Are you in one of the coastal areas and can’t seem to find an insurer to take your business? It’s happening a lot these days given the disasters of late and the restrictions the government has placed on rate increases, so many homeowners have resorted to “insurers of last resort.” These are insurers created by the government that will insure people that the big companies won’t do and they were responsible for over 2M policies last year. This basically takes risk away from the private companies (and homeowners) and spreads them out across the general population.
The incentive on the state’s part is that these programs can at least try to make money instead of just offering handouts, which is a plus for the average taxpayer. IT’s also good for the general population because it keeps the housing prices stable in the coastal areas. If you can’t get protection against hurricanes, would you really want to live on the coast in Florida? However, given all these benefits, it’s still risky.
A severe storm in Galveston, Texas, site of a deadly 1900 hurricane, could cost the Texas Windstorm Insurance Association, the state’s insurer of last resort, as much as $8 billion, officials there say. The association and its member insurers would be able to cover about $700 million in losses. Beyond that, it would need to ask all its member insurers — even those who don’t write coastal coverage — to make up the huge shortfall. If insurers did have to chip in at that point, they would be permitted to recoup the funds through years of tax credits — a potentially big hit on the state budget.
Source: Marketwatch
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