A matter of survival: regional homeowners insurers in hurricane-prone states struggle after being walloped by Hurricane Katrina.Hurricane Katrina's aftermath and the threat of future hurricanes in a cycle of increased storm activity likely are going to make life harder for small, regional homeowners insurers. What's not clear is whether the unprecedented catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses of 2005 will make it so hard for small regionals to operate that they will face their own swan song. Dr. Robert Klein Robert Klein (born February 8, 1942) is an American stand-up comedian and actor. Biography Early life Klein was born in the Bronx to Frieda (née Moskowitz) and Benjamin Klein[1][2] of Georgia State University History Georgia State University was founded in 1913 as the Georgia School of Technology's "School of Commerce." The school focused on what was called "the new science of business. , the director of the Center for Risk Management and Insurance Research and a former chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the for the National Association of Mutual Insurance Companies, said increased market share may contribute to regionals being "severely challenged" in hurricane-prone areas. "They face a particularly challenging problem, particularly since these carriers picked up a lot of the business the big carriers didn't want," Klein said. "An Allstate or State Farm could pull out of Florida and still have the rest of the country. A smaller regional doesn't have that option. It could lead to a situation where there are carriers with no other options and they are just waiting for the other shoe to fall." But Robert Hartwig, chief economist for the Insurance Information Institute, said the demise of the small mutual insurance company has been predicted many times and has yet to happen. In fact, Hartwig predicted the regional insurers' share of the market would grow, much like it did after 1992's Hurricane Andrew This article is about the 1992 hurricane; there was also a Tropical Storm Andrew during the 1986 Atlantic hurricane season. Hurricane Andrew is the second-most-destructive hurricane in U.S. history, and the last of three Category 5 hurricanes that made U.S. when many insurers left Florida or became insolvent INSOLVENT. This word has several meanings. It signifies a person whose estate is not sufficient to pay his debts. Civ. Code of Louisiana, art. 1980.. A person is also said to be insolvent, who is under a present inability to answer, in the ordinary course of business, the responsibility . It was the small, regional insurers that moved in to fill that void, he said. "If you're a new company coming in with fresh capital, you get to cherry pick, you get to pick and choose," Hartwig said. He said there are several reasons the small regional homeowners insurer tan continue to thrive despite the possible increased threat of hurricanes. Small insurers can look for homes built to the strongest codes, limit their exposures and "make very heavy use of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. ," he said. "I think they're going to be in a very challenged position," Klein said. "Most of them probably have very good reinsurance programs in place. So while they took a big hit, I don't think any will be impaired or bankrupt BANKRUPT. A person who has done, or suffered some act to be done, which is by law declared an act of bankruptcy; in such case he may be declared a bankrupt. 2. It is proper to notice that there is much difference between a bankrupt and an insolvent. ? But Klein said there may be a few companies that either didn't have the right amount of reinsurance to handle a loss the size of Katrina or didn't have adequate capital or pricing. Heavily affected insurers may have exceeded their reinsurance protection. "Going forward, reinsurance is going to get a lot more expensive, possibly harder to obtain;' Klein said. "The supply of reinsurance is going to be a big problem for them." Hartwig said while the cost of reinsurance would go up, the insurers would pare back exposures and raise prices to compensate. "Make no mistake, coverage is going to be more expensive in their area, and it should be," he said. If the regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities in the hurricane-prone states allow significant rate increases to address the higher cost of reinsurance and the higher probability of storm losses, it would result in "a better situation" for smaller insurers, Klein agreed. But it's more likely they would face "a lot of resistance to rote rote 1 n. 1. A memorizing process using routine or repetition, often without full attention or comprehension: learn by rote. 2. Mechanical routine. increases." This will "put a squeeze on them" as they try to replenish re·plen·ish v. re·plen·ished, re·plen·ish·ing, re·plen·ish·es v.tr. 1. To fill or make complete again; add a new stock or supply to: replenish the larder. 2. capital and get adequate reinsurance, he said. Staying at Home Mississippi Farm Bureau exemplifies the small, regional insurer, collecting all of its direct premium * in its home state, while larger companies such as State Farm and Allstate thrive nationally. Mississippi Farm Bureau Mutual Insurance Co. Mississippi 100% * 2004 data Source: A.M. Best Co. State Farm Group 46 other jurisdictions 59.9% California 10.0% Texas 8.9% Florida 8.5% Illinois 5.9% Pennsylvania 3.9% Canada 2.8 Allstate Insurance Group 47 other jurisdictions 53.8% Texas 10.7% California 10.5% New York 10.5% Florida 9.6% Pennsylvania 4.9% Note: table made from pie chart. |
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