Disasters reveal cracks in Puerto Rico insurance sector

Crippling impacts from last month's hurricanes have exposed shortcomings in Puerto Rico's insurance industry, including a shortage of loss adjusters that could lead to a greatly extended timeline for payouts as well as insufficient capacity to handle business interruption coverage on the island.

The former was highlighted in a study released by catastrophe modeler AIR-Worldwide, examining the projected workload of the approximately 375 insurance claims adjusters on the island, a number taken from 2016 data, estimating each analyst processed on average 20 claims per week and 240 claims per quarter.

The study establishes two scenarios, one where every one of the 500,000 insurance-covered mortgages in Puerto Rico will translate into a claim, noting, "This is not unreasonable given the strength and size of the hurricane as it passed over the island."

Under this scenario, insurers will require 16.67 months to complete hurricane-related claims, this assuming typical work rates and no new factors that could add significantly to that workload.

The second more conservative estimate assumes only 200,000 claims would be filed.

"This smaller number was chosen because this volume of claims was seen previously in Puerto Rico following smaller events," said AIR, and in this case, existing adjusters would need 6.67 months to complete the work, still an onerous amount of time for those waiting to rebuild roofs and restore basic shelter to their families.

In order to complete the claims within three months, AIR concluded that insurers would need to bring in an additional 833 adjusters under the conservative scenario and a whopping 2,083 adjusters in the case that 500,000 claims are made.

"Both examples are realistic and show the potential to compound the problem of recovery if no additional workers are brought in to complete the loss adjusting," said AIR, adding that the higher figure is more likely "given the scope of the storm and every policy requiring work."

Interrupted businesses still in the dark

Speaking to local daily El Nuevo Día, Ojel Rodríguez, a partner CPA at local accounting firm Kevane Grant Thorton and head of its business advisory team, said that while thousands of companies, businesses and professionals have business interruption policies, the protection these offer will not suffice in the face of a prolonged collapse of electric power and telecommunications.

"There are cases where the coverage simply won't be enough," said Rodríguez in the report, noting that while many policies kick in after a 72-hour period without electricity, they often only cover up to 30 days without power unless the client has purchased additional coverage to that effect. She added that, as of Thursday, many firms have been without power since the passage of Hurricane Irma 43 days ago.

Friday marks one month since the landfall of the far more devastating Hurricane Maria, meaning time is up for most of those policyholders operating in the 80% of the island still without power.

Estimates vary, but some officials say it could be at least six months for power to be fully restored. Regardless of what lies ahead, Rodríguez recommended all policyholders to gather and prepare records for a full forensic study of their accounts to attempt to recover as much as possible.