The U.S. population in hurricane-prone coastal states continues to rise, a trend that is likely to impact adversely the nation’s coastal property insurance market for years to come, according to Dr. Robert Hartwig, president and chief economist for the Insurance Information Institute (I.I.I.). Hartwig asserted that conclusion in testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
“Despite the well-known vulnerability to hurricanes and rapidly escalating property values, coastal development in high risk areas continues at a furious pace,” Hartwig said, noting that 15 new condominium projects, with a total of more than 2,100 units, will be completed by year-end 2009 in South Miami Beach, Fla.
“Rapid build-ups are also observed in many other coastal areas, including Galveston Island, Texas; Hilton Head and Myrtle Beach, South Carolina; the Maryland shore; eastern Long Island; and Cape Cod,” Hartwig noted.
Florida has the highest population growth among hurricane-prone states and is expected to gain 12.7 million new residents between 2000 and 2030, according to the U.S. Census Bureau. “Florida is the most exposed state in the country, by far, accounting for 27 percent of all hurricane exposed property. Adjusting for growth since 2004, insured coastal exposure in the state now exceeds $2 trillion. Although New York is a close second, it is statistically less likely to be hit by major hurricanes than Florida,” Hartwig said.
Hartwig, who spoke before the U.S. Senate committee’s hearing, “An Examination of the Availability and Affordability of Property and Casualty Insurance in the Gulf Coast and other Coastal Regions,” noted that the price of insurance is determined primarily by the degree of risk assumed by the insurer. “Hurricane Katrina revealed that too many U.S. coastal structures are unable to withstand the forces of a major hurricane, the importance of prudent zoning and land-use management, and that private-sector insurers provide by far the fastest, most efficient means of economic recovery for communities affected by disaster,” Hartwig said. “Insurers paid more than $40 billion to 1.7 million U.S. policyholders in six states after Hurricane Katrina struck in August 2005.”
According to Hartwig, state-run insurers of last resort have offered little short-term property insurance rate relief to hurricane-prone regions of the country and may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast. “Depending on the state, the redistribution of costs is commonly achieved via laws that allow state-run insurers … to recover their losses in excess of their claims-paying resources by assessing (effectively taxing) the insurance policies of homeowners and business owners throughout the state, including those well away from the coast and those who have never filed a claim,” Hartwig said.
Hartwig’s complete presentation is available online at www.iii.org/media/met/gulfcoasthurricanes/.
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