What is driving the insurance problem right now is the massive losses the industry has suffered in the last two years. If we look at 2005, which was the worst of the two: The industry paid $57 billion in catastrophe losses (not counting $15.3 billion in flood losses, which are covered by the federal flood insurance program), plus all their other normal expected losses from their auto and other lines of business.
After all profits from all other lines of property/casualty insurance (excluding life and health, which are written by different companies), and after all recoveries from reinsurers, the industry still lost $5 billion. The industry’s combines ratio of losses + expenses divided by earned premiums was 101.9 percent. One hundred percent is break even.
However, the reinsurance industry’s combined ratio for 2005 was an astonishing 144.8 percent.
Note that the standard insurance companies seem to have done ok in ’05, even earning a small profit after investment income, but only because their massive losses were funded by the reinsurers. Many politicians seem to want to stop looking at the situation after looking at the insurer’s results, and pointedly ignoring the state of the reinsurance market. It makes for better press, I guess, but contributes absolutely nothing to understanding and resolving the basic problem.
Now the real question is why the reinsurers have abandoned the Gulf states, and the answer lies in the way the building codes were weakened from the late 1960’s until just after Andrew. There is just too much construction in Florida and the other Gulf states that will simply blow away if a storm of any strength hits.
The reinsurers have decided that until the substandard construction has all blown away (or been retro-fitted to make it storm resistant) it simply is not possible to make a profit here. In fact, to continue to write would be risking the very existence of their companies.
Avoiding privately owned insurance companies (a solution offered by some who think the meager profits of the publicly held companies are somehow the cause of the rate increases) hasn’t been much of a solution either. Florida’sCitizens Property Insurance Corp. and it’s counterparts in the other Gulf states were all technically bankrupted in ’04 and again in ’05. We are being assessed 6.8 percent on all property policies to make up for Citizens’ 2004 deficit and the politicians are playing around with how to make up for it’s much larger 2005 deficit.
The basic problem underlying all this is simply the tremendous number of buildings built from the late ’60’s until 1994, which have no chance of surviving a serious storm, without tremendous damage, and there is no easy way to fix this problem until they have all blown away.
Florida is addressing this with their hurricane mitigation program, funded by $250 million from the state and $100 million from the feds. They will split the cost of hurricane abatement for dwelling owners (only for residents of free standing houses with a homestead exemption, i.e. live here more than 6 months a year) up to $5,000, for residences with insurable value up to $500,000.
Problem with this, as with all state programs, is it’s implementation is seriously underfunded. The house must first be inspected by a state inspector, then their recommendations will fall under the abatement program eligible for reimbursement. But they only have about 200 inspectors, and tens of thousands of homeowners have already filed for inspections. Current estimate for inspection for someone filing now: Well over a year.
And I have to question why anyone who owns a $500,000 home (cost to rebuild, not market value, i.e. at current construction costs in S. Florida a home of probably 3,300 sq ft) needs help from the state to pay for mitigation. Better to lower the cutoff point and use the money to help more lower income homeowners.
Clearly mitigation is the only way to solve the problem, but as always, Florida has seriously underfunded it’s implementation, but at least they seem to be ahead of the other Gulf states.
Both candidates plans to set up special funds to pay the first part of any loss then have the insurers pick up the balance are clearly shell games, with nothing under any of the shells. The state reinsurance fund has been bankrupted twice now (as has Citizen\’s) and that is essentially the same thing they are proposing now. It\’s not working, is it?
And then they talk about the \”obscene\” profits they insurers appear to be well on the way to making this year because of the higher rates, and lack of storm activity. They state that that won\’t be returned.
Well, what about the horrendous losses suffered the last two years?
It would be far better if the politicians focused on mitigation as the solution, and funded that properly, rather than smoking us with stupid shell games.
Of course they are both really hoping that voters won\’t know enough to see through the smoke and notice there\’s nothing at all under the shells, and that the problems will be there next year as well, but by then the elections will be over.
And require auto insurers to write homeowners in order to write auto? Oh yearh, let\’s create a crisis in auto insurance as well.
We have updated our privacy policy to be more clear and meet the new requirements of the GDPR. By continuing to use our site, you accept our revised Privacy Policy.
What is driving the insurance problem right now is the massive losses the industry has suffered in the last two years. If we look at 2005, which was the worst of the two: The industry paid $57 billion in catastrophe losses (not counting $15.3 billion in flood losses, which are covered by the federal flood insurance program), plus all their other normal expected losses from their auto and other lines of business.
After all profits from all other lines of property/casualty insurance (excluding life and health, which are written by different companies), and after all recoveries from reinsurers, the industry still lost $5 billion. The industry’s combines ratio of losses + expenses divided by earned premiums was 101.9 percent. One hundred percent is break even.
However, the reinsurance industry’s combined ratio for 2005 was an astonishing 144.8 percent.
Note that the standard insurance companies seem to have done ok in ’05, even earning a small profit after investment income, but only because their massive losses were funded by the reinsurers. Many politicians seem to want to stop looking at the situation after looking at the insurer’s results, and pointedly ignoring the state of the reinsurance market. It makes for better press, I guess, but contributes absolutely nothing to understanding and resolving the basic problem.
Now the real question is why the reinsurers have abandoned the Gulf states, and the answer lies in the way the building codes were weakened from the late 1960’s until just after Andrew. There is just too much construction in Florida and the other Gulf states that will simply blow away if a storm of any strength hits.
The reinsurers have decided that until the substandard construction has all blown away (or been retro-fitted to make it storm resistant) it simply is not possible to make a profit here. In fact, to continue to write would be risking the very existence of their companies.
Avoiding privately owned insurance companies (a solution offered by some who think the meager profits of the publicly held companies are somehow the cause of the rate increases) hasn’t been much of a solution either. Florida’sCitizens Property Insurance Corp. and it’s counterparts in the other Gulf states were all technically bankrupted in ’04 and again in ’05. We are being assessed 6.8 percent on all property policies to make up for Citizens’ 2004 deficit and the politicians are playing around with how to make up for it’s much larger 2005 deficit.
The basic problem underlying all this is simply the tremendous number of buildings built from the late ’60’s until 1994, which have no chance of surviving a serious storm, without tremendous damage, and there is no easy way to fix this problem until they have all blown away.
Florida is addressing this with their hurricane mitigation program, funded by $250 million from the state and $100 million from the feds. They will split the cost of hurricane abatement for dwelling owners (only for residents of free standing houses with a homestead exemption, i.e. live here more than 6 months a year) up to $5,000, for residences with insurable value up to $500,000.
Problem with this, as with all state programs, is it’s implementation is seriously underfunded. The house must first be inspected by a state inspector, then their recommendations will fall under the abatement program eligible for reimbursement. But they only have about 200 inspectors, and tens of thousands of homeowners have already filed for inspections. Current estimate for inspection for someone filing now: Well over a year.
And I have to question why anyone who owns a $500,000 home (cost to rebuild, not market value, i.e. at current construction costs in S. Florida a home of probably 3,300 sq ft) needs help from the state to pay for mitigation. Better to lower the cutoff point and use the money to help more lower income homeowners.
Clearly mitigation is the only way to solve the problem, but as always, Florida has seriously underfunded it’s implementation, but at least they seem to be ahead of the other Gulf states.
Both candidates plans to set up special funds to pay the first part of any loss then have the insurers pick up the balance are clearly shell games, with nothing under any of the shells. The state reinsurance fund has been bankrupted twice now (as has Citizen\’s) and that is essentially the same thing they are proposing now. It\’s not working, is it?
And then they talk about the \”obscene\” profits they insurers appear to be well on the way to making this year because of the higher rates, and lack of storm activity. They state that that won\’t be returned.
Well, what about the horrendous losses suffered the last two years?
It would be far better if the politicians focused on mitigation as the solution, and funded that properly, rather than smoking us with stupid shell games.
Of course they are both really hoping that voters won\’t know enough to see through the smoke and notice there\’s nothing at all under the shells, and that the problems will be there next year as well, but by then the elections will be over.
And require auto insurers to write homeowners in order to write auto? Oh yearh, let\’s create a crisis in auto insurance as well.