Insurers Retreat From Coasts

Thinking about building that dream house with the ocean view,  expect to pay much, much more for insurance.   If  you can get it.  

 

Before you invest in shoreline property you should read this Washington Post article in its entirety.    Some are proposing that the federal government take a greater role backing up new state catastrophe funds or private insurance firms when losses exceed a certain level.   However, is it fair to ask the American public to finance luxury development in high risk areas when the government can not provide affordable healthcare to millions of its uninsured citizens?     plk

 

 

Insurers Retreat From Coasts
Katrina Losses May Force More Costs on Taxpayers

By Spencer S. Hsu
Washington Post Staff Writer
Sunday, April 30, 2006; A01

Read the entire story at:  http://www.washingtonpost.com/wp-dyn/content/article/2006/04/29/AR2006042901364.html?referrer=email

Summary:

Alarmed at the sharply rising cost of hurricanes and other disasters, home insurers are pulling back from some U.S. coastal markets, warning of gathering financial storm clouds over how the United States pays for the damage of catastrophe.

The development is yet another legacy of Hurricane Katrina, whose mounting toll of destruction along the Gulf Coast has crystallized a growing industry debate about the combined effect of climate trends and population growth in coastal areas.

Some believe the two are creating a risk of losses so large that insurers could be pushed to the breaking point, leaving the government and taxpayers holding the tab for the next disaster.

Since Aug. 29 -- when the hurricane made landfall along the Gulf Coast -- Allstate Corp., the industry's second-largest company, has ceased writing homeowners policies in Louisiana, Florida and coastal parts of Texas and New York state.

The firm has stopped underwriting earthquake coverage in California and elsewhere.

Other firms have pulled back from the Gulf Coast to Cape Cod, notifying Florida of plans to cancel 500,000 policies.

Meanwhile, homeowners are moving to state-backed insurer plans of last resort, which tend to be subsidized by taxpayers, and whose costs are also rising.

As companies raise premiums, shed customers and battle homeowner claims in hurricane-damaged states, an overhaul of the industry is being promoted by an unusual coalition.

It includes Allstate and State Farm Fire and Casualty Co. as well as a bipartisan group of state regulators, academic experts and former homeland security officials.

They propose establishing a greater role for the federal government in backing up new state catastrophe funds or private insurance firms when losses exceed a certain level, toughening state and local building codes and increasing premiums to accurately price risks.

Some also want to potentially pool the high costs of covering perils such as earthquakes, hurricanes, tornadoes and even floods into regional or national groups to ease consumer cost, and to use some money to help improve first responders and local preparedness.

"There is a potential market failure here, if not already an actual market failure at work," said Robert E. Litan, a senior fellow at the Brookings Institution who is working with state regulators in California, Florida, Illinois and New York on a plan to reshape catastrophe insurance.

For instance, a direct hit on Miami by Hurricane Andrew that would have cost $60 billion in 1992 would cause $120 billion in damage today because the market value has doubled, the Insurance Services Office estimates.

What's more, up to half of the Katrina losses -- $38.1 billion -- were borne by overseas firms or reinsurers (insurers for the insurance companies), which say that growing capital markets are shouldering any growing burden.

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Summarized by Copernic Summarizer