Hurricanes and Insurance

Recently, the Florida Department of Insurance under a state law assessed the insured businesses and homeowners of Florida, $400 million. This was the last payment on 1992's Hurricane Andrew losses.

The State of Florida is acting as a re-insurer for private insurance companies to encourage as many as possible to remain in the state. Every year since Andrew, there has been a reduction in the number of private companies willing to write hurricane - wind storm - insurance. Deductibles have been raised, $5,000 is the minimum. Limits have been set on private dwellings, usually $250,000. Co-pays of 20% are also part of the attempt by private companies to lower their risks. Tidal surge losses have been excluded altogether. Tidal surge losses were the 2nd largest loss category in Hurricane Katrina.

Although large companies like State Farm (Illinois) and Allstate (Illinois) and Aetna (Connecticut) and Travelers (Connecticut) are regarded as national companies, the fact is each company functions on a “stand alone” basis in each of the fifty states. This is what Republicans mean when they say “state’s rights.” Every state writes its own rules and regulations and is obligated to do whatever enforcement there is on the industry. The industry loves this system too, because it is much easier and cheaper to “control” states on a state by state basis than it would be to control the Federal government. If a state gives them too much hassle, too much headache, too much oversight, too little profit, they just “bail out.” Only the largest states - California and New York - have been successful in regulating the industry in the public interest. Mostly. And that always problematical, as it is only the size of the market that keeps the companies in those two states. Not any sense of public spirit or public service on the companies part.

California has earthquakes, mud slides and wild fires. New York has hurricanes, spring floods and snow storms. Florida has hurricanes, sinkholes and wild fires. Other states like Oregon and Washington have volcanoes to insure against. The entire Mississippi-Missouri river system states have annual flooding and broken levees to consider. Very few states do not have some weather inspired or other natural phenomenon that does not pose a risk to property and life.

It is time that “We the People of the United States, in order form a more perfect Union,“ establish a national property insurance fund to offer uniform coverage to every business and homeowner. Nationwide. For all natural hazards. In order to keep it “private” - so the R&Fs can make a few bucks off the public without taking risk - we can do it like we did Medicare, we can turn over the state by state administration to private companies paying them a commission for each claim they handle. The Federal fund could have a $10,000 deductible for homeowners and $50,000 for commercial property. The private companies could “hustle” a lower deducible amount as an inducement to the public to deal with them. That would give the private companies an excuse to exist and still let the buying public get full coverage. Like the Medicare Supplement insurance “scam.”

It’s going to happen. Sooner than later. Private companies cannot recoup the huge losses they are taking on in cases of successive storms like last year where 4 major hurricanes struck the southeast United States. Only the Federal government, collecting premiums nationwide, against all natural risks, can generate a fund large enough to deal adequately with losses like Andrew and Katrina. Or another Mt. St. Helens. Of which another is sure to happen. Sometime.



[edit on 6/7/2006 by donwhite]