May
16
2007
Are Hurricanes Uninsurable?
Author: Valeria WeberInsurance companies have periodically been provided with the opportunity to throw up their hands and declare certain situations uninsurable. After 9/11, terrorism was put in that category and the insurance companies sought underwriting assistance from the federal government, which has a history of supporting their demands. Federally insured crop and flood damage are prime examples of long-time federal programs that have let private property and casualty insurers off the hook.
In Florida, hurricanes have become the new uninsurable risk. With last year’s departure of Nationwide Insurance, eleven major insurance firms have bailed out of Florida since Katrina. Adding speculative fuel to the fire, The Federal Emergency Management Agency (FEMA) estimates that a quarter of the coastal dwellings will be destroyed over the next 50 years. This from an administration that refuses to discuss the existence of global warming. This sort of flag waving has led to major property insurance increases all the way north to Cape Cod.
Ed Liddy, the CEO of Allstate, is working to build support for a federal disaster insurance program, a proposal that has recently been endorsed by State Farm and a few other industry members. In the meanwhile, State Farm is one of the few companies still operating in the Florida; covers about 20% of the households in the state; and sought an average rate increase of 80%. Nature rewarded them with a relatively calm hurricane season this year.
If hurricanes in Florida become uninsurable, what about wildfires in the West? Floods in Washington State? Tornadoes in Texas, Kansas and Indiana? Blizzards in the Northeast? Aren’t natural disasters part of the property and casualty business? Or is it possible that unlike the current crop of federally employed meteorologists, insurance companies have decided that hurricanes are man-made disasters?
