As hurricane season approaches, many property owners and lenders alike are facing uncertainty regarding insurance coverage. Recent observations from the CPIA Insurance Center reveal a concerning increase in property insurance policies that include “named storm” exclusions. These exclusions can impose significant liabilities on lenders, particularly when severe weather strikes. This article will clarify what a named storm is, illustrate potential risks, and emphasize the need for proper coverage ahead of severe weather.
What is a Named Storm?
A named storm refers to any weather system, particularly tropical storms or hurricanes, that is assigned a specific name by meteorologists. When a storm is named, it signals a significant level of risk to both property and lives. For example, the National Hurricane Center reported that in 2024 there were 18 named storms in the Atlantic, with 11 becoming hurricanes. This highlights the frequency of such events and the potential risks they carry.
Named storms often lead to extensive property damage due to their intensity, resulting in many property insurance policies incorporating exclusions for such events. This means that even property owners who believe they have comprehensive all perils coverage may discover that they are not protected against losses stemming from these storms.
Identifying Exposures
For lenders, it is vital to understand the implications of named storm exclusions. Relying solely on internal systems to monitor borrowers' insurance can leave significant gaps in coverage awareness. For instance, a traditional review might overlook whether a borrower’s policy has a named storm exclusion, resulting in unexpected liabilities for the lender.
CPIA Insurance Center employs advanced insurance tracking methods to identify such deficiencies automatically. This proactive approach not only protects borrowers but also secures the lender’s interests during adverse weather events.
Coverage in Place Before Potential Exposures
Waiting for alerts about coverage gaps through internal systems can be risky. Many insurance carriers may impose restrictions binding new coverage as soon as storm threats appear. For example, if a tropical storm is detected, insurers might suspend new applications until the storm passes, leaving lenders and borrowers at risk.
Lenders relying on lender-placed insurance (LPI) without thorough oversight may encounter more instances of unrecognized coverage gaps during the peak of hurricane season. This scenario can lead to severe financial risks for lenders with inadequate or absent coverage.
Risk Mitigation Solutions with CPIA
To effectively address the risks presented by named storm exclusions, lenders can rely on the expertise of CPIA's tracking and lender placed insurance services for a proactive risk management strategy. These are the advantages of partnering with CPIA for Insurance Tracking:
Insurance Tracking: Our cutting-edge monitoring system continuously tracks insurance coverage with the most up-to-date policy information, ensuring your collateral is adequately protected against potential exposures, including named storm risks.
Notifying Borrowers: We send notices to your borrowers informing them of an insufficiency in their insurance policy and establish a timeline for them to find coverage that meets the specified requirements in the loan agreement.
Verification and Documentation: When borrowers submit new insurance coverage we verify and document the new policy on your behalf, ensuring they align with the loan requirements. You have 24-7 access to our web-based ALISX portal to review your tracked loan data.
Lender Placed Coverage: When a borrower fails to provide sufficient coverage, we can automatically place a specialized windstorm policy that includes named storms on your behalf to protect your interest in the asset as the lender.
Escrow Services: CPIA also includes optional escrow insurance service to accommodate a financial institution’s task of ensuring borrowers and lenders are adequately protected without any lapse or unforeseen exposures.
By investing in robust insurance tracking solutions, lenders can effectively reduce severe weather risks. CPIA's proactive services for monitoring insurance policies and recognizing the complexities of named storm exclusions is essential for ensuring secure lending practices and fostering client satisfaction.
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