Problems head: no insurance cover for Puerto Rico homeowners

Hurricane Maria Exposes a Common Problem for Puerto Rico Homeowners: No Insurance

Only about half of houses on the island are covered by policies that protect against wind damage

WSJ,

20 September, 2017

Many Puerto Rican homeowners don’t have insurance policies to help with rebuilding in the wake of Hurricane Maria, making the economically depressed island’s recovery more difficult.

Only about 50% of houses in the U.S. territory are covered by policies that protect against wind damage, which is far less than is typical across the U.S., according to catastrophe-risk-modeling firm AIR Worldwide.

Maria, the most powerful storm to hit Puerto Rico in nearly a century, made landfall on the island early Wednesday after tearing through Dominica. Puerto Rico is still recovering from Hurricane Irma, which knocked out power in many households.

Rebuilding communities is a lot more difficult without insurance proceeds, said Amy Bach, executive director of United Policyholders, a national insurance-focused consumer nonprofit based in California. “In terms of straight-up cash to pay for the work that has to be done, insurance funds are the best source for most people after a disaster,” she said.

In the mainland U.S., owning a house without insurance to pay for catastrophic wind damage is fairly uncommon, insurance executives and agents said, though high deductibles can leave people with large out-of-pocket expenses. And many U.S. homeowners whose houses are flooded lack the specialized policies of the National Flood Insurance Program.

Puerto Rican homeowners without insurance coverage will have to rely on their own money, aid from the Federal Emergency Management Agency in Washington and other public or charitable sources as the island faces what is widely expected to be billions of dollars of damage. On Monday, President Donald Trump approved an emergency declaration for Puerto Rico, opening the door to federal assistance.

The lower penetration of homeowners insurance reflects that annual income averages about $20,000 in Puerto Rico, which is about a third of roughly $59,000 in the 50 U.S. states and the District of Columbia, according to U.S. Census Bureau data. The U.S. territory skidded into bankruptcy in the spring after more than a decade of economic distress.

Banks require people with mortgages to take out homeowners policies to protect the bank’s financial interest. Puerto Rico, with a population of more than 3 million, has just over 500,000 active mortgages, according to Black Knight Financial Services , a mortgage and real-estate technology and data provider.

Many older homes in the Caribbean have been “passed down through generations in a family [and are] unlikely to have insurance,” said Tom Sabbatelli, senior product manager at Risk Management Solutions, another risk-modeling firm.

A lot of these smaller homes in some poorer communities “are going to feature far less take-up of insurance” compared with homes owned by expatriates or commercial buildings, Mr. Sabbatelli said. Insured properties in the Caribbean tend to be newer, more expensive and of better quality than uninsured buildings, he said.

Puerto Rican homes are often built with reinforced concrete and can withstand some high-speed winds, experts said. But “with this one, I’m sure there’s going to be significant damages,” said Brian O’Larte, associate director at ratings firm A.M. Best, on Tuesday.

Local insurance firms dominate Puerto Rico’s home-insurance marketplace. The biggest by premium are Universal Insurance Group of Puerto Rico, Mapfre SA and Cooperativa Seguros Group, according to A.M. Best. Puerto Rican insurers tend to buy a lot of “reinsurance,” which kicks in from specialty insurers contracted to cover losses above designated levels.

“There’s really no recent experience” in Puerto Rico with a hurricane of this intensity, said Alexis Sanchez, chief operating officer at Mapfre Puerto Rico.

Based on forecasts for Maria, Mr. Sanchez said, “it’s going to affect, probably, an area with the highest concentration of people and values, which is the northeast part of the island.”

Homeowners insurance in Puerto Rico typically includes a 2% deductible for windstorms, Mr. Sanchez said.  That means these policies will cover damages from Maria above 2% of a property’s insured value, which can be thousands of dollars. Such special deductibles for hurricane damage have been increasingly common in the U.S. since a spate of costly hurricanes in 2004 and 2005, including Katrina.

Standard homeowners insurance policies don’t cover flood damage. Fewer than 1% of Puerto Rico’s 1.6 million housing units have coverage from the U.S. National Flood Insurance Program, the dominant seller to homeowners in the mainland, U.S. government data show. Homeowners in Puerto Rico also buy private-sector flood insurance and spent more on private-sector flood insurance in 2016 than on government insurance, according to A.M. Best.

Insurance on commercial buildings, including condominium towers dotting the island, is far more common, AIR Worldwide said. About 90% of properties are covered.

The biggest commercial multi-peril property insurers are Mapfre, Triple-S Propiedad Inc., Cooperativa, Universal and Integrand Assurance Co., according to A.M. Best.

Maria struck as many homeowners already were struggling financially. More than 10% of the just over 500,000 active mortgages in Puerto Rico are delinquent, according to Black Knight.  Puerto Rico’s delinquency rate is more than double the U.S. rate of 3.8%. Its rate for serious delinquency, which is 90 days or longer, is 5.8%, compared with 1.9% for the U.S.

Because lenders require mortgaged homes to be protected by insurance, there should be private-sector insurance payments kicking in for these houses’ rebuilding and repairs. If homeowners fail to maintain the coverage, banks typically obtain policies to protect their financial interest in the property, at the homeowner’s expense.

Insurance coverage for homeowners is even lower on some other Caribbean islands, including some that have been damaged by hurricanes this year, insurance-industry executives and risk-modeling specialists say.

— Coulter Jones contributed to this article.