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?
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?