First, I agree that insurers NEVER intended for FLOOD to be covered in the HO product. Anyone from our industry who argues differently should not be in our industry. The real issue here is why in the heck is this being sent back to state court? This is clearly a case that needs to be decided by a Federal court. Remember from your civic class way back when…Interstate Commerce clause? That to me is the big issue with this story. All of the other stuff is old news.
I can tell you from 25 years in the business… Many clients show interest in Flood Insurance and say \”of course I want that covered\” until they find out how much it costs. Then they start rationalizing how they don\’t need it. \”I live on a high spot, oh, the floods won\’t reach here, etc… In my experience virtually 99% of the people who paid for flood insurance were required to do so by their lenders because they lived in a \”flood plain\”.
As we explain to clients over and over again, flood insurance seems expensive because of the cost of the claims. This insurance does pay out to folks and these premiums reflect the very real risk. Risk that is so great that insurance companies are not willing to accept that risk in exchange for the premiums.
Most agents put big red stickers that they get for free from the flood insurance folks on the cover of their home policies that say \”FLOOD IS NOT COVERED BY THIS POLICY\”, yet customers simply don\’t want to pay the premiums.
How dare this politician jump on his stump and demand that insurance companies pay for something that was simply not insured. As long as we\’re at it, why don\’t we demand that all of the auto manufacturers pay to fix all those cars that were flooded and we\’ll call them \”warranty claims\”… who cares if the warranty says it\’s not covered! Better yet, let\’s extend it to include all cars made in the past 20 years… we\’ll just claim that the great state of Mississippi \”expects\” it.
And people wonder why their premiums are high and why companies often simply refuse to write risks regardless of the premium!
It would seem a compromise is way to go â€â€Ŕ pay the premium – then pay the claim. A lot of property damage was out of the “flood zone” regions, so flood insurance probably not pushed.
2 issues â€â€Ŕa wind driven scenario with proximate cause of loss – hurricane. Ins companies know that hurricane prone areas are going to have storm surge and flood damage. Have they positioned themselves unethically to “ignore” that? I can see the courts bending this around.
Other issue â€â€Ŕ flood from levees â€â€Ŕ Who insd – 9if anyone – the levees? Should be some 3rd party damage recourse there, as the whole knows they weren’t maintained properly.
A compromise? Pay the premium then pay the claim… after the fact?
Sure, why not! Let\’s all go to the casinos with our settlements and we\’ll watch the roulette wheel. When the ball lands, we\’ll give them our $10,000 bet and tell them they can just deduct the cost of the bet from our $360,000 winnings. Oh, heck, don\’t worry about that \”bet before the wheel spins\” part… this is just a compromise. After all, we need the $$.
Same principle. The premiums are based on spreading the risk, not collecting premiums only from people who have a claim. If that were the case, then it would be a simple matter to calculate the premium. If the policy covers $100,000, then the premium will be around $130,000 to cover the cost of the losses and the cost of administering everything. What, we don\’t have any takers?
Amazing how we\’ve come as a nation to put our personal \”need\” over simple ethics and right/wrong. The more we do away with personal responsibility, the more we seem to invent higher levels of responsibility for everyone else around us. Let\’s all just sue!
Dean – a standard HO policy could respond to flood, if that was in the policy language. If they want to force flood coverage into the standard policy, there is likely an actuarial answer to the problem. Wait until you see the premium. It\’s probably triple or quadruple what is being paid now, maybe more. It will reflect the reinsurance costs, which will be staggering, to cover such an event. Companies and premium rates are not designed to lose money long term. If they want to force carriers to cover flood, fine, but you better sit down when you open your premium bill.
It goes back to the old saying, \”I\’d insure a building that is on fire if I could collect enough premium for it.\”
A couple months before Katrina an investigation was started to find $30 million of the $60 million fed money sent to New Orleans to fix the levees.
It was no secret that the levees were not good enough for \”the big storm\”. National Geographic had a big article on in in the spring (1995) called The Big Blow for the Big Easy.
Perhaps the 3rd party to be sued are the voters who consistently have voted for LA corruption.
I keep hearing the word \”compromise\” in the discussions. Pay the premium and we\’ll pay the claim. Several variations of this idea have cropped up, including penalty provisions, reduced limits, etc.
Besides the obvious fact that the HO policy does not cover flood, hasn\’t for 40 years, the language is crystal clear to the average person (even to a group of 4th graders in a study I just read!), and these people shouldn\’t be getting a single dime in coverage for losses that they didn\’t bother to insure against (no matter how bad we may feel for their losses), here\’s my concern with the \”compromise\” approach.
Insurance is based on the concept of spreading the risk. The law of large numbers. It assumes that some people will have losses at a given point in time, while others won\’t. If you allow people that have had a loss to retroactively buy the coverage, no matter what premium you charge, penalties applied, interest valuation surcharges, etc., you\’ve violated the basic foundation of the insurance concept. You\’ve GUARANTEED that EVERY participant in the risk pool has just had a loss! The only large numbers you have at that point are the total volumes of claimants, and all the ones on the checks being cut to them.
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This story begins, in part, with these words, \”…to honor their policies…\” Doesn\’t that already tell us what the author point of view is?
To be honest and fair to policy holders all over the country would be to not pay for flood damage as has been the practice for more than 70 years.
First, I agree that insurers NEVER intended for FLOOD to be covered in the HO product. Anyone from our industry who argues differently should not be in our industry. The real issue here is why in the heck is this being sent back to state court? This is clearly a case that needs to be decided by a Federal court. Remember from your civic class way back when…Interstate Commerce clause? That to me is the big issue with this story. All of the other stuff is old news.
I can tell you from 25 years in the business… Many clients show interest in Flood Insurance and say \”of course I want that covered\” until they find out how much it costs. Then they start rationalizing how they don\’t need it. \”I live on a high spot, oh, the floods won\’t reach here, etc… In my experience virtually 99% of the people who paid for flood insurance were required to do so by their lenders because they lived in a \”flood plain\”.
As we explain to clients over and over again, flood insurance seems expensive because of the cost of the claims. This insurance does pay out to folks and these premiums reflect the very real risk. Risk that is so great that insurance companies are not willing to accept that risk in exchange for the premiums.
Most agents put big red stickers that they get for free from the flood insurance folks on the cover of their home policies that say \”FLOOD IS NOT COVERED BY THIS POLICY\”, yet customers simply don\’t want to pay the premiums.
How dare this politician jump on his stump and demand that insurance companies pay for something that was simply not insured. As long as we\’re at it, why don\’t we demand that all of the auto manufacturers pay to fix all those cars that were flooded and we\’ll call them \”warranty claims\”… who cares if the warranty says it\’s not covered! Better yet, let\’s extend it to include all cars made in the past 20 years… we\’ll just claim that the great state of Mississippi \”expects\” it.
And people wonder why their premiums are high and why companies often simply refuse to write risks regardless of the premium!
It would seem a compromise is way to go â€â€Ŕ pay the premium – then pay the claim. A lot of property damage was out of the “flood zone” regions, so flood insurance probably not pushed.
2 issues â€â€Ŕa wind driven scenario with proximate cause of loss – hurricane. Ins companies know that hurricane prone areas are going to have storm surge and flood damage. Have they positioned themselves unethically to “ignore” that? I can see the courts bending this around.
Other issue â€â€Ŕ flood from levees â€â€Ŕ Who insd – 9if anyone – the levees? Should be some 3rd party damage recourse there, as the whole knows they weren’t maintained properly.
A compromise? Pay the premium then pay the claim… after the fact?
Sure, why not! Let\’s all go to the casinos with our settlements and we\’ll watch the roulette wheel. When the ball lands, we\’ll give them our $10,000 bet and tell them they can just deduct the cost of the bet from our $360,000 winnings. Oh, heck, don\’t worry about that \”bet before the wheel spins\” part… this is just a compromise. After all, we need the $$.
Same principle. The premiums are based on spreading the risk, not collecting premiums only from people who have a claim. If that were the case, then it would be a simple matter to calculate the premium. If the policy covers $100,000, then the premium will be around $130,000 to cover the cost of the losses and the cost of administering everything. What, we don\’t have any takers?
Amazing how we\’ve come as a nation to put our personal \”need\” over simple ethics and right/wrong. The more we do away with personal responsibility, the more we seem to invent higher levels of responsibility for everyone else around us. Let\’s all just sue!
Dean – a standard HO policy could respond to flood, if that was in the policy language. If they want to force flood coverage into the standard policy, there is likely an actuarial answer to the problem. Wait until you see the premium. It\’s probably triple or quadruple what is being paid now, maybe more. It will reflect the reinsurance costs, which will be staggering, to cover such an event. Companies and premium rates are not designed to lose money long term. If they want to force carriers to cover flood, fine, but you better sit down when you open your premium bill.
It goes back to the old saying, \”I\’d insure a building that is on fire if I could collect enough premium for it.\”
A couple months before Katrina an investigation was started to find $30 million of the $60 million fed money sent to New Orleans to fix the levees.
It was no secret that the levees were not good enough for \”the big storm\”. National Geographic had a big article on in in the spring (1995) called The Big Blow for the Big Easy.
Perhaps the 3rd party to be sued are the voters who consistently have voted for LA corruption.
I keep hearing the word \”compromise\” in the discussions. Pay the premium and we\’ll pay the claim. Several variations of this idea have cropped up, including penalty provisions, reduced limits, etc.
Besides the obvious fact that the HO policy does not cover flood, hasn\’t for 40 years, the language is crystal clear to the average person (even to a group of 4th graders in a study I just read!), and these people shouldn\’t be getting a single dime in coverage for losses that they didn\’t bother to insure against (no matter how bad we may feel for their losses), here\’s my concern with the \”compromise\” approach.
Insurance is based on the concept of spreading the risk. The law of large numbers. It assumes that some people will have losses at a given point in time, while others won\’t. If you allow people that have had a loss to retroactively buy the coverage, no matter what premium you charge, penalties applied, interest valuation surcharges, etc., you\’ve violated the basic foundation of the insurance concept. You\’ve GUARANTEED that EVERY participant in the risk pool has just had a loss! The only large numbers you have at that point are the total volumes of claimants, and all the ones on the checks being cut to them.
This whole case is absolutely ludicrous!
The big hurricane article in Natl Geographic was Spring 2005, not 1995. sorry