Blizzard on the Gulf Coast
As many of you know, I am employed in the insurance industry. I have been watching, with horrified fascination, the legal environment in the after-math of Katrina. As expected, the Blizzard of 2006 is not snow but lawsuits, especially class-action lawsuits. And the only real beneficiaries will be trial lawyers.
I need to be very clear about this - what happened along the Gulf Coast and futher inland in those states was, and remains, a tragedy. I speak with people on a daily basis from Texas, Mississippi, and Louisana who have lost everything. I do think, as a society, we should do what we can to help. But...
I heard on the Glenn Beck Show some "highlights" from Mayor Nagin's remarks at a celebration for Dr. King's Day. Though there are many, many, points which could be made, I want to comment on a combination of two. He said God was mad at America -that He had sent the hurricanes because of that, then later said New Orleans would be majority African-American because it was what God wanted. Glenn then said if there was anything God was trying to say through all of this it was, "Move to higher ground!"
As I said on another blog soon after the storms, if you live in areas subject to hurricanes, you live with the threat of flooding - buy home owners insurance and buy flood insurance. If you can't afford those coverages, and you have a choice - move. Many of those filing lawsuits are living in those high-risk flood areas because they want to live close to the water. Fine, but you have to take the bad with the good.
Instead of using common sense, these residents, including Sen. Trent Lott, are filing lawsuits to force the insurance companies to pay for losses that were not covered, that were clearly excluded in the policies they purchased. Flood and wind-driven water (storm-surge) for coastal homes are not just a possibility but a certainty. Insurance for certain loss exposures is either incredibly expensive or unavailable. An annual premium, even a large one of several thousand dollars a year, would not be adequate to insure a coastal home if storm-surge were a covered peril. Simple math - a total loss on a $2m home (including personal property, loss of use, etc...) would be $2m-$3 m on structure (replacement cost) plus at least $1.6m for the other coverages, not including scheduled personal property - a total approaching $4m. Imagine the premium were even $20,000 per year - it would take 200 years of premium to break even on one home - in a flood zone, the loss is exponentially astronomical. Now, if the homeowner wanted to pay $200,000 premiums per year for 20 years, well... That is why the insurance industry is only in the flood business as a conduit for the government and that is why the government limits the amount of flood insurance that can be purchased.
We have to put aside the emotion and find a way to help those affected without exacerbating the potential for a repeat disaster by forcing insurance to pay for uncovered, uninsurable risks.
I need to be very clear about this - what happened along the Gulf Coast and futher inland in those states was, and remains, a tragedy. I speak with people on a daily basis from Texas, Mississippi, and Louisana who have lost everything. I do think, as a society, we should do what we can to help. But...
I heard on the Glenn Beck Show some "highlights" from Mayor Nagin's remarks at a celebration for Dr. King's Day. Though there are many, many, points which could be made, I want to comment on a combination of two. He said God was mad at America -that He had sent the hurricanes because of that, then later said New Orleans would be majority African-American because it was what God wanted. Glenn then said if there was anything God was trying to say through all of this it was, "Move to higher ground!"
As I said on another blog soon after the storms, if you live in areas subject to hurricanes, you live with the threat of flooding - buy home owners insurance and buy flood insurance. If you can't afford those coverages, and you have a choice - move. Many of those filing lawsuits are living in those high-risk flood areas because they want to live close to the water. Fine, but you have to take the bad with the good.
Instead of using common sense, these residents, including Sen. Trent Lott, are filing lawsuits to force the insurance companies to pay for losses that were not covered, that were clearly excluded in the policies they purchased. Flood and wind-driven water (storm-surge) for coastal homes are not just a possibility but a certainty. Insurance for certain loss exposures is either incredibly expensive or unavailable. An annual premium, even a large one of several thousand dollars a year, would not be adequate to insure a coastal home if storm-surge were a covered peril. Simple math - a total loss on a $2m home (including personal property, loss of use, etc...) would be $2m-$3 m on structure (replacement cost) plus at least $1.6m for the other coverages, not including scheduled personal property - a total approaching $4m. Imagine the premium were even $20,000 per year - it would take 200 years of premium to break even on one home - in a flood zone, the loss is exponentially astronomical. Now, if the homeowner wanted to pay $200,000 premiums per year for 20 years, well... That is why the insurance industry is only in the flood business as a conduit for the government and that is why the government limits the amount of flood insurance that can be purchased.
We have to put aside the emotion and find a way to help those affected without exacerbating the potential for a repeat disaster by forcing insurance to pay for uncovered, uninsurable risks.
posted by OurayDreamer at 10:08 AM
4 Comments:
Good post. I liked how you side-stepped Nagin's actual words of "a chocolate city". I almost snorted my spleen through my nosw when I heard that.
Yup, a lot of folks like to live near the water, but not too near the water. John Stossel bought a house on the coast & it got flooded. Then he found out it was a common occurance and all the neighbors told him that the feds would just rebuild the mutli mullion $$ homes every year. He moved because he didn't want to be "a welfare whore".
I'll probably be posting a link to your post. Good info from a different perspective.
Great post. I will limit my comments of Ray Nagin to this: He only continues to fulfill my expectations of him.
I want to hear the end of these lawsuits. I hope that the judges presiding over these cases are as intellectually superior as you are, Madame.
Thanks for the addition, Dwayne. I appreciate the John Stossel connection. He's my hero.
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Canoe - thank you for the post & you are welcome to post a link. This discussion is such an important one - not just for insurance but society at large - will we be held accountable for our own decisions or will we just do what we like and make others pay the bill.
BTW - I take issue with most of what the Honorable Mayor of New Orleans says. And, like MsB&W points out, Mayor Nagin is exposing more than just his political abilities.
MS&B - I will post any updates I find.
Barb-thank you for your earlier post. The Political Compass is an interesting test. Please visit often and comment whenever you'd like.
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