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First Post!

by Maarten Goldstein, Aug 15, 2006 4:13am PDT

Fifteen days into August and still no sun. Just lots and lots of rain. Pretty depressing! Also on FileShack


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  • #4372
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    By: Thresher x
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    In reference to the Homeowner's Insurance thread here:

    http://www.shacknews.com/ja.zz?id=12690425

    An insurance guy will explain how this works and why this is a good thing(R).

    There is a lot of ill-informed commentary in this thread, but I will set out a few things at the beginning:

    1. Insurance companies are out to make money.
    2. Insurance is by nature, complicated as shit.
    3. Insurance companies HATE BEING SUED. It costs money and they rarely come out looking like champions for the common man.
    4. Sometimes, insurance companies make decisions based on their policies that their policyholders don't like.
    5. Occasionally, adjustors or insurance companies make bad decisions, either through stupidity or bad management, rarely through a concentrated effort to screw their policyholders (although, unfortunately, it does happen from time to time).

    Okay, all that being stipulated.....

    There are three types of policies that could have been involved here:

    1. A Homeowner's policy (the basic policy we're all familiar with)
    2. A Flood Policy (Underwritten through the National Flood Program)
    3. A Hurricane Policy (Available in some hurricane prone states).


    Why wouldn't this all be covered under a Homeowner's policy? There are several reasons, but the primary reason is that both Floods and Hurricanes (and Earthquakes in those states that get those) are considered Catastrophic in nature. This means that they cause such widespread destruction that they are basically uninsurable by most companies. The secret to insurance is to spread the risk out. Concentrate too much risk in any one area and you run the risk of getting wiped out if a large enough event occurs. Well, a Hurricane, Earthquake, or Flood can affect an entire state at the same time. This can wipe out an entire company.

    Here is the important thing to remember about Homeowner's Policies:

    Homeowner's Insurance works best when losses are individual and unrelated

    The more random and unrelated, the lower their likely exposure, the lower their likely rates. There is more to it than that, but that's a large factor.

    To give you an example, when Hurricane Andrew hit Florida, my own company, the largest homeowner's insurance company in Florida and the nation, was essentially bankrupted because at the time, hurricanes were not specifically excluded from the HO policy. Had the Mutual Company that owned the Fire and Casualty company not stepped in with a check for $9 billion dollars, many people would have had absolutely nothing. Part of the reason was that we wrote too much business concentrated into too risky an area. Part of the problem was that no one had ever imagined such a loss. Either way, we were damn fortunate, as were our policy holders.

    So, as a result of several years of catastrophes, many states, including Florida and other Gulf Coast States, started excluding Hurricane coverage from the standard homeowner's policy. You could then purchase the Hurricane policy back either through an additional policy or through an endorsement on your Homeowner's policy. Either way, they came with signficant additional cost and deductibles to reflect the tremendous burden they can place on an insurance company. People that could not qualify for Hurricane Insurance through their regular insurance company are usually able to pick up insurance for this that is underwritten by the State, usually at a really high rate. Moral of this story: The closer you are to the beach, the harder it's going to be for you to get Hurricane coverage and the more you are going to pay for it.

    As for Flood coverage, this is excluded from the basic Homeowner's policy for the same reason that Hurricane and Earthquake insurance are left out. Floods affect too many houses at one time. It is catastrophic in nature and has the potential to wipe out companies. A different approach was taken for Flood insurance. Flood is still excluded from the Homeowner's policy, but it can be purchased through a Flood Policy. Instead of leaving it to the states, the Federal Government underwrote Flood insurance. Personally, I think this was a much more rational approach and this program has been much more effective than the Hurricane and Earthquake programs, but this was done a long time before the current urge towards privitizing everything. If it were being considered now, I have no doubt, it would be just as screwed up as the Earthquake and Hurricane programs are.

    Aug 15, 2006 6:29pm PDT

    Thread Truncated. Click to see all 2 replies.

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