Insurance companies refusing N.E. US homeowners

[Ivan Seeking]

Depends. If homes are purchased with cash and the market falls as a function of insurance companies' policies, yes. If homes are purchased with lenders' money, no --- that was never "real" money. The banks show smaller profits for defaulted mortgages (actually larger given tax write-offs and other creative bookkeeping tricks).

True, however, many people today rely on the equity in their home to acquire additional wealth. This ends up as real cash in the economy.

 

[Pengwuino]

No, if they've lived there for generations and have always been able to get insurance, they know they are taking less of a risk. They know they won't be completely homeless and penniless if their home is destroyed in a storm, or because it catches on fire. Not having insurance changes the risk completely.

Unless the insurance companies decided to quadruple the equivalent insurance premium overnight, your point doesn't stand. These people couldn't have been paying very cheap rates in the first place so there's no reason to think that the risk changed "completely" unless these highly successful and very rich insurance companies are like the average joe six pack and panic and go wildly raising rates 500% over some disaster in another part of the country.

They're smarter then that.

 

[Pengwuino]

The point is that it may have a significant impact on the economy. I'm not making a value judgement.

I doubt it would have a significant impact. Like you just said, people use their homes to generate wealth. The longer these homes have been in the same hands, the more potential wealth exists but the less actual wealth exists that has been put into the economy (since they haven't been sold off yet... unless of course people are taking out equity loans... which is patently stupid if your house is worth $10,000,000...). Of course, I have no idea how many of these million dollar mansions have been in the same hands for however long.

 

[loseyourname]

Unless the insurance companies decided to quadruple the equivalent insurance premium overnight, your point doesn't stand. These people couldn't have been paying very cheap rates in the first place so there's no reason to think that the risk changed "completely" unless these highly successful and very rich insurance companies are like the average joe six pack and panic and go wildly raising rates 500% over some disaster in another part of the country.

They're smarter then that.

Still, it's pretty unfair if you've been paying say, $2K a month for the last twenty years, only to get none of it back when a storm finally strikes because the insurance company decided to dump your coverage. If they're going to do that, they should at least refund the premiums you've already paid. I'd be a lot more understanding if they just jacked up the premiums to an absurdly high level, or even if they just refused new policies. You may have no right to insurance, but it certainly seems like you should have the right to be covered when you've been paying for coverage for many years already.

 

[russ_watters]

The point is that it may have a significant impact on the economy.

Really? How much money are we talking about here?

 

[russ_watters]

Still, it's pretty unfair if you've been paying say, $2K a month for the last twenty years, only to get none of it back when a storm finally strikes because the insurance company decided to dump your coverage. If they're going to do that, they should at least refund the premiums you've already paid.

Where are you getting that? I don't see it in the link Ivan posted. All it talks about is raising premiums and dropping coverage going forward. Not paying a claim would have to be a breach of contract.

The insurance on the townhouse I'm buying is only slightly more than the insurance on my car, and the townhouse is worth a little more than 10x as much as the car. To me, homeowner's insurance seems like a pretty good deal - and I'm a guy who typically doesn't like insurance.

If I buy a Mustang, my insurance premiums will go up. If later the Mustang proves to have a flaw that makes it explode (as they once did), the insurance company could well drop my policy. If I buy a house which later proves to be in an area that isn't as geologically stable as originally thought, my insurance company could well drop my policy. That's life and that's a reality of the gamble of insurance. I still don't see anything particularly Earth'shattering about this. It certainly isn't a new concept and the impact on the economy - well - what fraction of houses in the US are actually affected here? A thousandth of a percent?

 

[loseyourname]

Hmmm . . . I guess I just misread it. I could have sworn it said they were dumping people that already had coverage.

 

[Moonbear]

Hmmm . . . I guess I just misread it. I could have sworn it said they were dumping people that already had coverage.

That's what I thought I read too.

 

[turbo]

That's what I thought I read too.

You read it correctly. Insurers are not just raising rates - they are refusing to renew existing policies. In essence, they are saying "Thanks for all your premiums in the past - we are dumping you before we have to pay any claims."

Wendy Northcross, president of the Cape Cod Chamber of Commerce, says she hunted for several months for new insurance for her modest, three-bedroom house when her long-time insurer withdrew from the Cape Cod market last year. "I was literally starting to panic, and I'm not prone to panic," she says. Ms. Northcross says she finally ended up in the state's FAIR plan, which boosted her premium to $1,200 a year from $800 under her previous policy.

Other states barely touched by last summer's hurricanes also are feeling the impact. In New York, Allstate, the largest insurer in the state, recently announced it would drop 28,000 policyholders in eight counties, including New York City, citing "overexposure" to potential weather related losses there. But other insurers, including State Farm and Liberty Mutual Group, have said they would continue writing business in the state.

In Rhode Island, insurers are beginning to alert homeowners in coastal areas that their policies won't be renewed, according to the state's association of independent insurance agents. Premiums on continuing policies in the state have risen from 10 percent to 15 percent in the past year, and more insurers are imposing higher deductibles for windstorm damage, the association says. And in Maine, regulators say they are bracing for what they expect will be efforts by insurers to boost premiums because of increased reinsurance costs.

Insurers have very effective lobbies, and if they wish to conspire to raise all the premiums in the Northeast to cover their recent losses in the South, they can do so with impunity. As Moonbear pointed out, working-class people along the Maine coast are being taxed out of their homes due to skyrocketing property values. We have had to resort to legislative initiatives such as taxing property based on current use instead of "best use" to keep piers open so fishermen can keep working.

If insurers drop coverage on coastal residents' homes, they are creating a very nasty situation, since no insurance=no mortgage. If you lose your insurance and cannot get coverage elsewhere, the bank will call your note, and if you can't pay it off, they will foreclose. If you own your home outright, you're fine - the problem is that self-employed people can have a hard time getting loans to overhaul their boat's engine (for instance) and may resort to the only form of security the bank will take - equity in their home. For this reason, if for no other, there are probably a lot of home equity loans among the fishermen.

 

[BobG]

I would say that Katrina revealed that insurance companies have miscalculated the risks. Buying property insurance is sometimes just buying a set of ground of rules for the ensuing legal war.

For insurance companies, the goal is to reduce "claims leakage" - paying out more than they are legally obligated to pay. http://www.insurancenetworking.com/protected/article.cfm?articleId=3957

For home owners (and tax payers), the goal is to maximize the amount of damage covered by private insurance companies (and to reduce the amount covered by government programs). I'm not sure how the process works, but I think homeowners have to wait for claims to be resolved with their private insurance company before turning to the National Flood Insurance Program (if appicable) or to government disaster assistance.Dale wants answers on wind claims

For a disaster as big as Katrina, it's important for insurance companies to win their legal wars. Losing a legal war, or even having the tide turn against them in a protracted battle, causes them to reassess the amount of risk they face in future disasters.

 

[Astronuc]

In the light of Katrina and Rita, and the apparent increase in frequency of such extreme weather events, the risk of property loss (and hence increased likelihood of insurance claims) has increased.

People have been allowed to build in high risk areas - on the beach and in warmer climates.

Property owners should be expected to assume more of the risk, since they expose themselves to more risk. This is similar to casualty and life insurance, which is much higher for those who freely 'choose' riskier activities like riding motorcycle, skydiving, scuba diving, mountain climbing. People should not expect subsidies from those who are more cautious.

 

[motai]

Property owners should be expected to assume more of the risk, since they expose themselves to more risk. This is similar to casualty and life insurance, which is much higher for those who freely 'choose' riskier activities like riding motorcycle, skydiving, scuba diving, mountain climbing. People should not expect subsidies from those who are more cautious.

Interesting. I would have assumed that scuba diving wouldn't be considered risky, as it doesn't seem nearly as dangerous as skydiving. But even still, the odds of dying in either scuba diving or sky diving is less than the overall odds of dying in a car accident, which is roughly 1/360 if my memory is correct.