The $500 Billion Hurricane
Is the Insurance Industry Trying to Justify Increases in Rates or Simply Justifying Leaving the Risk Business Along Coastal areas? These questions came to my mind after reading an article in the February 2008 edition of Natural Hazards Review. The article, Normalized Hurricane Damage in the United States: 1900-2005 , claims that by 2020 a $500 billion dollar hurricane loss could happen in South Florida. Of course, those are in 2020 dollars -- but that is off the charts compared to any previous loss. The study was made primarily by people working for the insurance industry. Accordingly, some bias may exist and consumer activists may find my questions justified. The $500 million figure seems surreal given the Katrina's calculated damage was $156 billion dollars. The study has two undeniable findings and conclusions. First, the population along coastal areas has grown. Thus, more property is in potential danger of hurricanes. The most concentrated areas are South Florida, Tampa, and the greater Houston area. All three areas have experienced significant population increases over the past century. Second, the per capita wealth has also increased over that period. Not only are more people and properties in harm's way, these people have more and more expensive properties at risk. In simple terms, we have more and better stuff to insure on an individual basis. These statistics are important. Determining the amount at risk and the amount of available insurance is important to a community and state. Since we cannot expect people are going to move away from the coast, the obvious long term solution is better risk management. The enforcement of building codes and stronger building codes are inevitable.
Support Federal legislation that will expand the National Flood Insurance Program to include windstorm coverage. The House of Representatives passed the Multiple Peril Insurance legislation last September as part of the reauthorization of the Federal Flood Insurance Program (H.R 3121). This legislation also prohibits insurance companies that contract with the flood insurance program from using anti-concurrent causation language to exclude coverage of wind damage where flood also contributed to the damage.
The companion Bill (S.2284), which is stalled in the Senate, needs to be amended to include Multi-Peril Insurance. Several Senators have expressed support for the amendment. With over 53 percent of the U.S. population residing in coastal counties, spreading the risk geographically would form a more stable insurance pool and provide more affordable coverage than is currently available in the state-by-state system. When a multi-peril policy is available to all U.S. residents, private insurers who have abandoned coastal areas will again be able to offer property insurance coverage without the excessive risk they currently fear.
The sooner this legislation is passed, the sooner coastal agents will again be able to offer comprehensive property coverage to their customers.
Now is the time to contact your U.S. Senators and ask them to support efforts to amend Senate Bill S.2284 to include Multi-Peril Insurance. Also, please email your friends, relatives and colleagues through out the nation and ask them to do the same. Click here to find contact information for your State Senators: http://www.senate.gov/