Damaged homes in St. Thomas covered with blue tarps. (Source: USVI Government)
By Shirley L. Smith Updated
Almost five months after surviving two back-to-back Category 5 hurricanes, thousands of residents in the U.S. Virgin Islands are still living in limbo, because they have not received money from their insurance company to rebuild their homes and businesses. This puts residents in a precarious position, as the 2018 hurricane season begins on June 1.
The total projected losses for Hurricane Irma, which ravaged the islands on Sept. 6, 2017, are $787 million, said Gwendolyn Hall Brady, the director of the Division of Banking, Insurance and Financial Regulation. “Hurricane Maria’s projected loss [is] $445 million,” Brady said. Maria struck the territory 12 days after Irma, causing more catastrophic damages.
The U.S. Virgin Islands has an estimated population of 104,000 and is made up of four main islands – St. Thomas, St. John, St. Croix and Water Island. Many residents do not have insurance.
The most recent data on insurance settlements reveal that only about 30 percent of all insurance claims have been settled. In a recent news conference to update the community on hurricane insurance claims and related issues, the U.S. territory’s Lt. Gov. Osbert Potter reported that, as of Jan. 10, a total of 14,881 insurance claims were filed. Of that number, 4,346 claims have been closed with payment, and insurance companies have paid out $435.6 million to victims of Hurricane Irma and $82.8 million to victims of Hurricane Maria.
Government Officials Inundated with Insurance Complaints
Potter, who also serves as the commissioner of insurance, said the Division of Banking, Insurance and Financial Regulation, has received over 1,000 complaints from residents about issues with insurance companies, banks and contractors. The division is responsible for regulating the insurance industry and protecting consumers’ interest.
Residents have complained about adjusters who fail to get back to them in a timely manner after completing a damage assessment of their property; the slow pace of insurance settlements; and about being blindsided by insurers who informed them that they did not have adequate insurance to cover their losses.
Potter said he knows residents are frustrated, but they should not feel like “there is no hope and no help.” Though his office is short staffed, he said his team is committed to helping residents resolve their issues, and he has issued several orders intended to improve the insurance claim process and protect consumers. “There is not one, who can say truthfully, that they came to our office and were not assisted,” Brady said.
Residents had to wait for weeks or over a month for an adjuster to inspect their property. And, some say, after the inspection, they had to wait another one to two months just to hear back from the insurance company, only to be told that their property needed to be reassessed by a new adjuster.
“Immediately after the hurricanes, there was no transportation into the territory, the airports were closed, and a lot of adjusters could not get here for 15, 30 days after the disaster,” Potter said in an interview following the news conference. However, he said it pains him to hear that consumers have waited so long to hear back from their insurer. To remedy this situation, Potter issued an order requiring insurance companies to respond to customers within 30 days after an adjuster inspects their property. Insurers can get a 15-day extension for good cause. Potter urged residents to report insurers who violate this order. “We can fine companies monetarily and go as far as revoking licenses if we deem necessary,” he said.
USVI Faces Many Challenges
Despite the destruction caused by the hurricanes and the territory’s well-known financial woes, Gov. Kenneth Mapp contended in his State of the Territory address in January that the future of the Virgin Islands is bright due to: the influx of federal money, which will allow the territory to modernize its facilities and make them more resilient; the creation of construction-related jobs; and planned upgrades to the islands’ antiquated electrical grid, which relies on costly imported fuel.
All these improvements are likely to spur economic growth and enhance the islands’ tourism industry, but much will depend on whether the government will be able to dig itself out of its financial sinkhole which has gotten bigger due to the borrowing of millions in disaster loans. In the meanwhile, some residents and lawmakers are concerned about the current State of the Territory, that they say, contrary to Mapp’s assessment, is not “good.”
Daily life for most Virgin Islanders is difficult. Many residents are still living in damaged homes with blue tarps for roofs or are displaced and living with family and friends. Power was restored to almost 100 percent of customers on the electric grid in January, but many street lights and traffic lights are still down, and there are frequent power outages as repairs continue. Residents are also saddled with high electric bills. The average price of electricity is about three times more than the average in the 50 states, according to a September 2017 report by the U.S. Energy Information Administration. The cost of groceries, which was high before the storms, has skyrocketed due to price gouging, and the roads are in dismal condition.
Officials say many government workers have not had a pay increase in years. Some private-sector employees have been laid off without a pension after years of service, a scenario that occurred after previous hurricanes, and public-sector employees are worried about their pensions due to over $4 billion in unfunded retirement liabilities. Crime has increased, and if residents get seriously ill, they risk being evacuated off-island, because the territory’s two hospitals were severely damaged and can only provide limited medical care. To date, the promised temporary modular units for the hospitals and damaged schools have not been erected.
Insurance Delays Adds to Residents’ Anxiety
The delay in insurance payouts coupled with a housing shortage and the looming 2018 hurricane season has added to residents’ anxiety. The U.S. Department of Housing and Urban Development (HUD) announced Friday that it has awarded a $242.7 million grant to the Virgin Islands to bridge the housing gap. This is a welcome relief for displaced and uninsured residents.
Kelvin Jones, a retirement consultant in Chicago, said he has been trying to help his elderly mother, who lives on St. Thomas, with her insurance settlement, but keeps getting the run around by her insurer, Real Legacy Assurance Company. The company provides insurance to AARP members in the U.S. Virgin Islands and Puerto Rico. “My mom’s house was damaged, and the roof was breached by Hurricane Irma, but she is still living in the house. She filed a claim with Real Legacy in September, and her home was inspected in November by GAD Adjusters, who was retained by Real Legacy,” Jones said.
“When I followed up with the GAD adjuster two weeks ago, the GAD adjuster told me all of their claims were being reassigned to another claims adjuster company, so they sent all their files to the insurance company. But, a representative from Real Legacy in St. Thomas indicated that GAD Adjusters did not provide Real Legacy with the appropriate records, so it needs to send a new adjuster to re-inspect my mom’s house,” Jones said. “The representative also told me that Real Legacy is no longer doing business with GAD adjusters in the Virgin Islands, but it is still doing business with Puerto Rico.
“Having worked for insurance companies for over 23 years, with most records being kept and sent electronically, I find it difficult to believe that the already completed reports have disappeared in thin air.” Jones added, “I suspect something else is going on.”
“It’s not just homeowners that are affected. A lot of businesses are waiting on their insurance money to repair their businesses, and it’s holding up progress,” said Andre Malone, a St. Thomas resident.
Insurers in Good Standing Despite Alleged Fraud by One Agent
The angst among residents waiting for insurance settlements is further compounded by their vivid memories of being betrayed by insurers after Hurricane Hugo in 1989 and Hurricane Marilyn in 1995. Some residents are still paying for loans they took out to cover their losses.
“Back in Hugo, insurance companies were not able to pay out all of their claims and that really created a real problem for the insured, which is why we made sure our companies are solvent,” Potter said. “We examined the companies to make sure they are financially capable to pay out, to avoid companies going bankrupt and companies going under.”
Their examinations uncovered an alleged scam by Byam Insurance Agency, an insurance agent on St. Croix. As an agent, Byam was supposed to collect insurance premiums from policyholders on behalf of the insurance company it represents and turn the money over to the company, but Potter said Byam kept the money.
“Homeowners expected that they had coverage from this insurance company, but the agent pocketed the money,” Potter said. While unnerving, he said residents should not be alarmed. “We were able to get the company to honor the policies under the coverage that the insured paid for.” Potter did not say how he achieved this feat, and he would not identify the name of the insurance company that was swindled, but he said Byam is being investigated by the attorney general’s office.
Potter attributed the slow pace of insurance settlements to the “share volume” of claims. “There are a lot more claims this go-round than in the past,” he said, quickly adding, but that is not an excuse for the delay in payments. Residents can rest assured, he said, that insurers doing business in the Virgin Islands are in good financial condition.
“We are not concerned about any of the insurance companies going bottoms up. In fact, if anything were to happen, we have an Insurance Guaranty Fund that is set aside for that purpose,” Potter said. However, this may be of little comfort to residents. Although the Insurance Guaranty Fund was created to pay property owners’ outstanding claims if their insurance company becomes insolvent, Potter admitted that the government has withdrawn money from the fund for years to meet payroll obligations and pay for essential public services.
Government Took Millions from Insurance Guaranty Fund for Other Uses
In 2012, the Legislature of the Virgin Islands passed the Employment Relation and Economic Recovery Act, which reduced the cap for the insurance fund from $50 million to $10 million and stipulated that any amount over the cap “shall be” deposited into the General Fund, the government’s main operating budget. The reduced cap was slated to expire on Sept. 30, 2015, but the reduction was extended to Sept. 30, 2017 upon the governor’s request. In his Fiscal Year 2018 budget, the governor proposed extending the reduction again to 2019, but Post Auditor Jose George said no legislative action was taken, which means that by law, the cap on the insurance fund reverts to $50 million. Government officials charged with overseeing the insurance fund did not respond to inquiries regarding how much money is currently in the fund.
Due to the hurricanes, George said the legislature was unable to enact a new budget, so the government continues to operate under the Fiscal Year 2017 budget. A review of data from the Office of Management and Budget show that in Fiscal Year 2017, $12 million was transferred from the insurance fund to the General Fund, and $15 million was targeted to be transferred for Fiscal Year 2018.
After Hurricanes Hugo and Marilyn, money from the insurance fund was used to pay residents’ outstanding claims when their insurance companies went bankrupt, according to a 2007 news release by the government. Some residents did not get their final settlement payments until 2007. Though Hugo and Marilyn were devastating, officials say Hurricanes Irma and Maria were worse.
Many Residents Underinsured
Potter was baffled by the large number of underinsured residents, because his team launched a multifaceted educational campaign shortly after he took office in 2015 to educate residents about homeowner’s insurance and the risk of being underinsured. Yet, many homeowners insist they were not aware that they were underinsured.
“In most cases, it’s not ignorance, but it’s a financial consideration,” Potter said. People try to save money by eliminating things from their policy like “contents,” which covers personal and household items.
Other factors can cause someone to be underinsured. Generally, insurance companies require policyholders to maintain 80 percent of the replacement value of their property, that is, the actual dollar amount that would be needed to replace damaged property without deducting for depreciation, explained Glendina Matthew, assistant director of the Division of Banking, Insurance and Financial Regulation. People who do not meet this requirement and insure their homes for less than what the insurer says it would take to rebuild their home are putting themselves in the position of being underinsured.
Property owners, who have full coverage, may also become underinsured if they make improvements to their property, such as an addition to their home, but fail to update their insurance policy because such improvements can increase the property value, Matthew said. “Even if you have not made improvements, you still need to look at your coverage periodically to make sure you have adequate coverage.”
On Jan. 23, Potter issued another order directing insurers and their agents to notify policyholders of their underinsurance and tell them what they need to do to maintain full coverage to avoid residents being blindsided in the future. He said homeowners also have a responsibility to make sure they understand their policy.
Brady said insurers will also be required to do a “second review” of policyholders who were deemed to be underinsured to make sure their analysis was accurate.
For more information or to file a complaint, call the Division of Banking, Insurance and Financial Regulation at 340-774-7166 or 340-773-6459.
As of Feb. 9, 2018, the balance of the Insurance Guaranty Fund was $16.5 million, according to Commissioner Valdamier Collens of the Virgin Islands Department of Finance. Collens provided the information in a written response to an inquiry made under the territory’s public information statutes. The letter was signed by acting commissioner Clarina Modeste-Elliott on behalf of Collens.
Data provided by the commissioner’s office reveal that over the past five years, from Oct 17, 2012 to Dec. 19, 2017, the government withdrew about $92.5 million from the insurance fund to pay for other government services. Of that, $73.4 million was transferred to the General Fund. “Cognizant of the government’s cash liquidity stress, fiscal management required prioritization to ensure financial obligations are met,” Collens stated. Modeste- Elliott said the government will make another request to the legislature in its Fiscal Year 2019 budget to reduce the Insurance Guaranty Fund’s minimum balance again to $10 million.
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