NationStates Jolt Archive


Hurricanes and Insurance

Neu Leonstein
26-08-2007, 02:47
http://www.economist.com/displaystory.cfm?story_id=9621481
Wishing the wind not to blow
Aug 9th 2007 | MIAMI

EARLIER this year Florida's governor, Charlie Crist, won praise for forcing the state's insurance companies to reduce their spiralling rates for hurricane damage. He promised that rates would drop by 24%. They haven't—and now, with the most intense weeks of the hurricane season approaching, the reality of Florida's windstorm-insurance crisis is beginning to set in.

After Mr Crist's intervention in January, matters have only got worse. Premiums remain high, and insurance companies are shedding customers as fast as they can. Allstate Floridian is abandoning 226,000 customers, one-third of its total client base in the state. State Farm, one of Florida's four leading insurers, also recently announced that it is dropping 50,000 customers. “The property-insurance business here in Florida is a very difficult proposition,” says Adam Shores, a spokesman for Allstate Floridian. “The exposure we had was greater than the claims-paying capacity we had.”

The slack is being picked up by a fast-growing state-run company, Citizens Property Insurance. Citizens is acting as the insurer of last resort, underwritten by the Florida Hurricane Catastrophe Fund, a pool financed by the state. In January the state decided it could resolve the crisis by expanding Citizens and making it more competitive with private companies. It is now by far the state's largest home-insurance provider, with 1.3m clients.

“It's a state takeover of the property-insurance market,” said Jeff Grady, the head of the 1,600-member Florida Association of Insurance Agents. And by allowing Citizens to grow so big, in the view of many agents, the state is exposing itself to tremendous financial risk in the event of a large-scale hurricane disaster. Unlike private companies, which can seek reinsurance on the global market where risk is less concentrated, the state would have to go to its own taxpayers if a huge storm struck.

Critics say the rates the state is letting Citizens charge are unrealistically low, and that the company is dangerously under-capitalised. With only a $1.9 billion surplus, it would quickly be overwhelmed by claims from a hurricane such as Andrew, the worst storm in Florida's history, which provoked $22 billion in damage claims (in 2006 dollars) when it hit the Miami region in 1992. Even Wilma, a much smaller hurricane, cost $11 billion in damage claims in 2005. No wonder Mr Crist likes the idea of a national catastrophe fund, which would spread the risk across the country.

Hmm, tricky. In fact, I find almost anything related to insurances tricky.

How would you solve this problem? Assuming that climate change will to some degree effect the frequency and/or severity of natural disasters of all types (not saying the floods in the Midwest are due to climate change, but they make a nice point), is there anything that can be done?
Vetalia
26-08-2007, 02:59
If people choose to live in areas that are regularly susceptible to floods and natural disasters, it is their decision and they must accept the risks that comes with that choice, including the cost of insurance. The premiums charged by insurance companies are entirely justified by the risk; they are necessary to make sure that money is available when it is needed. Otherwise, these companies would collapse and these people would have no money available.

And the thought of a national catastrophe fund is a terrible idea. It will just encourage the same patterns of development and settlement that make these areas vulnerable in the first place. It makes a lot more sense to put funds towards controlling the damage done by disasters than to put it in to addressing the causes. If the US didn't have a badly inadequate infrastructure and reckless development patterns in these areas, we'd be far better suited to address the problem.
Callang Provinces
26-08-2007, 03:22
I think that there is little that can be done in these sorts of situations.
As Vetalia said if people choose to live in these areas than they must acept the risk. All I can think is that when rebuilding after disasters and planning new developments people should be forced to pay more attensition to the practical concerns rather than the asthetics of their homes. Surely if you live in an area prone to flooding it is better to build on high land and sacrifice your waterside location. And if your live in an area prone to high winds then it is adviseable to build low strong structure rather than highsided wooden constructions. I believe that people should help each other when they can but when you have repeatedly chosen to make the same mistakes you should not complain.
Jello Biafra
26-08-2007, 03:28
The idea of getting private companies out of the insurance business is certainly preferrable, but I do see Vetalia's point that this would encourage reckless development. Therefore, a national insurance fund combined with restrictions or bans in development in certain areas is the way to go.
Vetalia
26-08-2007, 03:29
The idea of getting private companies out of the insurance business is certainly preferrable, but I do see Vetalia's point that this would encourage reckless development. Therefore, a national insurance fund combined with restrictions or bans in development in certain areas is the way to go.

I don't even think a national fund would be necessary. Limits on development and an infrastructure fund for improvements in flood and disaster defense would more than take care of the problem; the reason why Katrina devastated New Orelans was due to the pitiful condition of its flood levees and the destruction of natural protective wetlands. If you remove risk, you reduce premiums.

However, since there are many people who didn't really choose to live where they do and can't easily relocate, assistance would be helpful.
Zilbeth
26-08-2007, 03:36
what you people are failing to recognize is no matter where you live you are at risk of some form of natural disaster.that is the way of the earth there is not a place on earth that doesnt sustain some sort of damage from natural causes in the intire planet i.e.blizzards in areas of extreme cold or hurricanes int the warmer areas ...throw earthquakes on the area's close to the platonic lines and tornados anywhere in general ..tunamis on the coast ...sand storms in the deserts there is no place on the face of the earth that does not face some sort of natural force of destruction.
Vetalia
26-08-2007, 03:37
what you people are failing to recognize is no matter where you live you are at risk of some form of natural disaster.that is the way of the earth there is not a place on earth that doesnt sustain some sort of damage from natural causes in the intire planet i.e.blizzards in areas of extreme cold or hurricanes int the warmer areas ...throw earthquakes on the area's close to the platonic lines and tornados anywhere in general ..tunamis on the coast ...sand storms in the deserts there is no place on the face of the earth that does not face some sort of natural force of destruction.

Yes, but there's a difference in risk, which is what matters. A house built below sea level on a coastline vulnerable to hurricanes, or on the bank of a river prone to floods is a lot riskier than a house built away from water in a region not prone to natural disasters.
Smunkeeville
26-08-2007, 03:38
what you people are failing to recognize is no matter where you live you are at risk of some form of natural disaster.that is the way of the earth there is not a place on earth that doesnt sustain some sort of damage from natural causes in the intire planet i.e.blizzards in areas of extreme cold or hurricanes int the warmer areas ...throw earthquakes on the area's close to the platonic lines and tornados anywhere in general ..tunamis on the coast ...sand storms in the deserts there is no place on the face of the earth that does not face some sort of natural force of destruction.

some places are more prone than others though, Oklahoma has like 100 earthquakes a year, only they are very minor, we have like 200 tornadoes a year, they destroy everything.

I pay a lot for house insurance. I have lost 2 houses to tornadoes. I understand it's high risk here.
Neu Leonstein
26-08-2007, 03:39
what you people are failing to recognize is no matter where you live you are at risk of some form of natural disaster...
But the risks are higher in some places than in others. And for an insurance company that might have to pay out billions if a big disaster strikes, that matters.
Jello Biafra
26-08-2007, 03:40
I don't even think a national fund would be necessary. Limits on development and an infrastructure fund for improvements in flood and disaster defense would more than take care of the problem; the reason why Katrina devastated New Orelans was due to the pitiful condition of its flood levees and the destruction of natural protective wetlands. If you remove risk, you reduce premiums.

However, since there are many people who didn't really choose to live where they do and can't easily relocate, assistance would be helpful.True, but what of the situations where the development wasn't curbed severely enough to prevent a disaster from becoming worse? Shouldn't the people affected by the development (not the developers themselves) have something to fall back on, since the development wasn't their fault?
Zilbeth
26-08-2007, 03:49
yes i live in tampa right dab in the middle of florida ive been in many hurricanes and ive seen the sheare destruction of what is essentially just wind and water and while i personally didnt vote for crist i can tell you this even if crist hadnt come in to office the rates would have gone up simply cause of floridas increase of using swampland as buliding foundation i look at lots that used to be a lake and some trees and a swampy cow pasture and now see three story condos and townhomes and that is a risk to the insurance company come 130 mph winds with soggy ground