In an effort to make up for my lack of blogging, here is some insurance news of interest:
Reactions to Hurricane Katrina:
Pa. Rep. Seeks Emergency Aid Law with Flood Subsidies
Pennsylvania State Rep. Peter J. Daley, D-Washington/ Fayette, is planning on introducing a bill to provide flood insurance premium subsidies and other small disaster relief to homeowners, small businesses and municipalities to address catastrophic losses that do not affect a large enough population to receive federal disaster assistance.
Fla. Insurance Commissioner Supports National CAT Fund
Florida Insurance Commissioner Kevin McCarty said with the specter of projected hurricane losses from Hurricane Katrina topping $25 billion, he is intensifying his support for creating a national catastrophe fund and a federal mega-fund for state disaster relief.
Another supporter is U.S. Rep. Mark Foley, R-Fla., who has sponsored a bill to amend the federal tax code to allow insurance companies to voluntarily set aside, on a tax-deferred basis, reserves to pay for future catastrophic losses. The United States is one of the few countries in the world that does not provide companies a way to accumulate reserves on a pre-tax basis.
Another Hurricane Coming:
Tropical Storm Ophelia to Bring 'Buckets' of Rain to N.E. Fla. Coast
Cause of Loss: Wind or Water? The lack of flood insurance creates contention.
Paying for Flood Damage Looms as Big Challenge; Many in Gulf Coast Region Had Little or No Insurance; A New Compensation Fund? (WSJ $ - September 9th - I access the WSJ through the University so I can't link to it)
Most homeowners in the hardest-hit Gulf Coast states lacked any flood insurance at all, even in flood-prone neighborhoods. Standard homeowners' policies exclude flood coverage, which generally must be bought from the federal government and is capped at $250,000.
Katrina also sent flood waters deep into areas that hadn't flooded before, in which many homeowners thought they didn't need coverage. Consequently, many who lost their homes in devastated areas -- including much of New Orleans and large chunks of Biloxi, Pascagoula and Gulfport, Miss.-- could find themselves without any insurance proceeds to help rebuild demolished homes and businesses.
Mr. Scruggs, a Philadelphia class-action attorney, said he plans to urge Mississippi Attorney General Jim Hood to try to override flood-exclusion clauses in homeowners' policies in that state in the interest of public policy, a move that could force insurers to pay many billions more toward rebuilding costs. Through a spokesman, Mr. Hood said: "I'm reviewing these contracts to determine if there are unconscionable provisions."
Insurers are likely to resist any such effort, though a fight could be a costly public-relations nightmare. Industry officials argue that they can't afford to take on flood risks because they haven't been paid to do so. "Where does that money come from?" said Allstate Corp. spokesman Mike Trevino. "We didn't collect any premiums that contemplated flood as an exposure that we would have to cover."
Said Stephen Cozen, a Philadelphia attorney whose firm does extensive work for the insurance industry: "This is not a public- policy issue. This is simply an insuring agreement between two parties in plain English where there's plenty of notice."
How much of the damage was due to strong winds and how much due to flooding?
A majority of businesses and homeowners in the storm-ravaged area have insurance that covers wind damage. While many businesses bought flood insurance as well, relatively few homeowners did.
While the issue comes into play whenever a hurricane hits, the stakes have never been as high for the industry as they are now, said Robert W. Klein, director of the Center for Risk Management and Insurance Research at the Robinson College of Business at Georgia State University. And so, Mr. Klein said, insurers are more likely to protect their interests. "This is an overall bigger event," he said. "Given the number of dollars involved, and just the nature of how things developed, it is a potential area of dispute that may get more heated."
Flood Insurance Details:
Business World: Gambling with Your Money, Their Lives (WSJ $ September 7th)
Back in 1968, Washington was already in despair at what it had wrought and got into the flood insurance business as a way to make property owners finally bear the cost of their own recurrent bailouts. It didn't help. The money flowing to flood victims through all channels has grown geometrically, subsidizing ever more risk-taking. Legion are the tales of homeowners who, over a few years, collected payments several times the worth of their houses. Homes not only are replaced but are built bigger and more ornate each time. Cities and localities have no reason to deprive themselves of the tax base by zoning against development on their floodplains if Washington will pay them to rebuild each time.
A screaming match three years ago concerned a House bill to charge market-based flood insurance premiums to homeowners who filed frequent claims. Louisiana Rep. Billy Tauzin (since retired) denounced the bill as "an assault on the culture of South Louisiana."
Modern New Orleans was the ultimate expression of this high-rolling dynamic. In 2000, an unnamed city official succinctly explained the city's hurricane strategy to the trade publication Risk & Insurance: "We are below sea level and we do get floods sometimes, but it's not a real serious problem. You can still purchase flood insurance."
Quotes from A Consumer Activist
Insurers have little excuse for seeking rate increases nationally, or even within the hardest-hit states, maintains Robert Hunter, a former Texas insurance commissioner and director of insurance for the Consumer Federation of America. Moreover, he argues that current rates incorporate the likelihood of severe storms. Given insurers' extensive computer modeling, "the fact that one of the [storm] events happens shouldn't be a surprise," he says.
"The insurance companies have a moral issue, really, because the more they say it's flooding, the less they have to pay up," Mr. Hunter said. "It's hard for you to prove it happened, but it's hard for the insurance company to prove it didn't."
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