Insurance issues

I was covering the news in Florida before, during and for years after Hurricane Andrew. One of the major changes in that state because of that storm was in the price and availability of homeowners insurance — with the state having to create its own insurance pool to cover many people who simply could no longer get coverage from the private market.

There are plenty of folks now honking and beeping about how they were misled by their insurance folks and the feds about their coverage in the wake of Katrina. I also saw a piece about some Maryland family whose home suffered major flood damage after Hurricane Isabel two years ago, but only got a “take it or leave it” offer of $44K from their FEMA flood insurance. They’re still living in a government trailer parked in front of their home, which needs like $140K in repair.

Will those who suffered no flood damage reap the benefits of remaining high and dry? Will entire areas of New Orleans and the Gulf Coast become uninhabitable simply because reasonably affordable insurance will no longer be available? I have not yet seen any studies on the current mess and what the future might hold.

Any insurance professionals have any ideas on this? I wonder how many folks who want to come back will find themselves unable to rebuild simply because they can no longer afford the premiums.

23 Comments so far

  1. robyn (unregistered) on September 21st, 2005 @ 8:24 am

    I just wanted to say I Love New Orleans. I’m so sad this has happened to all you good people.

    We went through Hurricane Ivan and a year later as of yesterday the contractor is just now getting to us to talk about the condo reconstruction. It’s been quite a mess with the homeowners’ association and the insurance company. Even though it was not flood water that ruined the condos, it was wind damage. Condo had to be gutted and we’re starting over. The mold was so bad that they had to do a remediation on it that took a while.

    On our house that we live in we did not have water damage but we’ve been told by State Farm that they will no longer cover mold damage or clean up. The mold damage was was so bad in the condo that’s why they had to gut it to start over. Now, I guess even if you get hit by flood water or wind damage, if you get any water in your house and cannot clean it up right away, you are screwed….


  2. Joe B. (unregistered) on September 21st, 2005 @ 12:07 pm

    There needs to be some serious investigation of the insurance industry.

    Insurance needs to function more like the “kitty” that my mother made my brothers and I keep when we started our lawn service back when I was 12 or so. A certain amount from every job goes into the kitty to pay for future repairs and new equipment, which are absolutely going to be necessary.

    Insurance today doesn’t work like that. It used to. Now it’s not about protecting stockholders first, and policyholders second.


  3. Heatherlee (unregistered) on September 21st, 2005 @ 1:07 pm

    All of the insurance companies will take a hit on this, which means, yes, higher premiums for all. For some of the smaller companies (NOT the State Farm’s, Allstate’s & Farmers), it may mean going out of business. What a lot of people don’t understand is that it won’t just mean higher premiums for those in the affected areas, but EVERYWHERE these companies insure. There is not some big pool of money sitting there, waiting for a claim to be filed, then paid out. For every dollar a company takes in, a dollar, most times more than a dollar is sent out on everyday claims. This is why your premiums go up, the insurance companies need to make up the difference.
    I work in the industry (DON’T SHOOT!), and I don’t like it any better than anybody else. I don’t get a discount on my premiums, and rate increases affect me just like everyone else. It’s the way the industry works.
    BTW, Joe B., if you don’t want your policy and premium decisions made by stockholders, insure with a mutual company. They’re not run by stockholders.


  4. Steve O'Keefe (unregistered) on September 21st, 2005 @ 2:57 pm

    Insurance costs in New Orleans are already outrageous. People say the living is cheap in New Orleans, but those are folks with no assets. The cost of insurance almost wipes out the relatively low cost of housing and food.

    In 1995, I paid $250/year for a Safeco HO3 policy on a house in Washington State. Earthquake insurance was available — for a premium of $10,000/year! The insurance companies are expecting a Big One in Seattle much like New Orleans got the Big One with Katrina. In New Orleans last year, I paid $1200/year for an HO3 policy — almost 5 times the price in Washington State for the same house value and same coverage. “HO3” is an “all perils,” “replacement cost” homeowner’s policy. I also paid $600/year for flood insurance on the house in New Orleans. Altogether, that’s almost $2000/year in insurance for a house valued at $125,000.

    Same goes for auto insurance. I paid $25/month for liability only in Seattle. It costs $100/month in New Orleans. Many New Orleanians have dropped collision coverage on their cars, which is why you see so many late model cars with unrepaired damage. From what I saw on my trip back to New Orleans last week, any car left at ground level was vandalized and siphoned. The loss of assets for just cars alone in New Orleans is enormous and will be largely uninsured.

    Insurance companies are typically loose with pocket cash early in a disaster, then play hardball when assessing damage later. Damage from rising water is usually considered “flood,” though I’ve heard on the NOLA boards that you should refer to your home damage as “wind-driven storm surge” and maybe it will qualify as wind damage? Certainly, Louisiana state courts will tend to interpret policies to favor residents, so you will have state law behind you.

    Almost all insurance companies have issued riders in the past few years to protect themselves from mold claims. However, if mold is the result of an insured peril (such as wind damage to the roof letting water in) then it should be covered. I spent a couple years in the insurance business, but I am not an agent.

    STEVE O’KEEFE
    Marigny Refugee


  5. Joe B. (unregistered) on September 21st, 2005 @ 5:46 pm

    Wow, did I really leave that “not” in there? I have to learn to proof.

    Should be: “Now it’s about protecting stockholders first, and policyholders second.”

    For every dollar a company takes in, a dollar, most times more than a dollar is sent out on everyday claims

    Patently untrue…ever read a State Farm (for example, I’m not picking specifically on them) yearly financial report? Let’s give your statement the benefit of the doubt: even if the huge profits are only coming from the time usage of premium money, that doesn’t erase the huge profits or the fact that policy holders aren’t reaping that time value. Therefore, the time value of those payments is part of the cost to the policy holder. A hidden premium, in effect. There’s nothing wrong with making a profit. But when you make it unfairly, there’s a problem.


  6. Heatherlee (unregistered) on September 21st, 2005 @ 6:56 pm

    I said that’s where the higher premiums come from, not the profits.
    I’m not disagreeing with you, Joe. As stated, I work in the industry, and a lot of times, I hate the way it works. I get screwed just like everyone else.
    Just trying to help answer a bit of my “brother-in-law’s” question, that’s all.


  7. Will (unregistered) on September 22nd, 2005 @ 8:36 am

    I think insurance companies should charge outrageous amounts for insurance policies for people who live in disaster prone areas, or not offer it at all.

    I know along the Ohio river, flooding is a serious problem. People build their houses and small towns are located in flood plains. Then surprise, every year during the spring, some of these places get flooded. Insurance steps in and pays for everything each year and everyone’s premiums go up because of it.

    What are people’s motivations to leave these high risk areas for higher ground? If someone is going to come in and give them brand new stuff for almost nothing, why should they leave? The best example (and most extreme) I can think of is one of the hourly workers who used to work for me. He went and bought some land that was ALREADY FLOODED after some heavy rains. It had about 3-4 feet of standing water and was designated in a flood plain. He then bought a fairly new double-wide and parked it there later that summer. Despite the fact that it was in a flood plain, he was still able to buy flood insurance.

    At least every other year after that, his property has flooded and his trailer has been written off as a total loss. He knows when it is going to flood, so he removes all his personal possesions and just leaves items behind that he wants to replace (TV’s, computer, etc.). Insurance writes everything off for him, so every two years he gets all this new crap for free, plus they total his trailer and he buys a brand new one.

    Yeah, his premiums go up every year, but at his last mention, it was still less than a few thousand dollars each year. So for $3,000-$4,000, he gets everything he owns replaced every two years. Talk about a lease on life. It’s not the lifestyle I would want to lead, but he always has the latest computers, stereo equipment, video games systems, power tools, etc.

    It makes me mad that every year when my rates go up, I’m paying extra money to subsidize his ridiculous choice of a place to live.

    I think the same goes for places in Florida that are hit EVERY year by hurricanes (the Keys for example), or someplace like NO, where people choose to live someplace that is BELOW sea level. For parts of NO that are below sea level, I don’t think anyone should even offer them flood insurance anymore (maybe theft, fire, etc.). If a hurricane hits your town every year, I don’t think hurricane insurance should be offered to that area.

    If you want to live in someplace that is prone to disaster, you should be willing to do so at your own peril.


  8. David (unregistered) on September 22nd, 2005 @ 10:46 am

    The biggest change in homeowners policies as a result of Andrew is the change from “total” coverage (the HO3 mentioned in another post). This no longer exists here in Forida. It’s ‘replacement’ coverage only, which is probably the reason the Maryland couple is only getting $44k. You are responsible for the difference between replacement and total coverage.


  9. Lauren (unregistered) on September 24th, 2005 @ 9:38 am

    Just a point for you, Will – New Orleans is not a place where “a hurricane hits your town every year.” Katrina was the big one – nothing has ever happened like this before. It’s the kind of unimaginable storm that people buy insurance for in the first place. If you think WE’RE disaster prone, I’d hate to think what you’d say to everyone living over the San Andreas Fault in CA….


  10. Sea (unregistered) on September 26th, 2005 @ 8:51 pm

    I recently was visited by an adjuster from the Lafayette Insurance Co. for my home insurance. I had more damage than any of my neighbors on my roof and they are refusing to pay for replacement of the roof. They will only pay for half. Several of my neighbors, with other insurers were paid for their whole roof and even a generator. Mine refused. ANybody have any answers to this, being that we all have HO3 homeowners policies???
    Thanks


  11. Jerri (unregistered) on October 4th, 2005 @ 8:21 pm

    Just a little info regarding the big insurance companies. They are ALSO well insured…as in re-insurance. Ultimately, all of your dollars flow up to Europe, mostly UK. To those who think they are strapped for cash, that is simply not true. Their losses are insured as well, and UK Clubs have very deep pockets…think Lloyds of London and the like. Do they seem strapped to you?


  12. Debra Riley (unregistered) on October 17th, 2005 @ 7:29 pm

    308878: Hey, does anyone know where I can find a list of gas stations with low prices in my area?


  13. Ann (unregistered) on October 17th, 2005 @ 8:30 pm

    Sea – there is (more than likely) an appeal process. I would definately appeal – especially if you have a big company – like State Farm, Allstate, etc. Don’t jsut roll over! :-)

    A.


  14. John T (unregistered) on November 1st, 2005 @ 10:56 pm

    Hurricane victims. I am considering taking a job with a roofing company working in th NO area. Are these companies being ethical and are most homes in need of roof replacement or repair?


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