Pure B.S. (Rant)

[cabinetman]

State Farm announced that they will not provide homeowners insurance to Florida residents. They will be pulling the plug. Last year they requested a 47% rate hike that the Florida legislature turned down. Story here.

Right after Wilma, our homeowners was with Tower Insurance. They cancelled all homeowners at the end of their policy period. We had to go with Citizens, which was a State pool for those that were cancelled. Our policy went from $1100 per year to $4200. Many Florida residents fell to foreclosure because of the rate hike.

We think of how many years we paid premiums with no claims. What a shame that there may be some claims.

Rant over.
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[Uncle Cracker]

I can see that people who do business should not be compelled to do so where it is not profitable, but I think that Allstate, if they don't want to sell homeowner coverage in FL, should not be allowed to sell insurance of any kind here. Our Insurance Commish has no cohones.

And you can thank our State Legislature for quietly passing a bill a few years ago that allowed insurance companies to greatly reduce the amount of premium money that must be kept in escrow to pay claims, hence the liquidity problems that occurred as natural disasters and skyrocketing housing replacement costs washed away what was left of the escrows. No lawmakers striking up the band and taking bows for that boner...

Also, most major insurers are also financial institutions, and we all know what's going on there now.

[jonmulzer]

I would even take that farther. I say that if they want to pull a stunt like they did with Katrina and others that they should not be allowed to sell insurance of any kind, in any area that is prone to negative natural events. No earthquake insurance in California, no flood insurance close to a body of water, nothing. Screw your customers with technicalities once, we take away your customers. They made a mint off those areas the entire time they had policies in effect there and then one time they have to really pay out and they cry foul.

[gsmittle]

While I do agree with UC that business is business, what about the human factor? I wonder if ins companies that decide to get out of a market should just stop selling new policies. Eventually, all the old ones will close.

Here in the midwest, we don't have hurricanes, but when my home was slightly damaged by a nearby tornado (about 1/4 mile away--plenty close enough for me ) my homeowners responded pretty quickly and took care of everything, new roof and siding and all. Then my premium went up over 50%. Argh.

Guys, I feel your pain, I truly do. If I lived on the Mississippi/Missouri flood plain, NO WAY could I get flood insurance.

g.

[Uncle Cracker]

I just got notice from my homeowner's insurer that sinkhole coverage is no longer part of my policy. Gotta get another one for that now.

[jAngiel]

State Farm did the same thing here in Oklahoma after the big tornado ripped through the state in 1999. My insurance was with state farm but after they announced that they wouldn't issue any new homeowners policies, and after they attempted to raise my premiums, I switched everything to another company.

[cabinetman]

If I lived on the Mississippi/Missouri flood plain, NO WAY could I get flood insurance.

g.

You probably could get it from Lloyds of London. You wouldn't believe the weird stuff they have insured...check it out here.
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[RAFlorida]

Bob Dylans vocal cords insured?!?

He could sing?!? Amazing! Back on topic.
We dropped State Farm because they kept going up and up and up with their rates a few years back. And we had never filed a claim. Go figure.

[cgallery]

What kind of rates could you expect if the pools were opened to everyone, not just those that can't buy insurance elsewhere?

Honestly, I don't see an alternative. National insurers can't spread your risks to other states w/o making themselves less competitive in those states with lower risks and local insurers.

I understand the desire of keeping government from competing with private enterprise. But when private enterprise is giving up, it is time for government to step in.

[sweensdv]

Maybe State Farm got tired of hearing complaints from their customers, who live in areas that don't have a natural disaster every couple of months, that they were tired of subsidizing those that do live in those areas by having to pay higher rates for their policies. You don't really believe that those billions of dollars in claims are actually paid for by dollars that are collected only from FL policy holders do you?

[jackellis]

Caution: Long and with a rant!

I own a small number of shares in two insurance companies - Allstate, and a specialty company called RLI, and I've made myself familiar with their financial statements. Following is the analyst in me talking, not the insurance company stockholder.

Over time, insurance companies generally do little better on claims than break even. Most of the time the claims they pay are pretty ordinary. You may not make a claim but lots of other people have, for broken pipes, roof leaks, broken windows, vandalism, etc. Events like these are one reason people have (and have to have) insurance on their homes so long as they share ownership with a lender. Insureres make their profits by investing the float, which is the amount of money they're holding to pay future claims. Warren Buffet built his fortune on float.

In fact, insurers have done a poor job of pricing natural disasters into their rates, probably for a couple of reasons: their regulators won't let them, they keep prices low to buy market share, and in some cases the underwriters are idiots. Disasters deplete their reserves, so they all raise prices after a hurricane or earthquake or flood to replenish their coffers. When the stock market is doing well, they all lower their prices because they can make profits off the float.

We don't have earthquake insurance on our home in an earthquake-prone portion of California - dropped after private insurers pulled out in 1990. The 1989 quake showed that our house was perfectly capable of withstanding a strong quake with little damage (an old fence that had to be replaced anyway fell down). State quake insurance carried a $30k deductible and it didn't take a genius to know that the state fund would be wiped out in a bad earthquake. In other words, we'd pay into the state fund but either we'd never use it or when we needed it, we'd get nothing because it would be insolvent (Buffett reinsured California's earthquake system for a while). Easy math, even for an engineer.

[Rant on] I'm sorry if the following rant offends anyone because it's not directed at readers in particular. Just a pet peeve. Home buyers and people who are building themselves a home complain about building codes and the cost of complying with them. Or worse, builders and inspectors try to water them down or ignore them. I'm dealing with California's stringent building codes right now - I have to install a sprinkler system in our new home because it's too large and I have to use more expensive, fire-resistant materials and methods because we live in a wildfire area and we had to pour 30 yards of concrete for walls and we had to use a couple thousand bucks worth of hardware and a lot of expensive engineered lumber. I just found out that I will need as many as three service panels in the house because the California Energy Commission has specific requirements for wiring that require more circuit breakers than will fit in one panel. We're hardly thrilled about having to spend money on some of this but we don't moan very much either because we know that the codes are designed to protect us and our property in the long run. When my house is finished, the roof will be able to support a M1A1 tank that weighs 100 tons in an earthquake so we know big snows won't cause it to collapse if the ground starts shaking.

Which is why it makes me pretty angry when builders and inspectors ignore the code requirements for nailing on roofs as they did in Florida and then homeowners complain when insurers can't process their claims fast enough and raise their rates after a storm. By my estimate, I'm either going to pay the architect, the builder and his subs up front to build a really solid house that meets the code to the letter and in the spirit, or I'm going to pay more in the long run for insurance, inconvenience and out-of-pocket repairs, but I'm going to pay one way or another. I'd rather pay once to have it done right. [Rant off]

Sorry, but I had to get that off my chest. I feel for those of you who are faced with huge insurance bills, but a large part of the fault lies with short-sighted or incompetent/corrupt government officials and incompetent builders who skirt the rules. Insurance is about spreading risk, but unfortunately that can work two ways and in Florida, that's what appears to be happening.

[Kristofor]

Well, when we talked about this a few months ago and a request to raise the rates in this thread my comment was:

"But, the alternative to insurance companies making money is refusing to offer insurance there at all."

I stand by that statement.

I know it feels like they're out to screw people by leaving, but if they were really raking in money hand over fist why would they want to leave, and why would the pool policies be so much more expensive?

If you kick in $4k a year for 75 years without needing to use any of it for incidental issues in the meantime (fire, lightning strike, etc.) you'll have $300,000 ready to rebuild your house (which would then probably cost $950,000). If you're lucky, the dollars you were pooling earned enough to cover the difference from $300K to whatever your final value is.

For insurance to be reasonable the odds of having a catastrophic event needs to be fairly low across the covered population. A serious house fire in a neighborhood once every 25 years doesn't have much impact on each individual home owners insurance. A tornado that wipes out 10 houses every 100 years has slightly more impact. A hurricane that damages almost 2000 homes every 10 years and destroys many of them every 100 will obviously require much higher premiums.

[Russianwolf]

I think there are some states, and I thought Florida was one, that require insurance companies that offer home coverage in any other state to offer it in that state to do business in that state period.

The purpose of the law, was to prevent insurance companies from doing just what is being mentioned here. Canceling all home coverages but maintaining other coverages in the state.

Now, that's not to say that they can't raise the rates to the point that the current policy holders wouldn't look elsewhere, but I think it's a fair law.

[TheChief]

I want to be careful here - certainly I don't want to p*ss off anyone, in part because I'm kinda new here. So please know this isn't directed at anyone, it's just my opinion.

All of this reminds me a lot of a skit that Sam Kennison used to perform about sending aid to Ethiopia - basically, don't keep sending them food and money; send them some U-Hauls so they can move out of the desert to where the food is!

That might seem crass on the surface, perhaps, but there is a certain amount of logic to it that might be applied to this topic.

In no way do I validate any insurance company backing out on coverage they've agreed to provide - that's just hideous behavior personally and professionally. Raising prices - that's a little easier to understand. We're paying for a service regardless of whether we take advantage of it, and if in the eyes of the provider that service has become more expensive, more valuable or both, it seems hard to fault them for raising prices accordingly.

It just seems easier to me to live in an area without a history of frequent damage due to various natural disasters than to regularly repair or rebuild, regardless of the other potential benefits to living in any specific area. Many will point out that this may be easier said than done but it's still a valid point.

Regardless of how good or cheap my insurance is, I simply prefer to not have to go through that kind of pain if it can reasonably be avoided by living someplace historically and statistically more safe.

[cabinetman]

As a Florida resident and having to have homeowners insurance, I'm saying along the way somebody made a mistake. Homeowners can't "negotiate" their premiums. The premiums are based on a wide variety of conditions pertinent to the residence, such as how close to the ocean, what their sea level is, construction, age of the home, etc. IOW, some actuaries, or statistical geniuses did some research and together with the risk management experts figured out what to charge.

We, the homeowners have no say so in that matter. We just sit back and pay what somebody says is the cost. If I bid a cabinet job in someones' home and didn't figure it right, that's my mistake, and I have to bite the bullet. If the insurance companies figure out what the risk is and set aside money to make more money and fail, in the long run, there was a mistake made.

I'm imagining a conference room with the big wigs all sittin' around with their folders of charts and graphs saying the balance is going the other way. If their statistical data and probability variables were even close, there should be the ability of money and diverted money to cover their losses, and still maintain themselves like any ordinary business. It just sounds like really poor management. They have to plan for whatever can happen, because it could.

What they are admitting is they didn't figure it right, and what they thought couldn't or wouldn't happen did. Or, it might have been a lets see what happens mentality, while they try to compound their money.
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