Expansion of State Insurance Pools in North Carolina, South Carolina, Texas, Georgia, and Alabama
Posted by: Brian Martin (05-02-2008, 04:12 PM)

Much has been written and said about the insurance crises in Florida, Mississippi, and Louisiana. The figures below were found on the websites of the state-sponsored insurers of last resort for North Carolina, South Carolina, Texas, Georgia, and Alabama. This data shows how quickly and dramatically insurance companies have dropped coverage in the coastal areas of other Gulf and South Atlantic states, forcing property owners into the wind pools and other state-sponsored insurance pools.  The North Carolina Beach Plan’s liability grew from $17.8 billion $65.9 billion in four years – the plan covers $16.7 billion in New Hanover County alone; The South Carolina’s Wind Pool’s liability grew from $5.4 billion to $16.1 billion in four years; The Texas Wind Pool’s liability grew from $38.3 billion to $58.6 billion in ONE YEAR - the wind pool covers $17.9 billion in Galveston County alone; The Georgia Fair Plan’s liability in windstorm-only coverage grew from $565 million to $2.17 billion in three years;  The Alabama Beach Plan’s liability grew from $341 million to $1.6 billion in three years.  These state pools have severe limitations. They are not allowed to build up sufficient reserves to cover a major catastrophe, so they are forced to pay excessive rates for reinsurance coverage from a weakly regulated and uncompetitive industry. Single state pools tend to concentrate risk so that much of the pool would be hit by a single event. Mississippi, Alabama, Georgia, and South Carolina have relatively small coastlines of from two to six counties. Florida, Texas, and North Carolina have coastal cities where substantial risk is concentrated in the state pool.  The proposal to allow coastal residents to purchase wind and flood coverage in one policy from the National Flood Insurance Program would stabilize these coastal markets, spread coastal risk broadly and more efficiently, and eliminate the disputes over the cause of damages that are unavoidable when wind and flood coverage are provided by separate policies. The government would not be subject to the volatility and manipulation of the private insurance market that follows every major disaster.   The government would be able to set risk-based premiums based on the estimated losses, using the risk models and data currently used by the state pools, state insurance commissioners, and private insurance companies. 

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Reinsurers Gouge Texas Wind Pool
Posted by: Brian Martin (05-02-2008, 03:28 PM)

The chart in the attachment below clearly demonstrates why the reinsurance industry is leading the opposition to Congressman Taylor’s proposal to allow the National Flood Insurance Program to offer wind coverage at risk-based rates. State risk pools are forced to buy reinsurance at prices far exceeding the estimated risks and anticipated losses.   The Texas Wind Pool is proposing to purchase $1.5 billion of reinsurance above a self-insured retention of $600 million. That means the wind pool will cover the first $600 million in wind pool losses, with the reinsurance covering three layers from $600 million to $2.1 billion. The reinsurance premiums will cost $201.25 million.   The first $500 million reinsurance layer, from $600 million to $1.1 billion, will cost $86.25 million. That means the wind pool will pay a premium that is more than 1/6 of the insurance coverage where the risk models estimate there is a 1 in 12 chance of needing any reinsurance and a 1 in 22 chance of needing the entire $500 million.     The next $500 million layer, from $1.1 billion to $1.6 billion, will cost $62.5 million. The wind pool will pay a premium equal to 1/8 of the coverage where the probability of reaching $1.1 billion is estimated to be 1 in 22 and the probability of reaching $1.6 billion is about 1 in 35.   The third $500 million layer, from $1.6 billion to $2.1 billion will cost $52.5 million. The wind pool will pay a premium that is more than 1/10 of the coverage where the probability of reaching $1.6 billion is estimated at 1 in 35 and the probability of reaching $2.1 billion is about 1 in 45.   The Texas wind pool is not alone in being gouged by the reinsurance industry. The Mississippi wind pool is paying $65 million in premiums for reinsurance to cover $470 million of the first $570 million in wind pool losses. The wind pool has a self-insured retention to cover the other $100 million. The Texas Department of Insurance Commissioner’s Agenda for May 1, 2008The Commissioner of Insurance will consider the following matters: Docket No. 2683:  Consideration of petition by the Texas Windstorm Insurance Association requesting approval of a reinsurance program to operate in addition to or in concert with the catastrophe reserve trust fund established under Subchapter J, Chapter 2210 of the Insurance Code.   TWIA's Petition and Attachment  

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State Farm disses other insurers in Florida
Posted by: Brian Martin (05-02-2008, 03:23 PM)

In Florida, it seems that State Farm is dropping customers and then warning them not to buy policies from other private insurers. State Farm agents are pushing the state-run Citizens Property Insurance Company as more reliable than the private companies offering coverage in Florida. This is counter to the official industry line that the state plan is risky and private insurers are not.   State Farm's agents pushing Citizens By BY MATT REED Florida Today Watchdog blog Originally published 10:10 a.m., April 24, 2008 Every day, I get a phone call about hurricane insurance that goes exactly like this: Caller: "Um, yes . . . I received a notice from State Farm saying they were dropping me." Me: "Yup. They announced months ago they're dropping almost everyone and not selling new policies." Caller: (Pause) "Well, another agent put me with one of these new companies, and it's about $1,000 a year less." Me: "Great. So, what's the problem?" Caller: "I just got a scary letter from my old State Farm agent saying companies like mine have terrible ratings and I should buy a policy with Citizens." So, with letters in hand, I checked out the scare tactics State Farm agents are now using on the same people their company summarily ditched. Why would they steer former clients to Citizens Property Insurance Co., the state chartered insurer of last resort? CITIZENS PAYS THEM Bottom line: State Farm agents lose business if their clients don't buy from Citizens. Unlike Allstate or Nationwide, State Farm has no agreement with a new regional company to pick up homeowners' policies. The only other home insurance its agents can sell is Citizens. For that, State Farm agents collect commissions of 6.9 percent to 8.6 percent for home policies (depending on risk) and 12 percent for commercial policies. If they can hang on to homeowners, they also stand a chance of keeping clients' auto, umbrella and life insurance policies. Citizens "is backed by the financial strength of the State of Florida," says one letter from a State Farm agent. That's not exactly true, Citizens spokesman John Kuczwanski said. Citizens does have the power to assess all Florida policyholders to raise money if it falls short, but its policies aren't backed by the state general fund. THE RATINGS GAME But the scariest parts of the State Farm letters are those pointing to bad strength ratings by A.M. Best or Moody's for Florida's new, competing companies such as First Protective, Universal, Royal Palm, and Edison. Another rating company recommended by the state, Demotech Inc., gives those companies "A" ratings for stability. One State Farm letter slams Demotech as "inconsistent." "That sort of upset me," said Virginia Paddock of Vero Beach, who researched her First Protective policy before buying through an agency in Indialantic. "It's a little scary." Why do ratings differ? A.M. Best and Moody's measure factors including depth of reserves, company age, profitability and diversification across regions and lines of insurance. If you can get an affordable policy with an "A " rating from A.M. Best, take it. But new Florida-based companies that specialize in homeowner's insurance and rely on backup "reinsurance" to pay hurricane claims stand little chance with the agency. Demotech primarily measures a company's ability to remain solvent and pay claims in a crisis. And that's what you really need to know, right? "In 2004, four hurricanes and one tropical storm struck Florida," Demotech President Joseph Petrelli told me by e-mail. "There were nearly 100 newer, regional insurers and only one failed. The Florida office of Insurance Regulation and Demotech are doing a fine job." And remember, no rating predicts how quickly an insurer — big or small — will send an adjuster to accurately pay you.

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State Farm abandons Alabama Coast & New Jersey Shore
Posted by: Brian Martin (05-02-2008, 03:07 PM)

A few months before Hurricane Season, State Farm announced that it was abandoning coastal Alabama and the New Jersey shore. They had already pulled out or severely restricted underwriting in most other Gulf and Atlantic States.   Leading insurer to cut back State Farm will impose significant restrictions on any new policies in Mobile, Baldwin counties By JEFF AMY, Business Reporter The Mobile Press Register Wednesday, March 19, 2008   State Farm, Alabama's largest property insurer, will impose significant restrictions on new policies in Mobile and Baldwin counties beginning April 1, in what the company said Tuesday was an effort to cut its exposure to possible losses from a hurricane.   The company, based in Bloomington, Ill., will no longer write wind and hail coverage on homes south of Interstate 10 in Mobile County, and south and west of U.S. 98 in Baldwin County.   In much of the rest of the two coastal counties, State Farm will require a 5 percent hurricane deductible unless a house is armored against wind in ways that few local houses now are. That means a policy holder would have to pay for damage equal to 5 percent of the insured value of a house after a storm before insurance would kick in.   Shore area homeowners shunned by State Farm By ELAINE ROSE Staff Writer, Press of Atlantic City Monday, April 21, 2008 If you call a State Farm Insurance Company agent in Ventnor after office hours, you get a tape-recorded message saying, "Like a good neighbor, we are there for you 24/7."   Don't try and sell the "good neighbor" bit to Mary Nugent, of Pennsylvania, who has a home in Longport.   After paying premiums to State Farm for 25 years with no claims, Nugent got a letter from the company last week saying it will not renew her policy as part of a program "to reduce our exposure to catastrophic property losses." The state Department of Banking and Insurance approved their "block nonrenewal plan."   "Since your property is located on a barrier island, your policy is being nonrenewed" and will expire June 9, the letter said.   That got Nugent mad, and not only because she has to hunt down a new insurance policy at, most likely, a much higher price.   "You can't take the cream-of-the-crop (policies) and say, 'If we have to take a risk,we're not going to do it. We want all profit all the time,'" Nugent said.   The Oberon Avenue bungalow has been in her family for 100 years, and it has never taken in water, Nugent said. Meanwhile, her friends who live on the Delaware River in Bucks County, Pa., which has been subject to flooding, are getting renewed.   Officials say Nugent and other State Farm customers in New Jersey shore communities are the latest victims ina trend that has been going on for years.

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Mississippi Law Journal - Hurricane Katrina Special Edition
Posted by: Brian Martin (05-02-2008, 01:52 PM)

Check out the special edition of the Mississippi Law Journal, including Gene Taylor's article about the urgent need for federal insurance reform.

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