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Facts about Coastal Alabama’s
Homeowners’ Insurance Crisis
and
The Solution.It’s time to FIX this Crisis -- Not Dabble at it
(Based on the hhii Best-Case Scenario)
Let’s get a couple important factsout of the way,
first.
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11*
Source: A.M. Best, ISO, Insurance Information Institute. * As of 6/30/11.
“Surplus” is a measure of underwriting capacity. It is
analogous to “Owners Equity” or “Net Worth” in
non-insurance organizations
($ Billions)
Surplus as of 6/30/11 was a near-record $559.1 down 1% from the record $564.7B as of
3/31/11, but up 27.9% ($122B) from the crisis trough of $437.1B at 3/31/09. Prior peak was
$521.8 as of 9/30/07. Surplus as of 6/30/11 was 7.1% above 2007 peak.
Despite the increase in natural disasters,
the U.S. insurance industry was the richest
it has ever been in March 2011.
Dr. Robert Hartwig slide
US Policyholder Surplus:1975–2011*
They’re nowhere near going broke.
Another fact to get behind us . . .
•All licensed insurers writing P&C coverage insurance in Alabama•Current Members (Plan year 2011)•485 Companies•329 Exempt from participation•306 write no P & C in AL•156 Companies are subject to assessments ranging from .0001% up to 19.5546% •69 Companies report voluntary written premium in eligible areas•23 voluntarily write sufficient coastal property to be exempt from AIUA assessments11/21/2011
Alabama Insurance Underwriting Association
Who are Plan Members?
156Companies write Homeowners Insurance in Alabama.
A lack of competition is not the problem
If Money’s not the Problem&
And Competition’s not the problem?. . .
What
is The Problem?
The Problem:An Alabama Department of
Insurance (DOI) Lack of Information & Bias . . .
. . .that leads to unfair price Discrimination
Against the Coastal Counties.
The DOI assumes
Alabama’s Coastal Counties
are more expensive to repair
due to wind-and-hail
than the rest of the state.
Significantly more.
In 2006When this Crisis Started
the coastal counties
Paid the State Average.
The Alabama Average today is about
$850a year
ALABAMA HOMEOWNERS RATESAverage Premium Relativity (with Wind) by City for a $200,000 Home:
Birmingham (35242) = 100%Huntsville (35801) = 110%Montgomery (36117) = 111%Tuscaloosa (35401) = 120%Camden (36726) = 135%Gadsden (35901) = 136%Dothan (36301) = 139%Saraland (36571) = 263%Mobile (36608) = 294%Bay Minette (36507) = 300%Fairhope (36532) = 311%Gulf Shores (36542) = 328%
Alabama Coastal Premiums todayAre 250 to 325% Higher
than other Parts of the State.
In 2006(the time of abundant news about Global Warming)
The DOI decided Alabama’s coastal countieswould be wildly more expensive to repair than
the rest of the state.
Warmer oceans would make hurricanesmore frequent and damaging.
The Alabama DOI allowed Insurance Companies toIntroduce
Wildly Experimental
Hurricane Catastrophe Models
Coastal Insurance Prices skyrocketed
10,000s of Mobile and Baldwin Families were Dumped
10,000s of Coastal Families are NowFunctionally Uninsured or have simply Dropped
Their insurance Altogether.
Some have Lost their Homes.
$200 million premiums in excess of the State Average is siphoned out of our Two Counties
each year. That’s a lot of Jobs.
Was the DOI right?
Are Coastal Counties
REALLY300% more Expensive
To RepairThan the Rest of the State?
?
In 2006The Wildly Experimental
Hurricane Catastrophe Modelspredicted
$60 billion
in US hurricane losses over the forthcoming 5 years
(from 2006 – 2010)
Karen Clark – the Inventor of the Models – found that the actual losses were only
$15 Billion.(The models overpredicted losses by $45 billion.)
Karen,-- The Inventor of the
Hurricane Catastrophe Models -- Has
Repudiated her Invention,And proposed a New Way.
In 2011
RMS
A company that Predicted
$67 Billion in Losses
Dramatically Revised its
Hurricane Catastrophe Model
Their colored map shows the effects of their revisions.
The modeler Overstated the costs in Mobile & Baldwin counties 50%.
& Understated the costs inland by as much as 400%.
Is the CoastREALLY
More Expensive to Repair than Inland?If not. . .
then Coastal AlabamaShould pay the State Average
Like it always PaidIn the Past
$850a year
There’s more. . .
As RMS figured out,
When hurricanes strike Alabama’s coastal counties, they don’t stop at the county line.
Hurricanes do significant inland damage,
too.
FEMA declared 65 of Alabama’s 67 counties Disasters after Hurricane Ivan
Designated Counties for Alabama Hurricane IvanDisaster Summary For FEMA-1549-DR, Alabama
Declaration Date: September 15, 2004Incident Type: Hurricane Ivan
Incident Period: September 13, 2004 through September 30, 2004Individual Assistance
(Assistance to individuals and households):
Public Assistance(Assistance to State and local governments for the repair or replacement of disaster-damaged public facilities): Autauga, Baldwin, Bibb, Bullock, Butler, Calhoun, Cherokee, Chilton, Choctaw, Clarke, Cleburne, Coffee, Colbert, Conecuh, Coosa, Covington, Crenshaw, Cullman, Dale, Dallas, Dekalb, Elmore, Escambia, Franklin, Geneva, Greene, Hale, Houston, Jackson, Jefferson, Lamar, Lawrence, Lee, Lowndes, Marengo, Marion, Marshall, Mobile, Monroe, Montgomery, Perry, Pickens, Pike, Shelby, Sumter, Talladega, Tallapoosa, Tuscaloosa, Washington, Wilcox, and Winston Counties for assistance for debris removal and emergency protective measures, including direct Federal assistance, at 100 percent Federal funding of the total eligible costs for a period of up to 72 hours.
Hazard Mitigation Grant Program(Assistance to State and local governments for actions taken to prevent or reduce long term risk to life and property from natural hazards): All counties are eligible to apply for assistance under the Hazard Mitigation Grant Program.
FEMA Disaster Summary For FEMA-1549-DR, Alabama
Alabama’s Disaster Counties after Hurricane Ivan
Autauga, Baldwin, Barbour, Bibb, Blount, Bullock, Butler, Calhoun, Chambers, Chilton, Choctaw, Clarke, Clay, Coffee, Colbert, Coosa, Conecuh, Covington, Crenshaw, Cullman, Dale, Dallas, DeKalb, Elmore, Escambia, Etowah, Fayette, Franklin, Geneva, Greene, Hale, Henry, Houston, Jackson, Jefferson, Lamar, Lauderdale, Lawrence, Lee, Limestone, Lowndes, Macon, Madison, Marengo, Marshall, Marion, Mobile, Monroe, Montgomery, Morgan, Perry, Pickens, Pike, Randolph, Russell, Shelby, St. Clair, Sumter, Talladega, Tallapoosa, Tuscaloosa, Walker, Washington, Wilcox, and Winston Counties.
Two-thirds of all claims after Ivan were made north of Mobile and Baldwin counties,according to a source cultivated by Alabama State Senator Trip Pittman.
Some hurricanes do more damage inland than on the coast.
The eye of Hurricane Katrina, skipped Alabama’s coastal counties,
curved from the Mississippi Coast back east to clip the northwestern corner of Alabama,
the only part of the state that the “eye” touched.
Your tax money being spent for Katrina Relief in
Tuscaloosa.
8:50am Aug 24 – Landfall in FL
8:30am – Aug 26 – Landfall in LA
Mid-day – Aug 28 – Began to Dissipate
Hurricane Andrew behaved in a similar way
Hurricane data alone suggests inland Alabama incurs more wind losses than the models predict.
And they just deal with
Hurricanes alone.
What about
Other KindsOf wind-and-hail events?
**Through Dec, 7, 2011.Source: PCS Division of ISO.
2011 Catastrophic Homeowners* Claim Activity in Alabama, by Event**
Date Perils Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %
*Includes all categories of dwelling policies, such as home, condo and renters’ policies
2011 YTD Totals
Event Total
2011:Q1 Total
Event Total
Event Total
Event Total
2011:Q2 Total
2011:Q3 Total
Event Total
Alabama suffered
Five“Catastrophic”
Wind or Hail events in 2011 – not just one.
Four others in addition to the April 27 Tragedy.
It suffered significant wind damages in
2009,
Too.
Tornado Tracks by Enhanced Fujita(EF) Scale, January – July 2011
12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C
Source: NOAA at: http://www.spc.noaa.gov/wcm/2011-jan-jul.png
Alabama averaged 59 tornadoes per year from 2000-2010, but 128 from Jan. – July
2011, the highest in the country
AL had the highest concentration of EF-3, 4 and 5 storms in 2011
“Alabama averaged
59 tornadoes each year from 2000-2010. . .”
Alabama averaged 1 Hurricane
every 11 years during the 20th Century
649Tornadoes per Hurricane
59 (Tornadoes a Year) X 11 (Years between each Hurricane) =
Are the
Coastal Counties
REALLY More expensive to Repair
Than the rest of the State??
Severe Weather Reports in Alabama,January 1—December 5, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
There were 1,288 severe
weather reports in AL through
Dec. 5
In 2011 alone,
In Alabama alone,
There were
217
“severe” Hail reports
170
Tornadoes
901 Other “severe”
wind reports
Are the Coastal Counties
REALLY More expensive
?How do we answer that question?
Simple
Compare the costs to repair the coastal counties with the cost to repair inland counties.
So.
Why not do this?
Because theAlabama Department of Insurance
does
not collect data
on a county-by-county basis.
Huh?The DOI suddenly allows
Companies to charge Coastal Counties
300%more than the rest of the State,
And . . .It does
NotHave any of its own supportive,
county-by-county historical data justifying this
Unquestioning use of wildly experimental catastrophe models and huge change in price?
Is a Pattern Emerging?
The DOI allows companies to charge Coastal Counties more
for . . .
FIRE Insurance,
Even though they know there is no
actuarial justification for the difference.
Another suggestion of Bias
In Governor Bentley’sDOI
The DOI says the upstate tornado tragedy in 2011 was a
1-in-250Year Event
(The years 1761 to 2011 = 250)(If such events happen only once every 250 years, then there is
no need for upstate to share in wind losses with the Coast)
HOMEOWNERS RATE COMPONENTS
The non-hurricane wind rate is developed from either the individual company’s 20- or 30-year historical claims data for Alabama or from industry claims data for Alabama. The losses for the 20 years are compared to the premiums for those 20 years to develop a non-hurricane wind load, which is then added to the hurricane load developed from the models.
In the case of the April, 2011 Alabama tornadoes, which may be considered a 1-in-250 year event, the DOI has announced that it will only permit 8% of these losses to be included in future rate filings. (8% / 20 years = 0.4% = 1/250).
The DOI says the 1-in-250 estimate was given to them by
an independent company named
AON
But . . .What does AON say?
The incident is
“more likely”
a 50-year event.
Model Miss: April, 2011 Storms
DOI capping at 1:250 years based on countrywide model estimateWill this hurt availability?Is tornado/hail risk changing?
And what has
Actuallyhappened historically
?When was the last similar event?
“Two of the worst tornado disasters in the state occurred on the same day as part of the famous Super Tornado Outbreak of April 3 and 4, 1974, which produced 148 tornadoes and affected 13 states across the south and midwest. On the evening of April 3, two F5 tornadoes on the Fujita Scale hit Tanner approximately 30 minutes apart and left 55 dead. Later that same evening, another F5 tornado hit Guin and left 23 dead. Other notable tornado disasters in Alabama include the Birmingham tornado of April 15, 1956 (25 deaths); the Huntsville tornado of November 15, 1989 (21 deaths); the Palm Sunday tornado that destroyed the Goshen United Methodist Church in Cherokee County on March 27, 1994 (20 deaths); and the Oak Grove tornado of April 8, 1998, (32 deaths).
The 1974Super Tornado Outbreak
Left 78Upstate Alabamaians dead
Suggesting that – historically – these upstate events at a 1-in-37-Year Event
Why does the DOI -- fudges risk for upstate policy-holders -- publicly paints a minimalist upstate wind-and-hail picture . . . While . . .
-- subjecting the coast to extraordinarily experimental, sky-high pricing models?
BIAS?
One more example
Governor Bentley’s Affordable Homeowners Insurance Commission is heavily stacked with insurance people. It has a strong presence of people from upstate.
At one of its meetings, Senator Ben Brooks listed all the bills that he’s pushing, and then asked all members of the commission if they saw a single one that would cause premiums to increase upstate.
They saw none.
NOT ONEGovernor Bentley’s Commissioner of Insurance – Jim Ridling –
is a member of this commission
Yet a couple months later, Governor Bentley’s
Commissioner Ridlingtold the Associated Press . . .
Panel still studying ways to reduce insurance rates12:49 PM, Mar. 26, 2012 | Comments•Email•Print•Share•A•A
Republican Sen. Ben Brooks is a member of the governor’s Affordable Homeowners Insurance Commission. / AP
Written by
Phillip Rawls
The Associated Press
•Filed Under•News•Alabama•Robert Bentley
GOV. ROBERT BENTLEY HAS NOT YET KEPT A CAMPAIGN PROMISE HE MADE IN 2010 TO HAVE THE LEGISLATURE ADDRESS THE RISING COST AND DECLINING AVAILABILITY OF HOMEOWNERS’ INSURANCE IN ALABAMA.ALMOST A YEAR HAS PASSED SINCE HE ANNOUNCED THE CREATION OF A COMMISSION TO STUDY THE INSURANCE ISSUE, AND HE’S STILL WAITING ON THE GROUP’S RECOMMENDATIONS.Panel still studying ways to reduce insurance rates
Panel still studying ways to reduce insurance rates
DOI Commissioner Jim Riddling:“What the people on the coast want is for me and the governor to cut their rates and raise the rates for everybody else in the state. I don’t have the ability to do that, and I don’t think the governor does,” Commissioner Jim Ridling said.
Associated PressMontgomery AdvertiserMarch 26, 2012
The governor’s official
insurance cabinet member persisted in telling
upstate legislators and residents
that all we on the coast want is. . .
“to cut (our) rates and raise the rates for everybody else in the state”
Cheaper fire premiums upstate
Tornado modeling the emphasizes Event minimalism
Governor Bentley’s cabinet-level Commissioner of Insurance
telling the rest of the state that all we want is a free ride
Is the governor’s state regulatory agency
BIASED?
YOUStudy the evidence and tell us.
MeanwhileWhat next?
ALABAMA RATE STATUTES
•Alabama statute says that rates must not be:* Excessive* Inadequate* Unfairly discriminatory
Alabama Law & Policy requires
that the DOI
insure fair pricing practices.
It’s time to require that the DOI follow the law
It must quit
GuessingThat the Coastal Counties are
more expensive than the rest of the state.
It must quit
Discriminating
against the Coastal Counties.
It’s time that the DOI treat all Alabamians fairly.
Like the law requires.
What’s needed is the
The Clarity Bill.
It allows us to do the math.It requires the DOI to
collect,
Aggregate,
and publish on- line,
by zip code and peril:
a) dollar amount of claims
b) dollar amount of premiums
c) total number of Policies
And
d) to use this historical data as a guide
when determining fair premiums statewide.
With this data we can compare actual losses around the state.
It will serve as a plumb line to check the wildly experimental models.
Texas Does It
Are we really more expensivethan the rest of the state. . .
Let’s quit guessingAnd
Do the Math
What you can do . . .
Before the Coastal Counties can speak persuasively to the rest of the state,
The Coastal Population and Leaders must be united behind the Solutions.
Presently our leaders – from elected officials, to civic club officers, to chambers, to pastors, to media – are
all over the map regarding solutions.This must change.
YOU have to require it.
What you can do . . . Get on the HHII email list and stay informed.
Pay close attention to proposed
solutions and decide if your legislators and state officials are proposing something that fixes the crisis. . . Or only dabbling at it
Repudiate the Governor’s “Affordable Homeowners Insurance Commission,” if it does not deliver a solution. Make your repuidation loud and clear.
Occasionally come to hhii meetings in your area.
-- Especially come
to public meetings when HHII brings in people who have the power to make change.
-- Get on a committee. Sign up tonight.
What else you can do . . .