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Whose Risk Is It Anyway?

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Earlier this week I was listening to a news report about how, many insurance companies were no longer willing to insure properties along the coast lines of the US. Those insurance companies stated that the increased threat of natural disaster and stricter regulation by the state forced them to make this decision rather than to continue doing business in those areas. The report went on to say that people living in those areas were having to go to "last resort" companies, funded by the state, in order to secure coverage. According to the report, the state funded insurance companies didn't have the "deep pockets" private insurers do and had to charge much higher premiums.  Furthermore, people were complaining about how expensive there coverage is and that something should be done about it. 

Now stop there a moment, and think about this. Here we have a group of people that decided to live in a high risk area, already have there premiums subsidized by the state, and are now having issue with the cost of their coverage. Whose risk is it anyway? Should it fall upon the shoulders of all the people living in the state? Should that risk be transferred to the Federal government where the burden would be carried by all of us? Should insurance companies be forced to do business in states where they cannot collect the right amount of premium for the risk, due to government regulation? Or should people who decide to live in high risk areas take on more risk themselves?

Personally, I don't see a very easy or clear cut answer to this question. There has to be a compromise with ALL parties involved. Companies who do business in those states should contribute to the state run insurers as a cost of doing business in the state. People who live in those areas should expect higher premiums and deductibles than in lower risk areas. And finally, some proactive rather than reactive monies should be spent by the Feds to better secure those areas in the event of another Katrina disaster. I guess I'll be footing some of the bill after all.

What's your thoughts?

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

What I object to is the subsidized insurance rates for the luxury homes on the outer banks that get hit by stormees, rebuild, a lot on the public dole.  Seems to me if you want luxury water front property, you should be willing to cover the insurance costs or let the home wash away.  Just because it could be built doesn't mean that it should have been built.


Jun 08, 2007 10:42 AM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector
Basically FEMA makes you pay flood insurance if you are in "their" 100 year flood zone. The truth is, like in my community, most parts of that flood zone have been modified by the city and the city engineers put the risk at zero. They asked FEMA to change it. FEMA did not. One reason for this, according to the reading I did, was to distribute the costs more evenly among everyone, as it costs too much for people who flood to carry the burden on their own. I do not remember the exact percentage but I know that many areas that do flood, including in this county, have floods year after year after year and it is predictable who will be hit. Yet everyone is helping pay the cost, if they have a mortgage and are in the so-called flood zone, even though it has been re-engineered. Personally, I think those who take the risk should pay the bulk of their own costs. They would if they were bad drivers.
Jun 08, 2007 11:24 AM
Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

I live in an area that is greatly affect by high insurance rates. it is killing the average guy all the way up the the well off. These are not Luxury homes. Many have never been damaged, flooded, or tend to have a high risk of diaster in at least the past 300 years. The insurance companies just will not write new policies. The entire area is red-lined and no individual is considered on a case to case basis. Its a tradegy for our country to be so money hungry as the insurance companies have become. No large company lost a dime for the year Katrina hit.

The insurance companies and their adjusters basically took millions from the Federal Treasury when doing claims in the Katrina areas. They put much too much damage on flood insurance making their wind claims much smaller than they should have been. This was your money and my money. We spend  too much time on Paris and less on doing the right thing. Having someone pay $4,000 per year on a 200k home for insurance with high deductibles is too much. Then add $400 for flood. Something is not adding up.

The feds take billions in taxes from oil and gas in Louisiana because we let companies drill so you guys can have cheaper gas. The post hits close to home and you touched a nerve.

Jun 08, 2007 02:14 PM
Stephanie Edwards-Musa
thredUP.com - The Woodlands, TX
knitwit at thred UP

Perry, I agree.  I have felt for a few years now the companies and corporations can do a lot for the communities along the coast.  We rely on private investors to step in and re build.  My fear is the only person who benefits, is the investor.  The people out of a home are still in the dark. 

There really needs to be a good answer to this question.  I think you are on the right track to find it.  Great post!

Jun 08, 2007 03:14 PM
Renee L. Norton
Birmingham, AL
It would be interesting to know how much money was collected in premiums by the insurance companies over the years in comparison to $$ paid in claims...particularly in Louisiana...They seemed to always dodge the bullet until Katrina.  I'm not guaranteed a profit.  The insurance companies have insured & collected money from these people for many years.  A major disaster hits and they look for reasons to avoid paying claims, and then some refuse to provide further coverage or implement extreme rate increases.  This involves people who cannot rebuild homes they lost due to no fault of their own, who paid insurance in good faith, expecting to have coverage, who lost everything.  It is not the same thing as someone who gets traffic tickets, DUI's or has a lot of automobile accidents causing their insurance rates to go up. The insurance companies have had many profitable years...they hit some bad times and want to tuck their tales and run.  I guess they'll just limit their business to other states less likely to have a natural disaster.
Jun 08, 2007 04:58 PM
Esko Kiuru
Bethesda, MD


I think that those who choose to live in high-risk areas should pay the extra premium. Why would the people of a particular state, or the whole nation, subsidize an individual's housing choice. Yet, what little I know about insurance, isn't it true that the financial losses suffered by insurance companies after Katrina were spread throughout the world in higher premiums? So, in reality, the issue is rather complicated, whether it makes sense or not.

Jun 09, 2007 01:40 PM
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
I would never want to live close to the ocean. We are closer than I'd like to be right now. But from what I've heard, there is no flooding out this way. I can't imagine what the best solution would be. It's a tough one.
Jun 09, 2007 01:55 PM
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

I actually like this post Perry.  To bad it has to be topic.

Jun 09, 2007 02:43 PM
Ryan Hukill - Edmond
405home @ ERA Courtyard - Edmond, OK
Realtor, Team Lead

Wow, this post hits a nerve for me also. I was an insurance agent for 7 years and have an in-depth understanding of how these companies work so it's hard for me not to get worked up when I read about how the insurance companies are ripping everyone off and should be investigated.

Those types of claims are not much different than the claims we're hit with daily about ripping off home sellers and being overpaid.

Insurance companies have a P&L margin, just like we do and they're actually regulated quite heavily, so it's hard for me to believe that they're just pocketing the premiums & not paying out on the claims.

Here in Oklahoma, we've had major homeowner's rate increases over the past several years due to the frequency of severe thunderstorms and tornadoes. Yes, it sucks for us all to have our monthly payments skyrocket, but it's an expense we have to take on because of where we live. I don't expect taxpayers or other parties to pick that up for me.

Some areas of the country are simply at higher risk than others, and justifiably, the homeowner's premiums are higher. If we don't like it, we have the option to move to another part of the country which has lower risk, and lower premiums.

Jun 09, 2007 03:36 PM
Perry Nitzsche
Affordable American Insurance, P&C Agency - Arvada, CO
Protection you need, Service you want.

Thank you everyone for your comments! And thank you Active Rain for the featured post! I apologize for the delay in my response as I had some business matters to attend to.  

Lenn I see your point about luxury homes and where they are often built. Just because it can be built doesn't mean it should be. Another good example is in the case of homes being built on hillsides of CA. Many of them are on stilts that give way with earthquake and/or heavy rain.

Steven Much of the city of Boulder is considered to be in a flood zone, yet I see very few flood polices being written. If more people would accept the fact that they are in a higher risk area and would participate in the FEMA program, you should see a drop in rates for all. But that won't happen unless we see a fair and accurate flood map. Also, more insurance agents and lenders need to inform people of the risks when moving in to those areas.

Eric I fully understand as to how these high rates do hit the average person. While not as extreme as your case, I have to give people some very high quotes at times. The issue with Katrina and FEMA was that your home owners policy does not cover flood. When it came down to determining if a house was damaged more due to wind vs. flood, it's nearly impossible to say. That being said, insurance companies paid out billions in claims. Those monies came from reserves that are required by law. 

Determining rates has always been a tough call by any insurance company, and there is always room for improvement. At the end of my post I gave a suggested answer to this question which should help with everyone's rates. Perhaps there should be a way to "pay up" a policy, where as once you pay a certain amount in to a policy and stick with that company you would no longer need to pay further premium. 


Jun 10, 2007 10:59 AM
Perry Nitzsche
Affordable American Insurance, P&C Agency - Arvada, CO
Protection you need, Service you want.

Stephanie Thank you for the response. Just looking for ways to help everyone involved.

Renee I'm not speaking for any company in particular but the amount of premium vs. the amount paid in claims can be as much as 90 to 95 cents on the dollar. I've even seen some years where they paid more out in claims than what they took in premiums. Home insurance covers more than just the home, there's also liability to consider. As lawsuit settlements grow more and more, the amount in liability claims is staggering. Considering a home owner usually carries any where from $300K to $1mill in liability on there home, it takes a lot of collected premium to pay those claims. And yes, I VERY much agree about people with DUI's. They should pay more AND not be able to drive as easily after one as they do. (That's a different post)

Esko Since states make the regulations for insurance companies, it's not as easy as raising rates for everyone. All changes have to pass through the state, and most won't approve a rate change for something not affecting their state. It is a bit complicated. 

Christy & Gary Thanks again for your comments. So many people see this issue in so many different ways!

Ryan You understand the regulations involved with this. And so much of it has to do with state regulation. I'm wondering if you think this industry should have more standardized regulation or not? It would make things more level from state to to state, but it could also mess a lot of things up. How do you like the change from insurance to real estate?

Jun 10, 2007 11:41 AM
Ryan Hukill - Edmond
405home @ ERA Courtyard - Edmond, OK
Realtor, Team Lead

Perry, that's a great question. At first glance, I'd have to say I'm probably against standardized or federal regulation of the insurance industry, simply because each state has it's own set of problems to address and I would fear that a standardized set of rules being applied may benefit some states, but really hurt others. I'd have to really think long and hard and be convinced otherwise to change my mind on that one.

As for my change to Real Estate, it was the best move I ever made. I was never truly happy in or passionate about insurance, but Real Estate truly is my passion. It's not like work when it's fun, right?

Jun 10, 2007 01:04 PM
Perry Nitzsche
Affordable American Insurance, P&C Agency - Arvada, CO
Protection you need, Service you want.

Ryan, I would have to agree that each state has it's own challenges and that  local knowledge is the best way to face these challenges. Much like what you do today, a Realtor from Colorado would have little to no knowledge of your local area in Oklahoma. But in the case of Eric in this post, it's difficult for me to see a $4000 premium on a $200K home that has never suffered a claim. I made mention of a "Paid up" home owners policy that could work in similar fashion as a paid up life policy. Could be part of the answer for a situation like that.

Prior to insurance, I had been in the culinary field for tens years. I was forced to leave due to injuries and happened to fall in to the insurance industry. After 7 years now, I enjoy it more today than when I started. I should have joined an independent agency years ago, but now that I'm here I couldn't be happier. Your absolutely right; it's not like work when it's fun!  Thanks for your comments!

Jun 11, 2007 02:42 AM