Professor Alan Manning

Insurance protection gaps can be caused by many different things. One is when insurance agents suggest that a policyholder can save money by purchasing insurance to less than full value. Professor Jay Feinman warns about this and calls this the “underinsurance gap.” He defines this as occurring when “the policyholder has coverage, but in an amount that is less than the extent of actual or potential losses.”
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It has been five months since Hurricanes Irma and Maria wreaked widespread havoc on the U.S. Virgin Islands. The Category 5 hurricanes damaged buildings of all shapes and types – residences, businesses, places of worship, warehouses and commercial buildings. Those with insurance coverage filed claims, presumably expecting prompt and fair responses from their insurance companies. Have these policyholders received a timely response?
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Imagine for a moment your home is severely damaged as a result of a hurricane or tornado. The damage is so bad, you think the damage merits the maximum coverage your insurance policy provides, and it turns out you’re right. Your insurance company pays you the maximum policy limits, and you’re sitting pretty with what looks like an amount sufficient to repair your home. However, you receive bad news when your contractor tells you he will need more than your insurer gave you to fix your home. Turns out you did not have sufficient insurance to protect your home, and according to a recent CNBC article, this problem is more common than you may think.


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As we have seen with the Katrina and Wilma litigation, courts will enforce the anticoncurrent causation clause, standard in most all risk and wind insurance policies. Many who suffered total losses could not fully recover because they did not have adequate flood insurance. Generally, policyholders with insufficient flood coverage limits fall into three categories:

  1. Those who did not purchase flood coverage.
  2. Those who underestimated the value of full replacement cost.
  3. Those correctly estimating replacement coverage but not able to purchase the amount through National Flood.


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Two recurrent issues are keeping policyholders from full recovery following disasters.  First, policyholders are not getting flood insurance even though it is available.  Second, policyholders are not increasing the limits of coverage to reflect the full costs of construction or replacement. They are exposed to the risk of being significantly under-insured.


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