Posted On: October 16, 2007, 8:21 pm CDT

Posted By: Kent

Unfortunately Karen, I don't see insurance companies making billions of dollars for coastal risks. I see them losing billions on property risks only to hope that they make enough on their other lines of business to make it worth staying in the state. I'm in Texas - not Florida but, we have very similar situations. Climantologist and actuaries are predicting more cat 4 & 5 hurricanes. Most of the damage done by hurricanes Katrina and Rita would have been tolerable had those been cat 3 storms. Even the New Orleans levies probably could have withstood a cat 3 storm. Actuaries want reserves for cat 4&5 storms - better safe than sorry. I had a number of customers in the Port Arthur, Texas area receive terrible damages to their property from Rita. It will take the insurance carriers about 12 to 15 years of customers paying premiums with no additional losses for the carriers to break even. That is simply not a realistic scenario for that area of Texas.
I believe that carriers providing adequate premium reductions to insureds for building or rebuilding using better building codes is the only reasonable solution. In fact, building codes need to be strengthened to make property owners rebuild stronger structures. Most of the severe damage from a hurricane occurs within 30 miles of the coast - at least in Texas. A person may have to relocate inland a little if they can not afford to rebuild their beach house but, that is the cost of living on the beach. It is no different than some of my customers that pay $30,000 to $40,000 a year in property taxes to Dallas County because they want to live in the upscale parts of town.
I had a carrier based out of Houston belly up on me in about 1985. We placed a few hundred policies with them because their rates were great. However, after we got hit by a third bad hail storm in three months (they can get really bad in Texas) the carrier couldn't pay their claims. They were taken over by the Dept of Insurance but, it took eight months for some customers to be paid for their damages. It took years for my agency to recover. Trust me - the last thing you want is to have a policy with an insurance carrier that can't pay its claims. Carriers need to prepare for the cat 4 & 5 storms that are predicted by climantologist.