Insurance challenges for man-made products surrounding coastal areas: report –

US coastal states such as Florida, California, and Louisiana are facing a growing home insurance problem that is driven by man-made events, highlighting the need for capital insurance to take on more risk as carriers move into testing areas.

A new paper from the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), the Association of Bermuda Insurers and Reinsurers (ABIR), and Robert Hartwig, PhD, CPCU, examines the three decades since Hurricane Andrew hit. Florida, coastal states in other parts of the US are facing new, major challenges from man-made activities.

In particular, the report focuses on legal abuses, government interference, and fraud, which are undermining the availability and viability of insurance coverage in the country and, at the same time, contributing to the recovery of assets. to destroy the risk environment and reinsurance companies in the face of strong volatility and rising loss costs.

“Hurricane Andrew completely changed the way Americans prepare for natural disasters,” said Hartwig, associate professor of economics and director of the Risk and Uncertainty Management Center at the University of South Carolina.

“At that time, it was the costliest natural disaster in the United States and about 27.3 billion dollars was lost due to insurance. After that, local and national governments enacted building codes and invested heavily in building resilience – both of which have undoubtedly saved many lives,” he added.

But despite the recovery, David Sampson, President and CEO of APCIA, warns that 30 years after the destruction of Hurricane Andrew, a new, large and man-made disaster is taking place in other areas, especially Florida, California, and Louisiana. .

“Unfair claims processes, regulatory abuses, fraud, and flawed government policies are having a major impact on the availability and affordability of insurance for American families, individuals, and businesses. For example, together these factors have caused Florida’s homeowner’s insurance premiums to reach nearly $3,000 in 2022 , nearly double the US annual average,” Sampson said.

It is important to remember that the rise in consumer spending has occurred despite the fact that the state of Florida has not been directly hit by a hurricane since 2018, which Frank Nutter, RAA President, says emphasizes “the disruption of man-made energy disruptions. Being on the market.”

Nutter goes on to point out that seven insurance companies have gone bankrupt in the past two years, while another 14 carriers have decided to stop writing new policies in an effort to avoid the possibility.

In showing how serious cases are in Florida, Nutter points to a report from the Florida insurance regulator, which states that the state accounted for 79% of homeowner’s insurance cases, but only accounted for 9% of the state. homeowner’s insurance claims.

In fact, the Florida Office of Insurance Regulation has found that, over the past decade, $51 billion has been paid out in insurance claims, and, of that total, a whopping 71% went to attorney fees and adjusters, with only 8%. to the claimants.

Of course, a special feature earlier this year hopes to change Florida’s property insurance market. But while Nutter believes this effort is in the right direction, like others, he says “it will take time and some reform to establish a real estate insurance market in Florida.”

As insurers expand in places like Florida, reinsurance capital is now pushing for state participation, especially in low-risk programs. This is due to the recent accidents in the state, as well as due to inflation and lawsuits driving losses, which have caused some lenders to leave the site, while others have significantly reduced their exposure.

The problem is, there is a real need for investment funds to help absorb more risk, and, more importantly, the prices need to properly reflect that risk.

But when insurance rates go up, downsizing can be a problem for some primary players, who, in addition to availability, have seen some unable to get the coverage they want in recent reforms.

Adding to the challenges that insurance companies are facing in the coastal areas, John Huff, President and CEO of ABIR, said, “Insurers are also facing increasing problems in risk management due to government responsibility and interference. Insurers must be given the flexibility to raise enough money to cover exposures. When the private market is allowed to operate in this way without instability and barriers, this leads to more competition and ultimately greater consumer choice.”

Nutter added, “Property insurance rate fraud is another issue that hurts policyholders and affects the market. According to the Federal Bureau of Investigation, the cost of non-health insurance fraud exceeds $40 billion annually, that would mean $400 to $700 a year in insurance premiums for the average US family.

“Insurance is a vital part of society because it provides the financial protection needed to help families, businesses, and communities prepare for — and recover from — the unexpected,” Sampson said. “As natural disasters continue to increase in frequency and severity due to climate change, government leaders must act on policies that will help create a healthy and sustainable insurance market so that consumers can continue to protect the things that are most important to them. Because it is what it is. very important to us.

“To fix the broken insurance markets in states like Florida, California, and Louisiana, insurers and insurers are urging state lawmakers and regulators to focus on addressing what is causing the markets to hurt consumers, including implementing legislative changes and anti-fraud measures , as well as promoting the stability of the management system. the management of the system to help reduce future damage.

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