Puerto Rico After Hurricanes Irma and Maria

On September 6, 2017, Puerto Rico was hit by Irma, a massive category 5 hurricane that was on of the strongest storms ever recorded in the Atlantic. Two weeks later, on September 20, hurricane Maria passed directly over the island with even more devastating effects. Puerto Rican Governor Ricardo Rossello called Maria "the biggest and potentially most catastrophic hurricane to hit Puerto Rico in a century."

According to AIR Worldwide (AW), insurance industry losses in the Caribbean due to hurricane Maria will be between $40 Billion and $85 Billion, of which 85% account for losses in Puerto Rico. RMS estimated a more conservative figure of $15 Billion to $30 Billion for all the affected islands in the Caribbean. RMS points out that while Puerto Rico has an overall exposure of over $500 Billion, because the insurance penetration rate is only about 60%, the burden on insurers and reinsurers will be significantly less. So, private citizens and local businesses stand to bear a large part of the financial burden resulting from these hurricanes. To a certain degree,  aid from the Federal Emergency Management Agency (FEMA) may be available to these individuals or enterprises.

AW informs that there are sources of uncertainty in evaluating the loss. Firstly, shortages of labor and materials available for the massive task of reconstruction may cause a significant demand surge (increase in the price of labor and materials) of between 16% and 25%. In addition, it is not clear how insurance carriers will adjust dwelling policies, since many of these do not include flood protection. Business interruption losses can be severe due to prolonged power outages. The outages will also directly impact goods that need refrigeration, such as food and pharmaceutical supplies.

It will take time before definite figures for damages and insurance losses in Puerto Rico can be more accurately established. A “Best” briefing issued on September 19, 2017 explains that “ […] loss estimates up to this point are to be considered somewhat limited, as many [...] have yet to file claims, leaving insurers to rely on catastrophe modeling to estimate their losses.”

Filing claims can surely be a second priority in a country battered by food and water shortages. We also must consider that extensive power outages have surely prevented some insurers from using their computer systems.

After claims start to pour in, processing them under the rules set forth by Puerto Rico’s Insurance Code will also be challenging for local insurers. Under the provisions of the code, insurers are required to acknowledge the claim in writing and commence their investigation within 15 days (26 L.P.R.A. §2714). The investigation, adjustment and resolution of claim (that is, the full payment of the claim, the written and duly justified denial of claim or closure for non-cooperation) must be done in the “shortest reasonable period of time”, but within 90 days (26 L.P.R.A. §2716b(1)). If a claim cannot be disposed-of within 90 days, the claim file should contain documents detailing the existence of just cause to exceed the 90 days. 26 L.P.R.A. §2716b(2). Under present circumstances, it doesn’t seem difficult to justify certain delay.

Posted by Daniel Baron*

*Not licensed to practice law in Florida