Weather forecasters are not the only ones paid when they make mistakes. Insurance companies profit pretty well, too.
And the Florida real estate industry is paying the price.
It's been two years since a hurricane struck The Sunshine State, but residents continue to face rising insurance rates or dropped coverage. According to the Insurance Information Institute, rates are likely to rise between 20 and 100 percent over the next year for the 43 percent of the U.S. population living in coastal areas stretching from southern Texas to the northern tip of Maine. In addition, the Institute singles-out Florida as a possibility for even higher increases.
While current commercial and residential borrowers struggle to pay the premiums and prospective ones become hesitant to buy because of it - thus slowing the real estate sales market - insurance companies are laughing all the way to the bank. According to a St. Petersburg Times article last week, the property and casualty industry in America made almost $60-billion in 2006.
Eight hurricanes and three tropical storms either struck or brushed Florida between 2004 and 2005.
Before, the average cost of homeowners insurance in Florida was $930. After, the cost had nearly doubled to about $1,600. For those living on or near the coast, such as Panama City residents, the cost of insuring a condominium or a house is closer to $3,000. Combine that with the fact that the last two hurricane seasons have been quiet and it's clear why insurance companies are doing well.
Since the real estate industry took a hit from the active hurricane seasons, it should also benefit from the slow ones. The finger pointing for why this hasn't happened goes to hurricane forecasters. These forecasters are trying to justify their grants and jobs by coming up with more reasons why they cannot be relied upon, but still should be considered an authority.
Dr. William Gray, a University of Colorado professor, has been prognosticating hurricane seasons since 1984. In April 2005, he and research associate Philip J. Klotzbach predicted that seven hurricanes would emerge that season (15 eventually did). The next year, they projected 17 named storms and nine hurricanes (there were actually 10 named storms and five hurricanes).
Gray and Klotzbach's report released last week has a similar prediction for 2008: 15 named storms and eight hurricanes. This year's forecast does include something new, however - a disclaimer. It reads: "Everyone should realize that it is impossible to precisely predict this season's hurricane activity in April."
That hasn't stopped some insurance companies from taking it as gospel and crying global warming - thought by many professionals to result in more hurricanes. Insurance companies are now using global warming as an excuse to raise rates and even dump clients, according to an article published last August on Scientific American.com. Florida Consumer Action Network Executive Director Bill Newton backed up the claim.
After living in Panama County for 37 years, I have concluded that I may have to be here hundreds of years, maybe thousands, to truly understand climate and weather patterns. One thing I do understand, however, is the only constant right now are raising insurance rates. That needs to change. Florida's real estate future depends on it.