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Will homeowner's insurace rates follow that of medical insurance rates? by John J. Fanning
Are homeowners’ insurance rates poised to head in the same direction
as medical insurance rates? Already hefty increases for specific coverage is
making
some homeowners opt out on insurance. More worrisome is the fact that many
of these owners who
decline insurance believe it is
unnecessary because if and when catastrophe does strike, Uncle Sam will step
in to bail them out.
A great example of this is in California where only 13 percent of homeowners
carry earthquake insurance. Since the 1994 Northridge earthquake there, insurers
have raised earthquake insurance premiums to levels that strap the income
of normal households. Both homeowners and insurance companies find themselves
between a rock and a hard place. If more people took out earthquake policies,
the insurance pool could expand and the risk could be spread. This might
allow
insurance premiums to stabilize and perhaps even come down. But without takers
for the policies, the rates continue to grow along with property values.
All of this leads to the big question of whether or not government did the
right thing following Hurricane Katrina. Certainly no one wants to see their
fellow
citizens suffer from such devastation, but if the government steps in to subsidize
victims for property loss, isn’t the government in essence, assuming
responsibility for doing the same in future natural disasters?
At the very least, a whole lot of
Americans seem to feel that way and the insurance pools needed to spread risk
seem to be shrinking instead of growing. All of this seems to be heading us
towards what could be a real national economic crisis. Risk Management Solutions,
a California-based firm that quantifies risk for the insurance industry issued
a report in March which predicts that insurance losses from hurricane activity
will rise by 40 percent in Florida and along the Gulf Coast over the next five-years.
If his prediction does pan out, the expected monetary loss could exceed $165
billion in a single year - and that would be just from hurricane damage.
Lawmakers are trying to
grapple with this problem. Some politicians floated the idea that
the additional cost for
insurance in hurricane prone areas
should be spread
throughout the country in order to keep premiums down. That particular idea
didn’t go very far within America’s Midwest. The idea of increased
insurance premium payments to subsidize tropical lifestyles was viewed pretty
harshly by folks, especially when they are trying to stay warm in a Midwest
winter.
More recently, one Florida politician has put forth a bill that would put
additional increases on the home insurance of owners of second homes in
Florida and keep
primary homeowners insurance premiums lower. Seeing as how owners of second
homes are not citizens of the state and therefore cannot vote in Florida, this
bill may actually
stand a chance at passage. But not before land developers, who rely on out-of-state
citizens to buy into all those timeshare properties, voice their concerns
in
Tallahassee.
Whatever the solution to this problem, it is important that
we arrive at it promptly. Climate change has already affected weather patterns
and more severe storms are being experienced throughout the country. Tornado
season came early to the Midwest and flooding is following
drought in the West. Before we know it, hurricane season will be here again
and a lot of people could be turning to government with their hands out.
Government has a poor track record when it comes to finding a solution to
the health insurance problem. Whether they can do any better at property
insurance remains to be seen. The only thing we really know for certain is
the next big earthquake, hurricane or tornado is already building out there
and people are going to expect either their insurance company or their government
to be there for them in the aftermath. If it isn’t going to be the government
- someone should let them know.
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