens; as one of our claims was a total loss, possibly from surge as no one really knows what happened, and it requires a great deal of documentation to get the claim settled. We do not believe it was from surge. It’s difficult to prove. We believe the wind blew it away and the surge then washed it away. Proving wind happened first would mean a huge difference in what the insured is paid in damages. There will be much controversy over this topic.

The people all must carry flood insurance, wind insurance (we’ve been working for Texas Windstorm) and then they have their home owner policies; three kinds of insurance to pay for.

We’re finding that even though they knew they needed flood insurance and wind insurance the agents, in many cases, didn’t do a very good job of explaining how they work in relation to surge, which plainly is not covered in the policies. We’re finding many of the agents do not even understand the concept of surge. The agents believe their customers’ properties are well insured no matter what the flooding issue. It’s fairly simple for us to refer them to their flood insurer but we try to explain a little of the concept of flood as compared to surge.

We’re hearing that the flood guys are not doing a good job of taking the time needed to do their part of explaining and they may not be doing a good job in some instances (we are told this from our insureds) in working the claims. It is fairly simple to tell the customer it is surge and walk away! Research takes time and sometimes is a wasted effort. No doubt the information and documentation required is very hard to come by. The insureds in many cases are left very upset.

We’ve been grateful we are working for wind and not for flood!

Agents realize the policies exclude surge (there is no surge insurance available); but they don’t really understands the mechanics of surge and they haven’t explained it well. We expect many to be using their E&O insurance because their lack of explanation has caused great grief to many.

The claimants find that after paying all that money flood doesn’t cover it. Wind doesn’t cover it and home owner policy doesn’t cover it so who does? That nasty little word "surge" ruins everything! In cases where mortgages will allow, many plan to drop their insurance saying it’s worthless. We’re so grateful most of our claims affect the 2nd floor up! The flooding for Texas Wind has to come from the top down rather than from the bottom up. Seldom do we (as wind adjusters) have to worry about the bottom floor of the multi-floor break-away bottom floor homes because that is usually a flood problem. Most every home on Tiki Island Village is missing the bottom floor after the storm. We understand that the city fathers will be taking a new look at the regulations to build the break-away walls. That perhaps those walls breaking away with the force they did is what caused much of the damage.

We hear stories that if they were OUR PERSONAL story, it would be a heart breaker!
We hear from many of the insureds that the adjusters take one look, say sorry, its surge..and walk away. Hearts are broken, they feel they didn’t even get a chance to show the damage or even talk to the adjuster. That has not been popular. We’ve inherited a few of those claims.

It’s greatly appreciated when we listen intently to them, do our best to feel their pain and even though our ultimate findings may turn out the same, at least we didn’t brush them off with the "surge" word before hardly even shaking their hand. We have emails to prove how much they appreciate the special attention and sympathy! It shows someone at least cares for their pain!

Speaking of Tiki, there are stories we heard during our investigation that are very interesting. When there is a claim where the insured loses everything, where the house is completely gone & there has to be much investigation and documentation to be done. You have to talk to the city officials to see what exactly was documented. You have to talk to neighbors and make lots of watermark pictures and compile all kinds of documentation. In checking on one of our "completely missing" claims, we heard some interesting stories. This particular property was in Galveston but it was on Tiki that we got some of our most interesting information; information that will probably be of prime importance in upcoming investigations.

Supposedly only a few people, possibly only one person, stayed on Tiki during the storm considering the mandatory evacuation. We heard that person tells that the water rose up gently — pretty quickly but gently. But the water did not go down gently. It didn’t recede as you would expect water to do. It went out immediately as if someone pulled the plug on a bathtub and that is when much of the damage was done. It will be a large point of evidence when the litigations start. Surge takes it all away instantly but this bathtub effect is different. That’s when the walls on the 1st floors went out; when the boats and appliances that had floated up began to bang up against things and did the damage, etc. Supposedly the few people who saw this will be important witnesses to how things happened. That’s supposedly why cars and other large objects were buried.

I feel the "Surge" phenomenon will be an always present cause of damage in upcoming storms. But we’re told that this was a particularly unusual storm and that surge is not always present.

A few ideas struck me as I read this. First, the adjusters seemed sympathetic to the policyholders’ plight. They seem like they want to do a good job and help. My impression is that they are inexperienced regarding major hurricane adjustment because they had not encountered storm surge.

Second, they have no clue how flood insurance works. Storm surge is covered under a flood policy. It is water damage from a body of water and within the definition of a "flood" under the National Flood Program. If the National Flood adjusters are denying those storm surge claims, we have not been getting calls to that effect.

Third, the adjusters admit they cannot figure out exactly what happened. They admit there is going to be a lot of controversy over flooding and wind damage as the cause of the loss. I agree. We have been retained on many of these controversies. The same issues were litigated after Hurricanes Katrina and Ivan.

Next, they are hearing that National Flood adjusters are not doing a good job. I have been hearing the same. The typical National Flood adjuster gets paid a percentage of the flood payment. However, overpayments come out of the adjuster’s own pocket. As a result, estimations of damage tend to be low to prevent the penalty of overpayment. For the first time in a decade, I have seen total loss flood claims where the estimate of damage is less than the policy limit.

Finally, I wonder what instructions these field adjusters have been getting from Texas Wind in Austin. The manner of calculation and reasons should be transparent. For example, the total loss policyholders coming to us from Bolivar were initially getting about ten percent of policy limits from TWIA. Later, they were paid another one to three percent with an estimate that did not include a full explanation. Even State Farm eventually agreed to pay more than that amount to policyholders after Katrina.

As the litigation starts for our clients against Texas Windstorm Insurance Association, we will find out more about the internal workings and directions from TWIA claims management to its field adjusters. At least these two field adjusters cared enough to read the blog and respond. Most of our clients got no calls or explanations from the claims managers in Austin.