Hurricanes have long been a major source of destruction and financial hardship. In recent years, their impact has only worsened, with damages escalating at an alarming rate. From 1980 to 2023, hurricanes caused approximately $1.3 trillion in damages in the United States, averaging $22.8 billion per event.¹ Major storm events from this year, such as Hurricane Milton and Hurricane Helene, have inflicted economic losses ranging between $160 billion and $250 billion.² These staggering figures highlight the mounting financial and social costs of hurricanes.

Reflecting on the Atlantic hurricane season (which ended on November 30) and looking at the aftermath of these devastating events, the recovery process is fraught with challenges. Statistics show that 40% of small businesses never reopen after hurricane damage,³ and an additional 25% close within a year of the storm.⁴ Structural damages, protracted insurance claims processes, and broader community disruptions further complicate recovery efforts.

Given these challenges, the need for robust insurance coverage and innovative solutions to enhance resilience has never been more pressing. This article explores the causes behind rising hurricane damages, identifies critical coverage gaps, and highlights innovative insurance strategies that can help communities and businesses recover more effectively.

Factors Contributing to Rising Hurricane Damages

While hurricanes have always posed a threat to coastal and inland communities, several factors have contributed to the escalation of damage in recent years. These include climate change, urbanization, and the increasing frequency and intensity of storms.

Climate Change

Rising global temperatures have led to warmer ocean waters, fueling more intense hurricanes. Warmer waters increase both the strength and rainfall of storms, leading to greater flooding and storm surges, particularly in coastal areas. Climate change has also led to slower-moving storms, which extend the duration of heavy rainfall and winds, increasing damage.

Urbanization and Economic Development

Rapid urbanization in coastal areas has increased the populations and valuable infrastructure in hurricane-prone regions. The higher the population and the value of assets in these areas, the more expensive the potential damages. Rising property values and economic growth exacerbate the financial impact when storms strike. Furthermore, inflation, scarcity of construction materials, and rising labor costs make rebuilding after hurricanes even more expensive, putting additional strain on recovery efforts.

Increasing Storm Frequency and Intensity

Recent years have seen more active and prolonged hurricane seasons, with storms occurring in quick succession. The overlapping nature of these storms stretches disaster response resources and complicates recovery, as communities often have to rebuild while facing new threats. This highlights the need for resilient urban planning and updated building codes that can mitigate future damages.

Insurance Industry Adaptations and Their Impact on Policyholders

The insurance industry has attempted to adapt to the increasing risks posed by hurricanes. While some of these adaptations have provided better coverage for policyholders, others have led to new challenges.

Reinsurance and Catastrophe Bonds

Reinsurance and catastrophe bonds are standard tools insurers use to manage the financial risks of large-scale disasters. By transferring part of their risk to reinsurers or using financial instruments that absorb some of the losses from major events, insurers can increase their stability and ensure sufficient funds are available to cover claims after a severe hurricane season.

Risk-Based Pricing and Data Analytics

To better assess risks, insurers are using advanced predictive modeling and artificial intelligence (AI) to set premiums based on a more accurate understanding of potential hurricane threats. While these strategies help insurers maintain financial viability, they can lead to higher premiums for policyholders, particularly in high-risk areas. Tighter underwriting standards also mean that insurers may limit coverage or withdraw entirely from the most hurricane-prone regions.

Risk Mitigation and Resilience Incentives

To reduce claims costs and promote resilience, insurers are offering premium discounts and other incentives for property owners who invest in hurricane-resistant measures, such as storm-resistant roofing and flood-proofing. While this encourages proactive risk management, the higher costs of premiums and deductibles in high-risk areas may leave policyholders with fewer options for coverage.

Technological Innovations in Claims Processing

Technology is helping insurers improve claims process efficiency. Drones, satellite imagery, and mobile claims units are being used to quickly assess damage and assist policyholders on the ground. However, despite these technological advancements, navigating claims can still be a lengthy process, with increased documentation requirements and longer verification times, especially in large-scale disasters.

Partnerships with Government Programs

Partnerships with government programs like the National Flood Insurance Program (NFIP) help insurers cover losses that they might not be able to absorb on their own. In some cases, insurers also work with local governments and industry associations to strengthen building codes and support community-level resilience projects, such as flood barriers and improved drainage infrastructure.

Commercial Property Coverage Gaps and Policyholder Strategies

When it comes to hurricane damages, commercial property owners should be aware of potential gaps in their insurance coverage. While standard commercial property insurance typically covers wind damage, flooding damage may be excluded. To fully protect their properties, business owners may consider purchasing separate flood insurance, either through the NFIP or private insurers.

Wind vs. Water Damage

One of the most significant challenges when filing claims after a hurricane is differentiating between wind and water damage. The difficulty in distinguishing between the two types of damage can lead to disputes with insurers, delaying recovery as policyholders and insurers debate what is covered by a given policy. This issue becomes especially pronounced when both wind and water damage occur simultaneously, which is common during hurricanes.

Business Interruption Coverage

Another key area where potential coverage gaps exist is in business interruption insurance. This type of coverage is designed to compensate businesses for lost income during periods when they cannot operate due to covered events, such as hurricanes. However, standard business interruption policies may not fully cover the wide range of operational losses that can occur in the aftermath of a hurricane. For example, business interruption coverage may only cover direct losses resulting from physical damage to the property. It may not account for secondary losses such as supply chain disruptions, which can be just as devastating for businesses trying to resume operations. Additionally, the duration of business interruption coverage may be limited. Many policies offer coverage for a specified period, but in the case of a major hurricane, the recovery period may extend far beyond what the policy provides. This limitation can leave businesses with inadequate support during prolonged recovery efforts.

Insufficient Coverage for Rising Costs

As construction costs continue to rise due to inflation, many commercial property policies may fail to adjust coverage limits to reflect the increased cost of rebuilding or repairing damaged properties. This can result in underinsurance, where a policyholder is left with insufficient coverage to fully repair or rebuild their property to its pre-loss condition. Without making the proper adjustments for rising material and labor costs, businesses risk being financially exposed when rebuilding after a hurricane.

Proactive Strategies for Closing Coverage Gaps

To mitigate these gaps in coverage, commercial property owners should take a proactive approach:

Regularly Review and Update Policies

It is crucial to review and update insurance policies regularly to ensure that coverage is comprehensive and reflects the full scope of potential hurricane-related damages. This includes confirming that both property damage and business interruption coverage are adequate and include provisions for flood damage, as well as ensuring that your scheduled property and business interruption values are accurate.

Separate Flood Insurance

As flood damage may not be covered under standard property policies, business owners should consider separate flood insurance, either through the NFIP or a private insurer. This can serve to offset a portion of losses resulting from water damage from storm surges and other rising waters in connection heavy rainfall. However, the NFIP policies do not provide coverage for business interruption, and the available limits may only cover a fraction of property damage loss.

Extended Business Interruption Coverage

Commercial property owners should consider purchasing extended business interruption insurance or endorsements that cover longer recovery periods and supply chain disruptions. These additional coverages provide more comprehensive protection, ensuring that businesses are not left without financial support during lengthy recovery phases.

Consider Building Code Upgrades

As older buildings may not meet current hurricane-resistant building codes, it is advisable to include endorsements in commercial policies that cover the costs of necessary upgrades. By bringing buildings up to modern construction standards, business owners can reduce their vulnerability during future hurricanes.

Invest in Resilience Measures

Taking steps to reinforce a building’s structure, such as installing storm shutters, upgrading roofing, and implementing flood barriers, can minimize the damage caused by hurricanes. Many insurers offer discounts or incentives for these types of resilience measures, which can lower premiums and reduce potential losses in the event of a hurricane.

By proactively addressing these gaps in coverage, commercial property owners can ensure they have the right protections in place to recover quickly and effectively after a hurricane.

Innovative Insurance Solutions for Hurricane Preparedness and Response

Emerging insurance products and strategies are transforming how policyholders prepare for hurricanes and accelerate recovery. These innovations streamline financial support for immediate needs and promote resilience through proactive risk management.

Parametric Insurance

Parametric insurance provides rapid payouts based on pre-defined criteria, such as wind speed or rainfall levels. Unlike traditional policies, which require lengthy claims assessments, parametric policies deliver immediate financial relief, enabling policyholders to address urgent expenses such as temporary relocation and emergency repairs. This model not only speeds up recovery but also allows policyholders to tailor coverage thresholds, aligning financial support with specific risks and recovery goals.

Incentives for Resilient Construction

Insurers are increasingly incentivizing the use of storm-resistant materials and construction methods by offering premium discounts and specialized programs. These incentives encourage building practices that help mitigate hurricane damage in future storms. Insurers also conduct on-site inspections to identify structural vulnerabilities, guiding policyholders on targeted improvements like reinforced roofing and flood barriers.

By integrating innovative financial products with resilience strategies, the insurance industry is enhancing both immediate hurricane response and long-term community resilience. Parametric insurance and resilience incentives exemplify how insurers are advancing hurricane preparedness through tools that support swift financial recovery and promote proactive risk management.

Stout’s Role in Assisting Policyholders and Navigating Insurance Claims

Stout’s property valuation and claim preparation experts provide essential services to help policyholders plan for and respond to losses. Our valuation team analyzes and determines the replacement cost value of all types of properties, enabling policyholders to secure appropriate coverage for their risks. This is particularly important when deductibles are based on a percentage of the reported property value.

In the event of a hurricane, our claims preparation team assists policyholders with preparing and presenting claims, as well as navigating the claims adjustment process. Further, our claim professionals specialize in compiling evidence and facilitating effective communications with insurers to assist policyholders, their brokers, and counsel in securing fair and timely recovery from insurance. This efficiency is crucial in the wake of a hurricane, where immediate financial resources are necessary to begin repairs, cover temporary expenses, and ensure business continuity.

Conclusion

The increasing frequency and severity of hurricanes present significant challenges for communities and businesses. As damages rise, so too does the complexity of insurance coverage. While the industry has made strides with new financial instruments, risk-based pricing, and technological innovations, gaps in coverage remain, particularly for commercial property owners. Proactive risk management and the adoption of resilient construction practices are essential for minimizing future damages. By embracing emerging insurance solutions and working with third-party advisors like Stout, policyholders can better navigate the claims process and ensure a faster, more efficient recovery.

¹ “Hurricane Costs,” NOAA, Office for Costal Management, December 2, 2024, webpage.

² Jesse Ferrell, “Hurricane Milton by the numbers: an EF3 tornado and ‘blowout tide’,” AccuWeather, October 10, 2024.

³ “How Much Damage Can Hurricanes Cause Your Business,” Insulgard, July 5, 2019.

⁴ “Gain Competitive Advantage Now: Hurricane Preparedness for Businesses,” Unity Fuel Solutions, May 8, 2024.