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Should Insurance Rates Be Raised With Climate Change Risk?

Insurance companies have incorporated climate change assumptions into their disaster probability calculations, thus withdrawing coverage or charging staggering rates on parts of the US East and Gulf coasts.


According to the Wall Street Journal, there is a scientific consensus about rising sea temperatures, and practically a consensus that the temperature is tied to greater hurricane activity. But, science has not definitively concluded how or if this will impact the US coastal area now facing rising premiums.

Even so, insurers are adjusting their coverage plans in reaction to the horrific 2004 and 2005 hurricane season. The article reports that companies are treating disasters like Katrina and Rita as the norm, not the exception.

Should insurance companies wait for science to make a unanimous connection between climate change and increased risk in these specific regions before they raise the rates?

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freegracefrom freegracefrom 8 years
lilkimbo, I applaud you on your efforts and donations. Not enough people stick their necks out for the benefit of someone else, I'm afraid. In this issue where the involved parties are insurance companies vs insurance policyholders, your comments consistently sided with the insurance companies. Even if you're not with policyholders on this one, I'm glad you are sympathetic to victims of disasters. But this is all just semantics now, and again, I'm sorry you think I'm judging you. If we're taking into account homeowners' insurance as a whole and the amount of houses that have unfortunately been burned to the ground, that's still the cost of a 1000 homes versus... what, over a million premiums? I would have preferred a gradual rate increase myself. It's a hard thing to stomach... an astronomical rate increase, higher deductibles, policies being unceremoniously dropped everywhere, knowing what kind of treatment you will receive when you DO have to make a claim. When all the rest of us are drowing, it'll be good to know that the insurance companies are doing a-ok. (Kidding on the last point, that's the bitterness talking.) I guess only time will tell if their actions now are justified.
lilkimbo lilkimbo 8 years
Freegrace, I understand that it wasn't your intention to be judgmental, but I don't see how you can call me unsympathetic based simply on a few comments. I have actually done extensive volunteer work and donated a decent amount of money (considering what I make) toward disaster relief efforts. As far as entire homes needing to be replaced, I wasn't referring to hurricanes specifically, but to homeowners' insurance as a whole. As far as companies raising rates after Andrew, they had an initial raise, but the initial raise didn't cover all of what they needed to cover themselves. Some companies knew that they couldn't have a huge rate increase right away, so instituted plans for gradual increases. And the fact that they weren't as mindful of their capacity before is neither here nor there. That is what they are doing now with their increases. The fact that they made past mistakes should not exclude these companies from doing what they need to do now to protect themselves.
freegracefrom freegracefrom 8 years
Freegracefrom, you are assuming you know about people based on a few comments on message boards. To me, not only is that rude, it's also judgmental. How? lilkimbo, I'm really sorry. I actually do have a lot of respect for you and others on this website. I really was not trying to judge you as a person or assume that I know you. I know that I know you just as much as you know me. But you have not yet said anything that would reflect something resembling sympathy on this issue. In fact, on this issue, the things you have said seem unsympathetic. Please correct me if I'm wrong. I didn't jump to the conclusion that you are a bad person because you don't see my side - I am just disagreeing with your view. It's fine that we disagree and I don't think you're a cold-hearted monster for it. At any rate, yes, I do feel emotional and passionate about it because I've seen the effects on the other side of the coin. To me, this is more about profits, premiums and business decisions... this is homes and livlihoods. And most people pay homeowners' insurance and never get a return on the investment. You obviously don't pay the entire value of your home in insurance, so something has to make up for the fact that homeowners' insurance does often cover the replacement of entire homes. Insurance is there when you need it; it's not really an investment to get a return on. When a hurricane hits, it's pretty rare that they have to replace an entire home. It's usually like somebody's roof here and there. That's expensive, but it's not THAT expensive. That's certainly covered by the rest who don't have to make a claim at all or a small one (because of our high deductibles). As far as insurance being there when we need it, that's a whole different issue for another time. Also, you stated that insurance companies need to be more mindful of what their capacity is. That's what they're doing. Then why didn't they do that before? And the company that you mentioned, when did they institute their rate increase? There was an understandable percentage increase after Hurricane Andrew, but nothing like what we've seen in recent years.
lilkimbo lilkimbo 8 years
Also, you stated that insurance companies need to be more mindful of what their capacity is. That's what they're doing.
lilkimbo lilkimbo 8 years
And most people pay homeowners' insurance and never get a return on the investment. You obviously don't pay the entire value of your home in insurance, so something has to make up for the fact that homeowners' insurance does often cover the replacement of entire homes. Insurance is there when you need it; it's not really an investment to get a return on.
lilkimbo lilkimbo 8 years
Freegracefrom, you are assuming you know about people based on a few comments on message boards. To me, not only is that rude, it's also judgmental. And I know for a fact that at least one company lost a lot of money in Andrew. That's why they needed to raise rates. If only two to three more storms of that magnitude hit, there goes Allstate's $6 billion. State Farm alone paid out over $2 billion in premiums after Andrew; Allstate paid out around $1.6 billion. One particularly bad hurricane season has the potential to wipe out any profits the industry has made in Florida since the mid-1990's.
freegracefrom freegracefrom 8 years
UnDave - Ironically, I do work in insurance. I'm not happy about it.
freegracefrom freegracefrom 8 years
lilkimbo, I apologize if you interpreted what I said as being rude as that wasn't my intention. However, I didn't detect anything said in your previous comments as being "sympathy". " If you feel your company is raising rates extraordinary amounts every year, it might be time to find a new company. " What do you do when ALL of the insurance companies increase their rates to outrageous amounts? Insurance companies still made a record profit, despite having paid out all the claims of Katrina and the storms before. So forgive me if I don't cry my eyes out for them. Floridians have always paid more in premiums (in relation to other states) because of increased risk and, okay fine, that makes sense. In recent years, we have seen rate increases that are NOT proportional to the risk involved. We're all left wondering how we could have all paid so much money on our homeowners insurance for years and get barely a return (if any) from that investment at all??? Insurance companies need to be more mindful of what their capacity is and, most importantly, how they manage their profits. I've witnessed a lot of mismanagement on a lot of levels in recent years and they have nobody to blame for themselves for any hardships. With regards to your point about insurers losing money after Hurricane Andrew in 1992, I think this article excerpt might illustrate why I remain unmoved: In a recent speech, Allstate Chief Executive Edward M. Liddy painted a vivid picture of how a tightly packed set of storms could erase first the profits, then potentially the financial stability, of an insurer in a quick blast. “When Hurricane Andrew hit the coast of Florida in 1992,” Liddy told a Washington audience in January, “it wiped out all of the profits Allstate ever made in the state from all lines of insurance over the course of our history “That’s not a viable economic proposition for a company,” he told his audience. “It’s not a viable economic proposition for an industry.” Without government backup, he seemed to be saying, Allstate and other companies would have little business reason to continue offering insurance of any sort. But a quick check of Allstate’s regulatory filings from the mid-1990s through 2004 showed that the insurer earned $6 billion more in premiums in Florida than it incurred in losses. Add to that the premium earnings for last year, and the total rises to more than $6.6 billion. Asked about what happened to that sum, Allstate spokesman Mike Trevino responded: “What Mr. Liddy meant to say is that overall, the company made money. I have seen far too many businesses try to justify themselves with that line "business is business." I'm not buying it, sorry. I think it's about time that insurance companies actually protect the interests of their policyholders as well as their stockholders.
UnDave35 UnDave35 8 years
freefromgrace - Your comments are way off base and not true. If you would like to see what goes on in the insurance world, get your license and sell it, or work in a claims dept.
lilkimbo lilkimbo 8 years
Wow, that was jumbled. But I think I fit everything in that I was trying to say.
lilkimbo lilkimbo 8 years
Actually, if you look at the profits insurance companies make, they are very low when compared to other companies with similar revenues. I think it's very rude to call us unsympathetic, too. Companies need to protect their assets. If insurance companies insured everyone for the rates some people want, they would go bankrupt and then no one would be covered. I think it's easy to vilify insurance companies based on emotion, but looking at the facts of how they have to run their business is important, too. And the federal government is the only place to get flood insurance (you can get it through some companies, but it's backed by the government, not the company). The government decides who is at risk and who is "deserving" of flood insurance. As far as homeowners' insurance, rate increases are necessary. Many companies lost more money when Andrew hit than they had collected in premiums from that area over the life of the company. They have to increase premiums to stay afloat.
freegracefrom freegracefrom 8 years
I'm saddened that people can actually side on the insurance companies side on this one. I am a believer in capitalism and rolling along with the ebbs and flow of a free market to a certain extent. While I don't believe in heavy regulation necessarily of businesses, there must be some. If not, there's monopolies, unsafe working conditions, etc etc. If companies recognize that they have their customers by the balls (like insurance companies do) and nobody will stand up against them, they WILL take advantage. 2004 was a bad year for me as a Floridian. Two hurricanes hit my town dead-on, but before that or since then... nothing. We have paid decades of premiums to these companies, only to get rate hikes doubled. Some people have never ever had damage. Shouldn't these companies have been using those big piles of cash to prepare for future events? No, they want to make not just a profit... but a HUGE profit. And in the event that they are actually called to do what WE PAY THEM FOR, they raise the premiums to cover it rather than make sound business investment decsions from the get-go. Insurance companies (most, not all) deal in shady business and if we don't call them to task, it will only be a matter of time before the more unsympathetic among you will experience the same consequences of unchecked greed.
UnDave35 UnDave35 8 years
Several insurance companies have pulled out of the Gulf Coast because of Katrina. The number's guys have shown that another storm like Katrina would put them out of business, so they've cancelled all the policies in the area, and went for dryer climates. Most insurance companies have money, but they don't have enough money to cover a major disaster like Katrina. Having said that, I don't think there has been a link between global warming and increased hurricanes. Didn't we have a story on here earlier that showed there was the exact opposite?
True-Song True-Song 8 years
"I am sure the insurance companies have enough money." I don't know if all insurance companies are set up the same way, but some are set up so that premiums coming in just cover expenses (claims) going out, and the way the company makes money is from investing the premiums and earning interest.
yesteryear yesteryear 8 years
casa: thanks for the clarification, i think the exclamation point is what threw me. anyway, i have to agree with stiletta on this one... this just makes fiscal sense. people might want to bury their heads in the sand and avoid the truth that climate change is happening in our lifetimes... but the insurance companies have businesses to run, and if you are truly a believer in free markets, then this is an example of that.
Home Home 8 years
Yesteryear- I think "Yay!" is meant to be a pun, on "Yea" which is an affirmative answer, or the opposite of "Nay."
lovelie lovelie 8 years
Lilkimbo- your definitely right about the flood insurance. My parents live in Wisconsin, and they luckily weren't affected by all of the flooding, but their county got hit extremely hard. Sadly, many people also didn't realize that they have no flood insurance. Even if you live on a flood plane, your coverage depends on a formulated risk factor.
stiletta stiletta 8 years
It's a business, so they are driven by market forces and sadly that includes risk. If it's more risky to live in one area than another, the probability for paying out is greater so of course they're going to ask for more. As I get older, my health insurance goes up because I'm more likely to die, that's not profiteering, that's probability and risk.
darkangel2305 darkangel2305 8 years
Insurance companies' rate increases are riculous. Anyone living in FL will probably agree with me.
Bettyesque Bettyesque 8 years
Frivolous lawsuits = higher rates. But sure, the insurance companies can use climate change as a scapegoat.
lilkimbo lilkimbo 8 years
I don't know where some people get their insurance, but my insurance rates were lowered last year (car, not homeowner's). Insurance companies raise rates based on risk. If you feel your company is raising rates extraordinary amounts every year, it might be time to find a new company.
amybdk amybdk 8 years
"But, science has not definitively concluded how or if this will impact the US coastal area now facing rising premiums." Until science has made a conclusion, I say nay.
redegg redegg 8 years
"High rates might convince people to stop living in dangerous places?" :? Like LA, Florida, & the US East and Gulf Coasts???? I think someone needs to get a handle on insurance companies. They raise rates extraordinary amounts every year with no certifiable reason.
hausfrau hausfrau 8 years
lilkim i think you are right on target. it amazes me how so many people simply cannot make the connection that if a lawyer sues a company for billions of dollars for "malpractice" or whatever, the cost is passed down to the consumer.
yesteryear yesteryear 8 years
i selected the first option, but take issue with the "yay!" part... i think it's actually pretty depressing that this is where we are at. "boo" more accurately describes my feelings about this situation. i wonder if this will shift public opinion though... it often follows the money.
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