If the carriers went back to the old New York Fire Policy, no one would be able to get a mortgage.
Insurers already know how to provide blanket coverage for flood. Wording the policy isn\’t the problem. Getting enough people to buy the coverage at a premium that covers the exposure is the problem.
If every homeowner’s policy in a particular state had blanket flood coverage on a mandatory basis, the premium would still be so high that almost no one could afford to pay it. So, everyone but a few people buys, the rest let their entire HO property coverage lapse. What happens then?
Well, lots of mortgage companies buy forced placed coverage that has the coverage, and then add the premium to the mortgage. This would result in defaults out the wazoo because the premium on forced placed coverage is usually higher than standard market coverage, and people who couldn\’t afford it at the \”cheaper\” private rate sure can\’t afford it at the higher rate. This would lead to foreclosures (yep, you guessed it; out the wazoo!).
Meanwhile, in order to make up for the premium shortfall to make the flood premium being paid by the rich homeowners sufficient to cover expected losses, the carriers raise their rates. In the end, the only people who can own homes are those that can pay cash, so that they don\’t need property coverage. Everyone else rents…
But wait, the owners of the rental houses now have to buy the coverage. So, they have to increase the rent to cover the premiums. So now no one can afford to rent, either.
There is a reason why the government provides the flood coverage, and why the \”premium\” is not really exposure based, but subsidized by tax dollars.
The \”Homeowner\” policy does cover the risks most associated with a home that can be insured for a premium that is actuarially sound AND affordable. But, some causes of loss aren\’t insurable that way, simply because the cause of loss guarantees that the resulting covered losses would be so catastrophic and widespread that no affordable premium could be charged.
THE BEST SOLUTION IS VERY SIMPLE. ALL LENDERS SHOULD BE REQUIRED FLOOD INSURANCE
AS THEY NOW REQUIRE HOMEOWNERS INSURANCE. THAT WOULD RESOLVE THE ISSUE THE PLAN WOULD HAVE MONEY TO PAY CLAIMS, THE LOW RISK AREAS WOULD OFFSET THE HIGHRISK AREAS AND THE AVERAGE PREMIUM PER POLICY WOULD GO DOWN. AS FAR AS MR. HOOD IS CONCERNED HE IS JUST A PUPPET FOR THE TRIAL LAWYERS.
Insuring everybody does not make the rate go down. It\’s the big lie that has been repeated over and over again with mandatory auto insurance.
The propensity for loss does not change because there is a bigger group sharing losses. As you increase the number in the group the percentage of people having losses stays the same.
If your number and severity of claims is right for 10,000 people it is the same rate of loss and therefor the same dollar charge for 10 million people.
IT MAY BE MISSED MATH, BUT I BELIEVE THAT IF FLOOD INSURANCE WAS REQUIRED BY ALL LENDERS, THEN THE RISK WOULD BE SPREAD TO A LARGER GROUP WHICH WOULD ENJOY A LOWER FREQUENCY OF CLAIMS. THIS WOULD HELP TO MAKE THE PROGRAM ACTUARLY SOUND AND WOULD ELIMNATE THE QUESTON AS TO WHO SHOULD CARRY FLOOD AND WHO SHOULD NOT? MAYBE I AM INCORRECT? BEEN THAT WAY BEFORE.
Nationally, an average of about 30% of flooding is in areas that are not designated flood zones. It\’s been this way for more than ten years. When we pick up the undesignated 30% rates would actually increase.
Do you mean everyone with a mortgage has to get flood coverage thru the NFIP? Or on their insurer issued homeowner\’s policy?
Somehow, I just don\’t see a federal law requiring only people with mortgages buy NFIP coverage, especially in areas that don\’t participate in the NFIP, being constitutional.
As far as making it mandatory on insurer-written policies, remember that most states regulate personal lines premium by what the experience is for the class of business only in that state. And all carriers that would be forced to write the coverage in flood prone states don\’t all write coverage in the \”low frequency/severity\” states that you propose would help \”even the load\” premium-wise.
Late news ( 3/14/06 ) really bad news this afternoon….I suppose Hawaii is kind of like New Orleans, being on a hill in a hole. Is Kauai a flood zone?
HONOLULU (AP) — A dam on the Hawaiian island of Kauai apparently failed Tuesday, sending torrents of water gushing from a reservoir to the Pacific Ocean, the Coast Guard said. Seven people were reported missing.
Yes, this is a flood I think by the definition in the flood policy.
Any time an insurance company pays or is forced to pay for a claim that should legitimately be denied it sets a bad precedent for the future.
Many years ago when a contractor punched a hole in the Chicago loop tunnel that let in the Chicago River and flooded a large portion of the business on the loop the Illinois AG pushed for companies to pay up. Some did, others like CNA for which I worked at that time did not. I see the same scenario here and shudder to think of the potential consequences from the actions of one politically ambitious attorney general. At least Mr. Spitzer\’s investigation into \”price fixing\” had merit despite how that will be used as a political launch platform.
The \”04\”, \”05\” and \”06\” storms are changing insurance. My opinion is that the change will be much like the changes made in Texas after the mold histeria, more premium, changes in the status and structure of insurance companies and less coverage.
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Yo, Dean!
If the carriers went back to the old New York Fire Policy, no one would be able to get a mortgage.
Insurers already know how to provide blanket coverage for flood. Wording the policy isn\’t the problem. Getting enough people to buy the coverage at a premium that covers the exposure is the problem.
If every homeowner’s policy in a particular state had blanket flood coverage on a mandatory basis, the premium would still be so high that almost no one could afford to pay it. So, everyone but a few people buys, the rest let their entire HO property coverage lapse. What happens then?
Well, lots of mortgage companies buy forced placed coverage that has the coverage, and then add the premium to the mortgage. This would result in defaults out the wazoo because the premium on forced placed coverage is usually higher than standard market coverage, and people who couldn\’t afford it at the \”cheaper\” private rate sure can\’t afford it at the higher rate. This would lead to foreclosures (yep, you guessed it; out the wazoo!).
Meanwhile, in order to make up for the premium shortfall to make the flood premium being paid by the rich homeowners sufficient to cover expected losses, the carriers raise their rates. In the end, the only people who can own homes are those that can pay cash, so that they don\’t need property coverage. Everyone else rents…
But wait, the owners of the rental houses now have to buy the coverage. So, they have to increase the rent to cover the premiums. So now no one can afford to rent, either.
There is a reason why the government provides the flood coverage, and why the \”premium\” is not really exposure based, but subsidized by tax dollars.
The \”Homeowner\” policy does cover the risks most associated with a home that can be insured for a premium that is actuarially sound AND affordable. But, some causes of loss aren\’t insurable that way, simply because the cause of loss guarantees that the resulting covered losses would be so catastrophic and widespread that no affordable premium could be charged.
THE BEST SOLUTION IS VERY SIMPLE. ALL LENDERS SHOULD BE REQUIRED FLOOD INSURANCE
AS THEY NOW REQUIRE HOMEOWNERS INSURANCE. THAT WOULD RESOLVE THE ISSUE THE PLAN WOULD HAVE MONEY TO PAY CLAIMS, THE LOW RISK AREAS WOULD OFFSET THE HIGHRISK AREAS AND THE AVERAGE PREMIUM PER POLICY WOULD GO DOWN. AS FAR AS MR. HOOD IS CONCERNED HE IS JUST A PUPPET FOR THE TRIAL LAWYERS.
Insuring everybody does not make the rate go down. It\’s the big lie that has been repeated over and over again with mandatory auto insurance.
The propensity for loss does not change because there is a bigger group sharing losses. As you increase the number in the group the percentage of people having losses stays the same.
If your number and severity of claims is right for 10,000 people it is the same rate of loss and therefor the same dollar charge for 10 million people.
IT MAY BE MISSED MATH, BUT I BELIEVE THAT IF FLOOD INSURANCE WAS REQUIRED BY ALL LENDERS, THEN THE RISK WOULD BE SPREAD TO A LARGER GROUP WHICH WOULD ENJOY A LOWER FREQUENCY OF CLAIMS. THIS WOULD HELP TO MAKE THE PROGRAM ACTUARLY SOUND AND WOULD ELIMNATE THE QUESTON AS TO WHO SHOULD CARRY FLOOD AND WHO SHOULD NOT? MAYBE I AM INCORRECT? BEEN THAT WAY BEFORE.
Nationally, an average of about 30% of flooding is in areas that are not designated flood zones. It\’s been this way for more than ten years. When we pick up the undesignated 30% rates would actually increase.
Rick,
Do you mean everyone with a mortgage has to get flood coverage thru the NFIP? Or on their insurer issued homeowner\’s policy?
Somehow, I just don\’t see a federal law requiring only people with mortgages buy NFIP coverage, especially in areas that don\’t participate in the NFIP, being constitutional.
As far as making it mandatory on insurer-written policies, remember that most states regulate personal lines premium by what the experience is for the class of business only in that state. And all carriers that would be forced to write the coverage in flood prone states don\’t all write coverage in the \”low frequency/severity\” states that you propose would help \”even the load\” premium-wise.
Late news ( 3/14/06 ) really bad news this afternoon….I suppose Hawaii is kind of like New Orleans, being on a hill in a hole. Is Kauai a flood zone?
HONOLULU (AP) — A dam on the Hawaiian island of Kauai apparently failed Tuesday, sending torrents of water gushing from a reservoir to the Pacific Ocean, the Coast Guard said. Seven people were reported missing.
Yes, this is a flood I think by the definition in the flood policy.
Any time an insurance company pays or is forced to pay for a claim that should legitimately be denied it sets a bad precedent for the future.
Many years ago when a contractor punched a hole in the Chicago loop tunnel that let in the Chicago River and flooded a large portion of the business on the loop the Illinois AG pushed for companies to pay up. Some did, others like CNA for which I worked at that time did not. I see the same scenario here and shudder to think of the potential consequences from the actions of one politically ambitious attorney general. At least Mr. Spitzer\’s investigation into \”price fixing\” had merit despite how that will be used as a political launch platform.
Great analogy! I think I\’ll try that next time I\’m in Vegas!
The \”04\”, \”05\” and \”06\” storms are changing insurance. My opinion is that the change will be much like the changes made in Texas after the mold histeria, more premium, changes in the status and structure of insurance companies and less coverage.