2008 Season Shakes up PCI
Lynn Knauf, director of personal lines at Property Casualty Insurers, PCI, says that they are in the midst of a unique weather cycle of increased storm activity, which she believes might even last fifty more years. She says that the current weather pattern together with the present significant population growth and costs of rebuilding costs on the coasts, makes the United States increasingly susceptible to catastrophic natural disasters. The present estimation is that approximately $7 trillion of residential and commercial property is now completely susceptible to catastrophic hurricanes and floods along America’s coastlines, according to Knauf.
The serious inability of several of the states that are susceptible to massive hurricanes has been highlighted by the 2008 season, to manage catastrophic losses. These include the states of Texas, Florida and North Carolina. In addition to this, the Texas Windstorm Insurance Association (TWIA), which is the state administered program for coastal residents, has been underfunded for several years. TWIA was not financially ready this year to deal with the nearly $3 billion in damages it received from Hurricane Ike and Tropical Storm Dolly.
Before all of the claims could be met, TWIA surpluses were already depleted. The way operations exist currently, assessments on insurance companies are being used to pay any remaining losses. These are being offset in part by premium tax credits. The underfunding of TWIA unfavorably affects the state budget and all Texans since the state of Texas receives approximately $1 billion in revenue each year from all insurance company premium taxes.
The current situation has also placed residents in Florida and North Carolina in jeopardy. According to a report from Florida state policymakers the Florida Hurricane Catastrophe Fund could face a possible shortfall of between $10 billion and $15 billion in the event that a large storm hit the state. Such a storm would impact both the Florida Citizens Property Insurance Corporation and private insurers as well. In that event, all homeowners, auto, and business policyholders would be facing billions of dollars worth of assessments to cover this deficit.
What is called the Beach Plan, which is the North Carolina Insurance Underwriting Association, is also not financially prepared to weather a major storm, a fact that could have broad-ranging grave implications for the state. While growing at a rate of about $1 billion worth of exposure per month, a recent analysis showed that the Beach Plan insures almost $70 billion worth of property. The problem is that the Beach Plan has no more than $1.5 billion available to pay for any hurricane losses. Should a major storm hit the state, this could end up with unintended consequences for all North Carolina homeowners. It could end up threatening the Plan’s ability to pay claims and could lead to a bankrupt of some insurers, forcing others out of the North Carolina marketplace, while at the same time creating affordability and availability problems across the state.