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Managing your risk by Michael Kelly

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 41 years of risk management/ insurance experience, he holds the CPCU - Chartered Property & Casualty Underwriter, ARM-P - Associate in Risk Management for Public Entities, CRM - Certified Risk Manager, ARe - Associate in Reinsurance and CIC - Certified Insurance Counselor Professional Designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124.  For archives of this column click here.

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Jul 15

It’s that time of the year again – Hurricane Season!

Posted on July 15, 2016 at 1:25 PM by Todd McGee

Hurricane Season began June 1 and ends Nov. 30. Most emergency county staff have already dusted off their emergency management manual and given some thought to protocols and procedures to be employed in the event of a hurricane. Some may even have already participated in mock hurricane storm response drills to fine tune responsibility assignments and procedures. This month’s column is about making sure your property coverage is in order and ready to respond should a storm strike North Carolina.
In the event of a storm, one of the most unnerving facts you may encounter is an insurance carrier’s unwillingness to add any new, previously uninsured property once a named storm gets within 72 hours of its expected landfall on the eastern U.S. coast. For those living along the Gulf of Mexico, there is a similar restriction for binding new coverage if the storm is located within the 20/80 latitude & longitude lines – which is basically anywhere inside the Gulf between Texas and Florida. As a result don't wait until a named storm is eminent to add properties to your schedule for coverage.
This underwriting practice is common and makes sense - else insurance carriers would not be able to avoid what is called “adverse selection,” i.e. their insureds waiting until storm damage is certain and only then electing to purchase property insurance. The rating process that defines how to charge for property coverage would not statically over the work long-term if those seeking coverage were able to wait and purchase property coverage only when it is a certainty it will be needed. 
Since July 1 is the renewal date for the majority of county property insurance programs, now is the time to pull out your property insurance policy, look at the schedule of locations and double check to make sure that the new DSS Building or Detention Center was in fact added (including the contents which followed later!) to your policy as requested, followed by the received, actual endorsement. If you are waiting for the endorsement, get on the phone and get written evidence that coverage is in fact in force pending receipt of actual endorsement – just to make sure it is a done deal and in the process of being issued.  This is NOT the time to assume everything is “okay” and the endorsement adding a new property has just not yet arrived.
Next, for any buildings that are in the middle of construction, you need to verify that the contractor doing the construction is in fact providing builder's risk coverage. If not, you will need to have a separate policy/endorsement on your end. As builder's risk coverage is traditionally written on an inland marine coverage form, it might be broader in scope than a standard property policy and include some limited flood coverage as well.
Although some standard property forms may also provide a small amount of excess flood coverage, direct, primary flood coverage for commercial buildings should be purchased through the National Flood Insurance Program. For a non-habitational building, it can cover a maximum limit per location of $500,000 for building and $500,000 for personal property and offers different levels of deductibles with appropriate discounts. In addition, normally there is a 30-day waiting period requirement before coverage is in effect, unless the flood coverage is being purchased to facilitate a closing with a finance company on a pre-certified closing date. So for properties that are known to be in the 100-year flood plain, (Zones A or V) the time to decide about flood coverage is at least a month before you think you are going to need it.  
You can get an idea of your properties flood risk profile by reviewing www.floodsmart.gov/floodsmart/ and then supplying the property’s physical address in the section labeled “What’s my flood risk?”
Now is also the time to double check to determine if you have a named storm per occurrence or per location deductible. This additional deductible of 2% to 5% of the building value is common practice in the standard insurance carrier market and is available as an option if you are a member of the NCACC Risk Management Pools. While it is not typically possible to change the named-storm deductible after the coverage year begins, it is still important to confirm coverage documents are correctly written as ordered from the carrier, with the appropriate self-insured retention/deductible funds allocated and/or set aside in advance for when they will be needed.
Remember your fleet of county vehicles. Think about where they will be stored during a hurricane. Consider the elevation of potential storage locations and the likelihood of multiple vehicles being damaged if they are all parked at a single location. Spread the risk by using multiple storage locations. Whenever a storm is likely, perhaps you as the risk manager should consider having a pre-loss plan to let different county employees be responsible for driving assigned vehicles to a given favorable location. 
Lastly, although local governments do not traditionally have a very large business interruption/rental reimbursement exposure it bears some thought. Business interruption is designed to pay for the loss of income stream arising out of the damage to your property. Rental reimbursement is intended to pay for the loss of rental income should the property leased from you become damaged to the point it is untenable and the lease allows abatement or cessation of the rent. Both of these coverages are sold with specific sub-limits that should reflect the level of your actual exposure to loss.
To summarize, according to NOAA this 2016 hurricane season is expected to generate between 10 – 16 named storms, which includes Hurricane Alex that occurred in January, as well as a total of between 4 – 8 Hurricanes, of which 1 – 4 will be major. (Category 3 or more) For great detail from The NOAA Climate Prediction Center
Members of the NCACC Liability & Property Governmental Pool, unless specifically requested as an option to cut costs, do not have an additional named storm percentage deductible. A hurricane strike is considered a single occurrence, meaning only one deductible will apply for the entire event. 
The time to review and make sure your property coverage is in order is now – BEFORE rather than after a Hurricane hits North Carolina.