April 13, 2006
Have you been invited to the insurers’ party?
You probably don’t stay anywhere close to the Gulf Coast and the closest you got to the hurricanes, that ravaged the states along the coast, was through your telly. So why do you have to scramble around to get a homeowners insurance at a reasonable rate? Because the insurance companies are still reeling from the losses they incurred during the last bout of hurricanes and are no longer ready to face any additional losses. That probably still does not answer your question.
Actually, what we are experiencing is something of a trickle-down effect. But if I am to make myself any clearer, I will have to start at the beginning. During last year’s hurricanes, major insurers in the country suffered losses to the tune of $56 billion. They are now no longer ready to face such a huge loss. So what do they do? Drop policies or not writing new ones in coastal areas from Texas to Florida and up the Eastern Seaboard as far north as Massachusetts. In other words, they drop them like hot potatoes! They don’t want to handle the risk of fresh storms and the resulting losses. So, you are left to scramble around to find new coverage, often at higher cost. And guess what, some home insurers also are winning regulatory approval to raise premiums in states hit by hurricanes Katrina, Wilma and Rita – it’s something like getting legal approval to loot you.
And now that they’ve tasted blood, they don’t want to let go. So, rate increases are expected to spread far beyond coastal areas – you never know, a hurricane may hit these areas as well! And insurance companies are not without their cronies in this party. Reinsurance companies, who insure the insurers, have also begun charging sharply higher prices. They believe that hurricanes will become more frequent and more intense and hence the increased costs. So, the insurance companies now complain that they have no choice but to recoup these added costs from consumers.
Unbelievably atrocious? You bet. So, what do you plan to do about it?
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