You're In Good Hands -- Until They Drop You!

In the last three years, more than three million homeowners have received letters of cancellation by insurance companies determined to avoid another $40 billion Katrina bill.

They have essentially begun to redraw the outline of the eastern United States somewhere west of the Appalachian Trail. Public officials in Southern states from Florida to Texas have been fighting insurance carriers for years over rising rates and withdrawal of services, but officials in the Northeast have only recently joined the fray.


Without necessarily supporting the insurance companies, I would observe that:

1) Insurance companies stay in business by pricing risk fairly well.

If they price it too high, they lose business to competitors, especially in a Web era when it’s easier to compare.

If they price it too low, they lose money.

2) If state/local governments mandate lower prices for risk than insurance companies think will be profitable, then they will withdraw, especially as hurricanes can cause truly widespread destruction.

3) In Florida at least, the State is offering cheaper insurance than private companies are willing to; it is unclear if funding is adequate, which means Florida taxpayers pick it up, and then maybe US taxpayers, they hope.

Maybe, at least, if states pick up the tab, somebody will start insisting on stronger building codes and maybe, just maybe, they will stop rebuilding places on the shore that get knocked down often.

If anyone ought to be worried about AGW, it ought to be the Gulf Coast and lower East Coast of the US, covered with infrastructure on low-lying coast and subject to hurricanes.

I recall a few years ago reading about the insurance companies starting to take note of the potential impact of AGW. That’s where it starts: when the people with the money who have to pick up the tab start to realize what’s going on.

It has also occurred to me that keeping insurance rates artificially low in the areas most at risk will just lead to people moving in without giving due consideration to the risks. The high cost of insurance should be a red flag. Maybe building in those areas isn’t such a great investment.