on September 28, 2012 by admin in Insurance Industry, Comments (0)

Insurance industry speaks out

One insurance issue reported by The Alpenhorn News that Moraga desired to clarify was More than a decade of catastrophic wildfires in Southern California has afforded a thinly-veiled cover for insurance companies that are obviously more beholden to their shareholders than to their customer base that has allowed them to back away from high-risk communities.
According to Moraga, some insurers, like State Farm for example, are mutual insurance companies. This means they have no stockholders and net profits are returned to policyholders. There are 1,400 mutual insurance companies in the United States, about one half of all insurance companies. He explained and continued, In 2003, 2007 2008 combined, insurers paid out more than $5 billion in claims for wildfires, just in California.
This may well be true for State Farm and other mutual type insurance carriers, but it is not the full story. According to a Bloomberg report entitled The Insurance Hoax published in 2007, Allstates stock price jumped fourfold to $60.95 on July 11 [2007] from its closing price on June 3, 1993, the day of its initial public offering. During the same period, the Standard Poors 500 Index rose threefold.
Also, according to the report, State Farms profits have doubled since 1996 to $4.8 billion in 2006. The report did confirm that State Farm is a mutual company, and because it is owned by its policyholders, it does not trade shares publicly.
The Bloomberg Report highlighted the fact that insurers were partly able to increase profits because they reduced payouts, raised premiums and withdrew from storm-plagued [and in some instances fire prone] areas. There have also been court cases where some insurers were charged with allegedly changing policies retroactively in order to avoid payments.
In the same report, the trade group and research firm A.M. Best Co. noted that the [insurance] industry has increased profits by an annual average of 46 percent since 1994.
Another area of concern reported on by The Alpenhorn News that Moraga wished to clarify was, Insurance companies now look with more critical eyes at the properties they are asked to insure. If a home is in a steep area; or along a roadway with only one way in or out and limited turn-around access for emergency vehicles; and/or in an area at high risk for wildfires, it is difficult to have existing insurance policies renewed or find substantive policies for newly purchased homes in these areas.
According to Moraga, insurers have always carefully inspected the homes they sought to insure regardless of where the homes were located. He further stated that, Those communities that have addressed issues of steep terrain, limited road access for emergency vehicles, water pressure and access have in fact seen their insurability increase. However, there is little indication that this has held true for homeowners in the mountain region.
Moraga further explained how insurers work with non-profit organizations like Fire Safe Councils and FireWise communities to help lessen the risks and make insurance more affordable and available. In addition, he stressed that insurance companies also work with developers to create safer communities. Its not just a matter of property; lowering fire risk saves lives, he concluded.
However, despite this focus on saving lives and despite all of the local efforts on the part of homeowners, fire agencies, fire safe councils, etc. to expand defensible space and take other proactive, preventative fire-safe measures, insurance companies continue to pull out of the area. Moraga was asked why?
He explained, Insurance companies will look at their own book of business and evaluate their exposure to different risks. If they feel they are overexposed to risks in a given area, they will adjust their policy count in that area either by not taking on new business or non-renewing policies when their term is up.
He continued, Our own non-renewal data shows that about one half of one percent of all homeowners insurance policies in California are non-renewed each year. According to Moraga, this number has remained consistent for many years. Even after the 2003 wildfires in California, the non-renewal rate didnt change much, he added.
As agencies pull out of the mountain area, more customers find themselves looking to the insurer of last resort, the California Fair Plan. When asked to share his perspective on the states insurance program Moraga replied in part, They [homeowners] may not know that they can get standard homeowner insurance policies. Although the number of companies offering policies in mountain communities is less than other areas, there are still companies selling policies that offer more coverage at a better rate than the California Fair Plan.
Moraga was asked whether declining to write new policies or renew existing policies were part of the insurance industrys preparation for the probability of future conflagrations.
Moraga replied, There is no way of preventing catastrophic wild fires from destroying mountain communities. He continued, These mountain areas have a natural history of fire and no matter how good our science or how much we do to prepare, destructive wildfires will continue to rage across California. According to Moraga, the insurance industry has been a leader in helping to build safer communities in the mountains.
Moraga was also asked whether the insurance industry has an official position regarding the renewed/continued development of housing units in the mountain communities and whether the new building codes were enough to encourage insurance companies to write new policies in the mountain area.
This is one area that insurers get criticized, regardless of our efforts, he replied and continued, Environmentalists complain that because we insure these high-risk homes were allowing encroachment in the Wildland Urban Interface (WUI). On the other hand, he continued, Mountain communities criticize the industry for not writing policies in these areas. Moraga explained that the [insurance] industry has a commitment is to safety first. We will continue to help make these communities safer, he added.
Moraga expressed his belief that development issues should be left up to the communities themselves and the elected officials that are tasked with these duties. New building codes do work and are important when insurers evaluate homes, he added.
Moraga stressed that the decisions insurers must make regarding how to insure severe-risk properties such as those in the San Bernardino Mountains are not easy. They require scientific and actuarial research, collaboration with mountain community developers and homeowners themselves to find creative ways to lower wildfire risk, he said.
But, an on-line report entitled The Legal Organization and Ownership of Insurance Companies stated that Xactware Solutions, Inc., has developed software used by many insurers that estimates the cost of rebuilding a home. According to the report, many critics have alleged that the program under-estimates the true costs of claims. This appears to have been born out in lawsuits against insurers across the nation where victimized homeowners have alleged such practices by their carriers.
It was also reported (as mentioned earlier) that insurance companies have allegedly reduced claim payouts by changing policies retroactively and in some instances allegedly altered engineering reports of the inspectors who reviewed the damages. Consumers have fought the insurance industry in a number of court cases related to these very concerns. The Bloomberg report stated that, Property insurers systematically deny and reduce their policyholders claims, according to court records in California, Florida, Illinois, Mississippi, New Hampshire and Tennessee. The report also highlighted the fact that many engineering companies depend on the insurance companies for their business, . . . so when the insurance companies pressure the groups to lower cost estimates, they tend to comply.
It has been alleged again and again that it appears to be standard operating procedures for a number of insurers to make low ball offers for settlement and/or use delay tactics to discourage and pressure clients to either agree smaller settlements or incur the costs of a legal battle.
Moraga stated his belief that continued dialogue and understanding is needed in order to help meet everyones concerns. He added, By participation in organizations such as Fire Safe Councils, heeding advice and regulations established by the firefighting community and doing everything we all can to lessen the fire risk, property and lives can be saved.
Critics believe that these are great sentiments but sentiments are not insurance and they cannot provide full replacement coverage in the event of a disasterbut then again, critics claim that rarely do the insurance companies either.

Article source: http://alpenhornnews.com/insurance-industry-speaks-out-p3401-1.htm

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