2007 and Flood Insurance….blast from the past
Reader Dan sends along this one: (this was my newbie persona ten years ago http://angrybearblog.strategydemo.com/2007/05/reader-dan-on-insurance.html)
My insurance in MA was cancelled on property due to ‘limiting risk exposure’ by my insurance company. While near the coast, my investment property is not on a flood plain and well protected as well as being higher by far (40 ft.) than downtown. I wound up having to buy from a MA backed plan at 1.5 multiplier for less coverage.
I got to thinking. If I am getting cancelled, what’s up. I went to Florida via the web because I had heard that Allstate was canceling most of its coverage in the state, and other companies were considering the possibility. I found this:
Florida homeowners could see property insurance rates cut by as much as a total of 40 percent under a plan finalized Sunday by lawmakers hoping to reverse hurricane-fueled increases many residents say have threatened to price them out of their homes.
Lawmakers said the wide-ranging proposal they’ll vote on Monday is expected to provide savings of up to 20 percent for many of the coastal customers of Citizens Property Insurance Corp., the state-created company that has become Florida’s largest property insurer.
Getting the 20 percent rate reduction would require a number of factors, and the only guaranteed savings across the board appeared to be closer to 5 percent. But many customers will see much larger reductions, lawmakers said.
Rates for property owners insured by private companies are also expected to come down under the plan, which would still need approval from Republican Gov. Charlie Crist.
The state-created company was envisioned as a last-resort insurer for those who can’t get private coverage, but it has grown to be the state’s largest property insurer with 1.3 million customers.
Insurers including Allstate Corp., Nationwide Mutual Insurance Co., MetLife Inc. and State Farm have canceled or limited homeowners policies or significantly raised rates in an effort to reduce exposure to future catastrophes since the devastating hurricane seasons of 2004 and 2005, in which insurers lost $36 billion in Florida.
The industry also says the plan is a quick-fix bailout that puts more risk on the government. The plan increases the amount of backup coverage, or reinsurance, available to private insurance companies through the state’s Hurricane Catastrophe Fund.
While the insurance is for homeowners, business also needs flood and hurricane insurance to operate in the area. If Dade county is hit with a 4 or 5 force, the consequences would be huge. The season is just starting. Is this simple economics? Which homeowners get the most benefit? Does it preclude good zoning? Are there any social aspects to consider? How do businesses cope?
“Nearly two decades before the storm’s historic assault on homes and businesses along the Gulf Coast of Texas this week, the National Wildlife Federation released a groundbreaking report about the United States government’s dysfunctional flood insurance program, demonstrating how it was making catastrophes worse by encouraging Americans to build and rebuild in flood-prone areas. The report, titled “Higher Ground,” crunched federal data to show that just 2 percent of the program’s insured properties were receiving 40 percent of its damage claims.”
The private insurers are apt to offer retrofit discounts for houses, such as a discount for adding hurricane clips (metal ties between roof and studs/top plates) metal roofs (which makes it harder for pieces of the roof to fly off (also good for hail). etc. Newer houses insured by the state industry were required to have them by both the insurance company and building codes.
On the cancellation issue, if a big storm hits the actuaries look at the companies exposure to the risk and cut it if possible. Eventually as time passes the risk appears to fade and the insurance companies consider coming back. The risks you cite would be more for flood which is not included in standard homeowners. The question would more be how close to the coast and the highest likley wind gust in a storm.