A recent consumer interest article written by Elizabeth O’Brien in SmartMoney, Could Insurance Reform Lower Your Premium? highlights another insurance crisis involving the disappearing availability of insurance in disaster prone areas. I recall a lengthy interview with O’Brien. I do not recall the following highlighted quote noted in the article, although I do not deny saying it:
“Although rates have leveled somewhat in recent years, it hasn’t gotten much easier to insure a home in the hurricane zones from Florida to New Jersey. New this year, Florida’s state-owned insurer Citizens is telling some policyholders to make costly repairs to their roofs or to add storm shutters or risk losing coverage. The insurance issues aren’t unique to hurricane-prone states. Homeowners who live along the New Madrid fault that runs through parts of Missouri, Tennessee and other states have trouble securing affordable coverage because of their perceived earthquake risk. “Insurance companies are a strange breed,” says Chip Merlin, an attorney who represents policyholders in Tampa, Fla. “It’s amazing how they try to avoid writing insurance in places where the risk could happen.”
Maybe I should not be too harsh on insurance companies. After all, if you were in the property insurance business, wouldn’t you want to insure properties that made you a profit with no risk of loss? If you got a little too risky in other ventures, wouldn’t you like the government to bail you out through loans to you or others insured by your risky investments?
O’Brien’s article points out a trend of some insurers refusing to place capital at risk. We will hear more about this, but the bottom line is that major insurers are seeking less risky investments. New and smaller insurers will have an opportunity to enter the marketplace because some old line carriers have lost interest in the risk business. They want the certain profit business. In the long term, chances are they will get neither.