The Checkout

Do Insurance Profits Come at Consumer Expense?

A few weeks ago, Allstate said it would stop offering homeowner's policies in parts of Maryland and Virginia.

Fortunately, those areas still have many other insurers to choose from. But Allstate's move also brought home the ongoing debate over how insurers have acted in the wake of recent disasters, including Hurricanes Katrina and Rita.

On Monday, a coalition of consumer groups led by the Consumer Federation of America issued a report arguing that insurers are charging higher premiums, paying lower claims and reaping greater profit, even as they are jacking up rates on many coastal homeowners or refusing to renew their coverage.

According to CFA's director of insurance and the report's main author, Bob Hunter:

* Insurers are so well capitalized they have had no trouble covering losses from recent natural disasters such as the four hurricanes that struck Florida in 2004 and the double whammy of Katrina and Rita in 2005, which generated $61.8 billion in losses.

* In 2006, insurers made even more money, thanks to the quiet hurricane season. Yet, they also raised costs on coastal consumers and cut back on coverage, even in areas far from the Gulf Coast states.

"Everyone wants a profitable, strong insurance industry but at some point it becomes excessive," Hunter said.

The insurance industry doesn't dispute that 2006 was a very good year. It does, however, disagree over whether its recent prosperity comes at a cost to consumers. To the contrary, industry reps argue, insurers' gains can only help consumers by rebuilding reserves to cover losses from future catastrophes, which they have no doubt are coming. In 2006, insurers had a chance to "fix the roof while the sun was shining," as Insurance Information Institute chief economist Bob Hartwig put it.

According to Hartwig, much of the profit the industry made last year was generated by businesses other than property insurance and in non-hurricane-prone portions of the country, and that money was, in turn, used to boost by $55.7 billion insurers' "cumulative claims paying resources in 2006."

Hartwig contends insurers have little choice but to squirrel away cash because ratings agencies and Wall Street demand they do so. Ditto for pulling back from areas insurers consider risky, such as the Florida coast and, uh, parts of Prince Georges County. Shareholders and ratings agencies are not going to stand for insurers pumping money into business that won't turn a profit, such as insuring coastal property owners.

"To expand presence in Florida would require a tremendous amount of capital and the opportunity for profit is nonexistent in the long run," Hartwig said.

Do you think consumer advocates are unfairly castigating insurers for making money? Do you think insurers should do more to help coastal homeowners?

By Annys Shin |  January 10, 2007; 11:18 AM ET Consumer News
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Comments

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Hah, I'd like to see that trend line in the report leaving out 2006--I bet it'd be much, much less impressive. Given that most trend lines such as this are constructed using algorithms that strongly punish large deviations away from the line, it wouldn't surprise me in the slightest if 2006 is strongly biasing toward a downward slope. And if you consider that 2006 was an extremely mild hurricane season, this doesn't seem unreasonable at all.

Maybe consumers are being screwed somehow, but this is hardly sufficient evidence to justify these accusations.

Funny thing is, the blog post juxtaposes Allstate leaving certain insurance markets against claims of outlandish profits. While the two facts aren't talking about exactly the same thing, these two facts don't exactly square with a common story about consumers being screwed. Usually companies like to do business if they're making record profits and making huge returns.

Posted by: Jon | January 10, 2007 12:14 PM

I think insurance is a scam. If I were to put aside all the money I spent on insurance in the 2 years I owned my house in Tx, I could have paid for the new roof I needed after a freak hail storm- without having to fight for it and argue with the lying claims adjustors who overlooked all sorts of hail damage. It took months and countless hours on hold and trying to get the right people to look at the obvious damage and reimburse me for it at below the fair rate I was being charged. I also could have paid for getting my car fixed- or even purchased a new used car. Instead I had the option of taking a small check, or getting the perfectly driveable car totalled on the sole premise that it had dings in it. That was so wasteful an option I figured I would just take a reduced check and keep the perfectly functional car and not bother with the hassles.

The next time I buy a house I am seriously thinking about requesting a quote and then setting that amount of money in an interest bearing emergency account I can use as I see fit for upkeep and repairs instead of giving it to a company that is supposed to help me when I am in need, but then does not. At least I would know I had someone looking out for me- ME. This would not necessarily work for everyone of course- especially if you are going to live in an area where there is a chance of you losing and having to replace your entire home...
I do think the companies are too greedy. Yes, I am for capitalism, but abusing your customers for profit is not good- especially when you are supposedly supposed to be there to help. Everything goes back to taking short-cuts to make money at the expense of the customer- whether it is car safety, customer service call centers, or insurance; too many corners are cut and the wrong people are paying for it.

Posted by: Chris | January 10, 2007 12:19 PM

Hey, Chris, you're not thinking correctly. Homeowner's insurance isn't for the small stuff. It's for the big stuff -- e.g. a fire burns your house down. With my current insurance rate, it would take me 150 years to save up my annual insurance costs to rebuild my house. Sure, interest on my savings would reduce that some, but it would still require a LONG time.

Car insurance is the same way. Most of your car insurance is going to cover potential health care costs of injuries to the people in a car that YOU hit. Such health costs can easily hit the 100,000s. So, good luck saving up all your premiums for that!

Posted by: Brian | January 10, 2007 12:24 PM

"Do you think insurers should do more to help coastal homeowners?"

NO!!

Those who are building right on the shore line, those who are building huge expensive homes with lots of windows on the water, those who insist upon developing land that should never be developed have created their own problems.

They build these places and then whine "We want to live in this area - so what if it is going to be hit with major hurricanes - and since we want to be here, we are ENTITLED to CHEAP insurance - insurance for not more than they pay in areas that don't have such storms or earthquakes."


Look at the photos of Long Island after the 1938 Hurricane roared through - wreckage and debris and nothing left standing. Look at a photo of the exact same place today - homes right on the beach that easily start at 2 or 3 million, and shore to shore developement.


Those who have chosen to put themselves in harm's way on the coast excuse their stupidity by claiming "the west coast has earthquakes, the midwest has tornadoes and the north has blizzards." Yes, the west coast has earthquakes and should be equally responsible for their dumb choices. As to the midwest "tornadoes", the damage from a tornado can't even come close to the damage a repeat of the 1938 hurricane would cause or the Florida/Gulf huricanes have caused. Blizzards and snow storms in the north are annoying but they never cause massive collapses of buildings and the complete devastation of a hurricane.

The people on the coasts in harm's way want the rest of us to subsidize their desire to live in a beautiful place with water views and acess - something the rest of us probably can't even afford to rent for 1 week, let alone live there. They get the water and typically warm weather and live in homes that are so far beyond what 80% of the country can afford as to be ridiculous; and the rest of us get the bill so they can have that - a situation that is outrageous.

If they want to be damn fools, then it is on their nickel, and not that of the rest of us through increased premiums or taxes to bail them out, or the currently proposed national disaster fund to bail them out. They CHOOSE to assume the risk of living in hurricane and earthquake zones - they can live with the consequences.

I make a point of never buying any property insurance (home, auto etc) from any company that underwrites in the hurricane or earthquake zones. There is a huge difference in premiums between those companies and companies that don't nderwrite in those areas - and we live in the far north on the Great Lakes in a rural area which is rated as one of the 'safest' insurance risk around.

Posted by: Ann | January 10, 2007 12:35 PM

Ann has it right--insurers have no responsibility to pay for losses on properties built recklessly close to bodies of water, fault lines or other LIKELY sources of damage--and the rest of America has no responsibility to fill the gap. It's real estate industries - building, mortgage, and brokerage - fueling the demand for these homes and the insurance on them. Let those industries cover the risks, too!

Posted by: fytnmad | January 10, 2007 12:41 PM

no, I see nothing wrong with them refusing to insure people that build in coastal areas. There needs to be a line between insuring against normal risk and insuring against abnormal risk (two different things). That said, the best thing that could happen to the home insurance industry would be competition. Without an upstart like Progressive or Geico, the insurance companies don't need to be competitive at all, they define the rules of their industry.

Posted by: jan | January 10, 2007 12:58 PM

"...insurers have no responsibility to pay for losses on properties built recklessly close to bodies of water, fault lines or other LIKELY sources of damage--"

I agree. But then they should not be writing policies on those properties and accepting premiums, should they?

In our economy the Primary Operating Rule as taught in business schools (it's also part of human nature) is to minimize cost/maximize profit.

The consumer will always pay the freight. Who do you think has covered the $250 million Home Depot gave to its CEO over the last six years as it progressively lost value? No need to answer.

Posted by: DC | January 10, 2007 1:12 PM

BTW - GEICO is not an upstart. They were doing "bait and switch" and "low-balling" on me 30 years ago.

It could be that they are more ethical these days, but I wouldn't know. I haven't touched them for 30 years and have advised everybody I know to aovid them.

Posted by: DC | January 10, 2007 1:15 PM

dc - you are right, I put Geico in there more as a non-traditional company (not brick and mortar), but I wouldn't touch them either!

Posted by: jan | January 10, 2007 1:17 PM

Since homeowners insist on living in unsafe areas such as on the coast, we might try a simple requirement for them before they are allowed to rebuild:

"You must stay in your home for one month before, during and one month after the disaster to qualify for disaster loans to rebuild." The insurance companies can also require the homeowners to do the same or they won't be compensated for their loss.

Everybody living on the beach loves it in good weather - try and ride out the Cat 4 hurricane and then you can ask for help later.

Posted by: TryTHis | January 10, 2007 1:20 PM

I have a house on the Gulf coast, currently at 8 feet above sea level. I will spend $50,000 this year to elevate this bay house to 18 feet above sea level.

Anyone who calls me a fool for living in harms way should try gazing out over the peaceful water, and feeling the sea breeze blow stress away.

My point is that the coastal areas will always attract people who enjoy the lifestyle. While they do not "deserve" insurance coverage, their needs should not be rejected, either.

Posted by: Matt M | January 10, 2007 1:50 PM

Uhhh folks, I think that many homeowners in coastal areas can obtain flood insurance from federally subsidized programs. So the federal government, as in so many other cases, is helping to underwrite foolish development of barrier islands and related coastal areas.

It's long past time for all parties, whether corporate or governmental to stop underwriting risky, foolish development that will be rebuilt on funds supplied by either all policyholdrs or by the taxpayers.

As for GEICO, I think they have evolved. I would not even talk with them for 25 years, but recently found them to be competitive in their rates. However, I have yet to make a major claim, so as the EPA would say, YMMV.

Posted by: Mister Methane | January 10, 2007 1:52 PM

Uhhh folks, I think that many homeowners in coastal areas can obtain flood insurance from federally subsidized programs. So the federal government, as in so many other cases, is helping to underwrite foolish development of barrier islands and related coastal areas.

It's long past time for all parties, whether corporate or governmental to stop underwriting risky, foolish development that will be rebuilt on funds supplied by either all policyholdrs or by the taxpayers.

As for GEICO, I think they have evolved. I would not even talk with them for 25 years, but recently found them to be competitive in their rates. However, I have yet to make a major claim, so as the EPA would say, YMMV.

Posted by: Mister Methane | January 10, 2007 1:52 PM

Should insurance companies be operated as nonprofit organizations?

Posted by: Dominick | January 10, 2007 1:55 PM

Uhhh folks, I think that many homeowners in coastal areas can obtain flood insurance from federally subsidized programs. So the federal government, as in so many other cases, is helping to underwrite foolish development of barrier islands and related coastal areas.

It's long past time for all parties, whether corporate or governmental to stop underwriting risky, foolish development that will be rebuilt on funds supplied by either all policyholdrs or by the taxpayers.

As for GEICO, I think they have evolved. I would not even talk with them for 25 years, but recently found them to be competitive in their rates. However, I have yet to make a major claim, so as the EPA would say, YMMV.

Posted by: Mister Methane | January 10, 2007 2:09 PM

Uhhh folks, I think that many homeowners in coastal areas can obtain flood insurance from federally subsidized programs. So the federal government, as in so many other cases, is helping to underwrite foolish development of barrier islands and related coastal areas.

It's long past time for all parties, whether corporate or governmental to stop underwriting risky, foolish development that will be rebuilt on funds supplied by either all policyholdrs or by the taxpayers.

As for GEICO, I think they have evolved. I would not even talk with them for 25 years, but recently found them to be competitive in their rates. However, I have yet to make a major claim, so as the EPA would say, YMMV.

Posted by: Mister Methane | January 10, 2007 2:10 PM

I agree with Ann. People who can afford houses on the Coast are wealthy enough to afford the higher premiums.

What kills me most about the owners of these properties is that they usually want to do everything they can to limit public access to the coast while demanding the Army Corp of Engineers to fund million dollar projects to protect their houses and investments.

Insurance is about risk assessment and balancing a portfolio of risks. Coastal property is high risk, hence the high premium.

Posted by: Joe | January 10, 2007 2:12 PM

Chris, unless you are going to buy your house for cash, you'll need property insurance, for the big things that Brian mentioned. The mortgage holder will insist on insurance and will often add one-twelfth of the estimated premium to your payment, hold it in escrow, and pay the premium themselves in order to assure themselves that the property is covered.

Posted by: celticann | January 10, 2007 2:15 PM

Chris, unless you are going to buy your house for cash, you'll need property insurance, for the big things that Brian mentioned. The mortgage holder will insist on insurance and will often add one-twelfth of the estimated premium to your payment, hold it in escrow, and pay the premium themselves in order to assure themselves that the property is covered.

Posted by: celticann | January 10, 2007 2:15 PM

Ah, yes - Geico. I had car insurance with them - then they decided to pull it. I was living in grad student housing with a assigned roomate. We did not pool funds, we did not share food let alone cars - in short we were not a "household". Geico accused me of deceiving them for not including him on my insurance application. In fact, they were pulling back in the SoCal region and manufacturing reasons for doing so. However, it left me high and dry - and being uninsured is taken as a risk factor increasing the cost of new insurance. Fortunately a State Farm agent was able to fix the problem for me. So, be careful about Geico!

Posted by: wiser now | January 10, 2007 2:21 PM

"Anyone who calls me a fool for living in harms way should try gazing out over the peaceful water, and feeling the sea breeze blow stress away.

My point is that the coastal areas will always attract people who enjoy the lifestyle. While they do not "deserve" insurance coverage, their needs should not be rejected, either. Posted by: Matt M | January 10, 2007 01:50 PM

SO WRITE THE CHECK YOURSELF!!!!

Why on earth should I pay far more in premiums (150% from companies that underwrite in your area) just so YOU can can enjoy the "seabreezes" and "{gaze} out of over the peaceful water"?

Going to share that house of yours with the rest of us?

If I buy from companies that underwrite in your area, I will be paying an extra $1600 a year in auto and another $500 in homeowners. That is $2100 a year. At $100 a night for a Bed & Breakfast, that means I get to stay in YOUR house around 21 nights a year - just to make it fair, you know. And that doesn't even begin to include the number of days that the rest of us are entitled to stay in the homes on the Gulf in return for the billions spent to bail out the region after Katrina. If I have to pay so you can "enjoy the breeze", I should get to enjoy it too.

The idea that you get the breezes and the view and I get the bill is a HUGE non-starter.

The Federal Flood Insurance Program should be flat abolished or restricted to paying out only 1 time ever on a property and then the property is out or the premiums jacked up to reflect the REAL cost and risk (and after 2005, that means raising the premiums 4-6 times.)

I seriously doubt that your home on the water falls within the median house price for the rest of - that's about $235,000 right now; nor will it fall within the price range that the median housedhold with an income of $47,000 can afford as that would be around a maximum of $200,000.

And we are supposed to cough up more money so you can sit on the shore surveying your private beach????? Try doing what most of the country does - go for a visit to the beach in a US National Seashore or Lakeshore or State Park. Better yet, the Gulf and Florida coasts up to 1/4-1/2 mile inland should be 'house-free' and turned into public parks so we ALL can enjoy the view and the breeze.

If you can afford to build a house and dump $50000 to raising it, lets see you get some real skin in the game rather than expecting the rest of us to pick up the tab through higher premiums or taxpayer bailouts.

Write that check to a regional insurer or the state insurer of last resort for that $10,000, 15,000, 20,000 or more a year.

Don't like that? Then blame the idiots in the government of your state who allowed construction on the shoreline.

I DO reject picking up the bill through higher premiums or taxes so you can enjoy the shore.

Track what is going on in Florida. The insurers who have stayed have raised the premiums to a level commensurate with the risk. The result? A HUGE public outcry from Floridians weeping and wailing that they have to pay the real cost of the risk they assumed; moaning that they can't afford to live there unless the rest of the country subsidizes them one way or another; and a state government that is planning on mandating that more companies offer coverage and considering capping premiums. Right.....


Insurance is NOT a 'right.' Back in the 70s my husband was working for a law firm in LA. At the time, some mega-star basketball player had built a multi-million $$$ house in an area with mudslides. It was insured. Rains came and down went the house. He rebuilt and was able to get insurance again but the insurer raised the premiums 200-250%. Rains come again, house comes down AGAIN. He rebuilds AGAIN. But this time, the insurers refuse to insure at any price. He sues. The California S Ct ruled that he had no 'right' to insurance and the other policyholders were not required to contribute to assisting in perpetuating his poor judgement so he could have what he wanted - great breezes and wonderful views of the ocean from the hillside.

Insurers are pulling out because state regulators won't let them raise the premiums to reflect the real risk - not the on that is much lower and demanded by the public.

If you want to live in a high risk place, then pay the REAL cost of the insurance and don't build more than you can afford to replace if it gets wiped out - like US Sen. Lott whining because the flood insurance max of $250,000 won't replace his $750,000+ home. What didn't he notice about the trillions upon trillions of gallons of water a few feet from his door in a hurricane zone?

And oh yes, - I too live within a 1000 feet of the shore but that is the shore of largest freshwater lake in the US and the 5th largest in the world. We don't get hurricanes, we don't get tornadoes, we don't have earthquakes and (because of the lake) we don't even get the blizzards the rest of the north sees. But you probably wouldn't like our autmun and our snow.

Posted by: Ann | January 10, 2007 2:27 PM

Dominick, I was thinking similar. Why are insurance companies allowed to issue stock and be accountable to investors. That bothers me. I agree non-profit status would enable them to keep liquid, but would not beholden them to stockholders who want ever increasing bottom lines.

Posted by: CyanSquirrel | January 10, 2007 2:28 PM

Last time I checked, insurance companies were in the business to take on risk, not to pick and choose "safe bets."

Posted by: Guy | January 10, 2007 2:30 PM

Last time I checked, insurance companies were in the business to take on risk, not to pick and choose "safe bets."

Posted by: Guy | January 10, 2007 2:31 PM

You should know that it is not just the houses directly on the water that are having trouble securing insurance.

Many insurance companies have pulled out of the entire state of Florida, forcing a great number of homeowners, living in very modest homes far from the coast, to either go without insurance or be thrown into the state's insurer of last resort.

What would be the solution for those Floridians that do not live anywhere near the water yet are subjected to losing their insurance? Should Florida become solely a haven for those that can afford extravegance?

Now, of course, there are some homeowners and developers that are irrationally building in dangerous areas. But please do not paint everyone facing the insurance crisis with the same brush. There are some people facing serious problems out there. How's about trying to contribute towards finding a solution here, instead of making broad generalizations of million-dollar houses on the shore?

Posted by: Anonymous | January 10, 2007 2:34 PM

The insurance companies were given generous taxation rules to allow them to accumulate assets to cover their risks. Then, they turn around and re-sell the risk to so called "re-insurers" which defeats the whole purpose of insurance- to pool risks. Reinsurers tend to view risk in terms of the merits of each individual policy rather than the pool. They want to maximize their profits year after year, rather than taking a longer term view that some years they will have profits and in some they will have losses. They're the villians responsible for people being thrown off their policies, skyrocketing rates, etc. The first step toward reforming the insurance industry would be to ban re-insurance and make the insurance companies primarily responsible for covering the risks of the policies they sell.

Posted by: George Robertson | January 10, 2007 2:36 PM

I agree that insurance companies should not be subsidizing people who decide to live in dangerous areas, meaning that they should pay a higher rate for the priviledge of living in a high risk area (I love the coast myself and would love to someday live there, but would expect to pay a premium rate to do so).

I also believe that THIS IS WHAT THEY ARE HERE FOR! Sorry for the shouting, but I am so sick of insurance companies crying foul when they have to pay out on a claim that they insured a claimant for. They don't ever want to pay, no matter what the circumstances.

I also think that insurance companies have no right to abandoned areas because they don't want to lose money (which by the way merely means cutting into profits, not showing any kind of true loss). People who live in safe areas don't really need the insurance, and the majority of them will never make a claim on the tens of thousands of dollars that they pay in to these companies. So if the insurance companies are not there for the ones that do really need the insurance, what are they there for.

Sorry for the rant, I am now dealing with homeowners for a claim and really down on the whole industry - I have always believed that if we ever saw insurance companies going out of business it was time to take all of our money out of the banks and move to a compound in the middle of nowhere! Not happening any time soon.

Posted by: DC Homeowner | January 10, 2007 2:36 PM

When an insurance company want to pull out of parts of a state or certain lines of business then the state should say basically, that they write ever line everywhere in the state or they can write no lines anywhere. Enough states do this then the insurance cos will re-think the redlining.

Posted by: Stick | January 10, 2007 2:45 PM

RE: "People who live in safe areas don't really need the insurance, and the majority of them will never make a claim on the tens of thousands of dollars that they pay in to these companies. So if the insurance companies are not there for the ones that do really need the insurance, what are they there for.
Posted by: DC Homeowner | January 10, 2007 02:36 PM "

You exagerate a LOT about what those of us in safe areas pay in premiums. In my village, it is about $400-500 a year per $250,000 of insured value from a regional company that does not insure in hurricane/earthquake zones. Doesn't exactly add up to all that much over the years for the median priced house out here in the rest of the US of $237,000. In 20 years, that is only $10,000.

Property insurance covers fire, wind (the tree that comes down on the roof or the storm that takes off some shingles), interior damage (the pipes that burst and soaked the downstairs), theft (that burglar taking the TV and silver) and things like some visitor tripping on the step and breaking their leg.

Don't see why I should pay more in premiums (as I said in an above post to 150% more) to a company that will insure in those areas.

If you want more insurers to offer insurance in high risk areas, then lobby your state government to allow premiums to be set acording to the real risk of those specific counties, towns or zip codes. Of course, the premiums will be commensurate with the risk - like 4 and 5 figures a year. Takes a lot of premiums to add up to the cost of replacing some 1 million $$ or more waterfront property or even that $500,000 place.

You get what you pay for; and if you think 'you will need it', then you better up ante up the cost of what you will 'need' in advance (or you could just open a savings account and deposit the mooney there and hope that noting bad happened beofre you saved enough to fix whatever happened.)

RE: "What would be the solution for those Floridians that do not live anywhere near the water yet are subjected to losing their insurance? Should Florida become solely a haven for those that can afford extravegance?"


Florida, as I understand from my reading, will not allow an insurer who underwrites in their state to write in County A but not in County B and takes the approach that if an insurer insures in Florida, they have to offer coverage to properties everywhere in the state.

If the Florida insurance laws were changes so that insurers could pick and choose which counties or zip codes where they would insure, then those in the interior with the substabtially lower risk would have better access to affordable policies and coverage.

Of course, that 'ain't gonna happen' as those on the coast in the high risk counties and zip codes would scream bloody murder about it being 'unfair' and raise political hell. Of course, it never occurs to them that it is the least 'unfair' that those in the interior who are at far less risk have to pay exorbitant premiums to subsidize those right on the coast.

Too much "I want therefore I should have" among those who have voluntarily chosen to place themselves at high risk of getting wiped out by a hurricane, tropical storm or earthquake..

Posted by: Ann | January 10, 2007 3:07 PM

RE: "People who live in safe areas don't really need the insurance, and the majority of them will never make a claim on the tens of thousands of dollars that they pay in to these companies. So if the insurance companies are not there for the ones that do really need the insurance, what are they there for.
Posted by: DC Homeowner | January 10, 2007 02:36 PM "

You exagerate a LOT about what those of us in safe areas pay in premiums. In my village, it is about $400-500 a year per $250,000 of insured value from a regional company that does not insure in hurricane/earthquake zones. Doesn't exactly add up to all that much over the years for the median priced house out here in the rest of the US of $237,000. In 20 years, that is only $10,000.

Property insurance covers fire, wind (the tree that comes down on the roof or the storm that takes off some shingles), interior damage (the pipes that burst and soaked the downstairs), theft (that burglar taking the TV and silver) and things like some visitor tripping on the step and breaking their leg.

Don't see why I should pay more in premiums (as I said in an above post to 150% more) to a company that will insure in those areas.

If you want more insurers to offer insurance in high risk areas, then lobby your state government to allow premiums to be set acording to the real risk of those specific counties, towns or zip codes. Of course, the premiums will be commensurate with the risk - like 4 and 5 figures a year. Takes a lot of premiums to add up to the cost of replacing some 1 million $$ or more waterfront property or even that $500,000 place.

You get what you pay for; and if you think 'you will need it', then you better up ante up the cost of what you will 'need' in advance (or you could just open a savings account and deposit the mooney there and hope that noting bad happened beofre you saved enough to fix whatever happened.)

RE: "What would be the solution for those Floridians that do not live anywhere near the water yet are subjected to losing their insurance? Should Florida become solely a haven for those that can afford extravegance?"


Florida, as I understand from my reading, will not allow an insurer who underwrites in their state to write in County A but not in County B and takes the approach that if an insurer insures in Florida, they have to offer coverage to properties everywhere in the state.

If the Florida insurance laws were changes so that insurers could pick and choose which counties or zip codes where they would insure, then those in the interior with the substabtially lower risk would have better access to affordable policies and coverage.

Of course, that 'ain't gonna happen' as those on the coast in the high risk counties and zip codes would scream bloody murder about it being 'unfair' and raise political hell. Of course, it never occurs to them that it is the least 'unfair' that those in the interior who are at far less risk have to pay exorbitant premiums to subsidize those right on the coast.

Too much "I want therefore I should have" among those who have voluntarily chosen to place themselves at high risk of getting wiped out by a hurricane, tropical storm or earthquake..

Posted by: Ann | January 10, 2007 3:07 PM

In reponse to Chris and others, I must point out that most insurance companies either lose money on the actual insurance or make only a tiny level of profit in most years. Most of their profits are from interest generated from the careful investment of their reserves. So no, the basic system is far from a scam. Overall, homeowners insurers are generally paying out claims pretty close to the same amount that they take in as premiums. Homeowners insurance remains an effective means of spreading out risk in an efficient way such that no single person stands to be ruined and the cost of this protection, averaged out among the pool of participants, demonstratably does not exceed it's value.

There is a consensus among real scientists that global warming is happening and that extreme weather will become more common. Bicker about the politics all that you want, but the people and the insurance companies who actually have billions of dollars at stake have naturally been forced to consider the question without any regard to political ideology. Their conclusion is that the problem is very real.

Thus they have to assume that they will be paying out more money in claims following extreme weather than they have in the past. Hurricane Katrina and the rest of the 2005 hurricane season forced the acceptance of this. There are only 2 ways that an insurer can address an increase in the amount of claims that they have to pay. They can increase rates or they can be more selective about what they are willing to insure. Well, a third way would be to rewrite the policies to reduce or eliminate coverage for that risk but this is generally something to be avoided.

2006 turned out to be a year of few hurricanes. That's great. But was there any way to predict that? No. Could a reasonable person who is responsible for the livelihoods of thousands of people and the investments of tens of thousands of people assume that 2007 or 2008 will be similarly mild hurricane seasons? No way.

If I was the CEO of an insurance company there is no way that I would risk the financial security of all my employees and stock holders simply because you don't like to pay an extra $50 a year in premium. That money isn't going to bankrupt you, but if I failed to collect it systematically from all of my customers then there is a real risk of the company going bankrupt in the event of a major hurricane. That's a lot of employees out on the street and a lot of retirees with their retirement accounts endangered. Pardon me for finding this more compelling than the cost of a tank of gas.

The thing about rate hikes and moves to stop writing business in disaster-prone areas is that it takes time. Most rate hikes require government approval and it takes at least a year for all of those changes to work their way through each policy on renewal. That's at least a year from the time that state governments finally give the green light to the increase. So it is not practical to roll back rates temporarily following a good year in what is overall a worsening weather trend. If they do that then they will get caught with their pants down come the next Katrina-level event.

I'm not even going to get into the reality of reinsurers boosting their own rates and making demands that insurance companies pull out of certain areas whether they like it or not. Suffice to say that insurance companies have what amounts to their own insurance from a global reinsurance market and that sometimes they have their hand forced by those reinsurers.

The insurance business is not like selling most other products where you can bring the prices up and down and shift your distribution area overnight if you want to. Companies have to constantly be looking at where they need to be, financially, in 2 years or so because that's how long it takes to really change course. It isn't like retail or service industries that can just look at things from quarter to quarter.

Posted by: Jackson Landers | January 10, 2007 3:35 PM

Stick,

States have tried this on occasion. NJ comes to mind. This kind of brinksmanship just does not work. The company will almost always opt to pull out of the entire state.

Fundamentally, what you are suggesting is unfair and foolish even if it was successful. Nobody should be forced by the government to conduct unprofitable business. What you are really looking for is a socialized system of personal insurance. That's fine - go ahead and advocate for a government-operated insurance system. But forcing private industry to act as a social services agency is no more just than government ordering you to rent out spare bedrooms in your home to complete strangers because of a housing shortage.

Posted by: Jackson Landers | January 10, 2007 3:49 PM

In 2005, the hurricane damage in Florida used up ALL the accumulated premiums which had been collected by the insurers since the huge hurricane in the mid-90s.

Two Florida Congress members are intoducing a bill to create a National Catastrophic Fund for Hurricane and Earthquake Areas - basically wanting to take the tax dollars of all of us who DON'T live in those areas on the beach to create additional insurance protection for those who do so the beach/sunshine dwellers can have lower insurance premiums.

I don't think so!!!!!

None of the costal areas have done the slightest thing to reduce the risk. They not only do NOT prohibit construction right on the water's edge but they actively encourage it.

Whatever governmetal agency who issued the building permits for the house in this story need to be the ones to suck it up and issue the insurance for when it gets flattened by a hurricane. (Have to say the homeowners aren't the brightest bulbs n the Xmas tree either for having built it where they did and now they whine they can't get insurance because of the hurricane risk! Duh...pretty obvious that the beach of the Outer Banks of North Carolina regularly and routinely get destroyed by huge storms; and it as an enormous risk to " buil[d] right on the ocean in the North Carolina Outer Banks.
Isn't a question 'if' the hosue is totalled but 'when'! Pretty lousy odds on that one! )

http://www.washingtonpost.com/wp-dyn/content/article/2006/12/01/AR2006120101759.html


If, and only if, the coastal hurricane and earthquake areas start actively doing the following, should any national assistance be given :

(1) prohibitng construction and development on hazardous sites such as right on the beach or on a hillside that has mud slides or in areas below sea level near the water

(2) buying up such properties and evicting the residents unless the property owners agree to forego any claims on government and taxpayer assistance and pay their own way when the property is destroyed or damaged; and live with paying whatever an insurer wants to cover the property. This means no more flood insurance for such areas as the beach on the Gulf Coast.

(3) Set construction standards that will withstand hurricanes and earthquaked. The most insane thing I saw after the 2005 hurricanes was a picture of a Florida State office building that was 30 stories tall and nothing but glass - which of course had been ripped away. That's righ - it was owned by the State of Florida! What nitwit came up with that design in a hurricane zone?????

(4) Engage in a massive retrofit of all existing buildings that do not meet the nes code - even if if means that states have to fund it through increased taxes and loans to property owners.

(5) Flood Insurance program MUST go. For existing properties, they get one shot at a claim and then, if they rebuild, they are on their own or they can sel the property back to the Flood Insurance program and move. Under no condition should second and vacation homes be elgible for flood insurance - EVER.


When those in hurricane and earthqauke zones start to exercise some discipline over their conduct and responsiblity for the decisions, may, just maybe, they then should be treated on a par with everyone else who doesn't assume such risks.

Posted by: kasa | January 10, 2007 4:13 PM

The insurance industry routinely engages in various forms of invasion of privacy, including the same illegal scheme used by HP recently. They also compile and exchange data bases on peoples health, credit, criminal, and family history. That information is even for sale and often ends up in databases in India or off shore where it is beyond the regulation of U.S law. Indeed, and I am a DBA with experience in this area, the number ONE source of identity theft is the insurance industry and their careless collection, use, and storeage, and outright sales of personal information. Often, indeed, some studies suggest *usually* this is done illegaly, outside of U.S. juristiction. Right now, they are shielded by a series of executive orders and laws from the just ousted Republican Congress. I hope the Democrartic Congress will roll back those shield laws and subject the entire insurance industry to a series of lawsuits that will cripple the worst offenders. Too, we urgently require legislation that forbids the banking, credit, insurance, and other industries offshore transmition of their data.

Posted by: MikeB | January 10, 2007 4:37 PM

I completely agree with those above that think people in safe areas should NOT have to subsidize those that buy on fault lines in and in hurricane zones. If people want the advantages of living there, they should have to either pay extremely high insurance rates or just go without.

Posted by: Anonymous | January 10, 2007 5:15 PM

How can insurance profits NOT come at consumers' expense? We pay money to the insurance companies. They pay slightly less money to doctors, etc. That's how they make their money! If regular people could get the same rates and have the same bargaining power as insurance companies, overall the system would be less wasteful because you are cutting out the middle man. Insurance companies are just a way of redistributing wealth. Don't take this the wrong way; I don't think that's necessarily a bad thing. I guess you could argue they are also taking advantage of economies of scale through their superior bargaining abilities when compared with the average Joe.

I think the thing I dislike most about insurance companies is that they have caused such a severe obfuscation of costs in the health industry (and others as well). Who the hell knows what things are really costing since the doctors just bill a huge amount and have it randomly negotiated down by the insurance companies?

I guess all I'm saying is clearly insurance company profits have to come at the expense of the consumer. Whether we're still getting a good deal is virtually impossible to tell.

Posted by: J | January 10, 2007 5:51 PM

Not at all. Wish the federal government would do the same, i.e. stop blowing tax dollars subsidizing coastal flood insurance.

Posted by: Tom Powell | January 10, 2007 6:15 PM

Ok, I don't live near a beach! just out of DC. In 03 my home was flooded by Isabel, Most homeowners doesn't cover floods including those caused by sewer back up. So see we all need flood insurance, everyone can buy it. It used to be allowed for ONLY a primary home. This was changed during the Carter Administration to allow purchase of it if the lender required it. We need to go back and revise this. That way we don't pay for repairs to vacation properties. "hurricane homes" dotted the coast before insurance was allowed for 2nd houses. Nothing but 4 concrete block walls and the owner paid to repair it.

Posted by: Anonymous | January 11, 2007 2:35 PM

Let's see, insurance company apologists. . . You want to depopulate all of California and the entire East and Gulf Coasts up to several miles inland because people are "stupid" for living in places subject to natural disasters. (Not that any place you live might need federal assistance for disasters of its own.)Then I guess we'll all be forced to move to your chickenbleep towns and live with sad, bitter, pathetic people like you. Trust me, it's worth any amount of insurance to avoid that.

Posted by: Florida Keys | January 12, 2007 9:31 AM

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