Panic Mode in Insurance Companies?

BY AARON STEIN

Apparently Allstate just announced that they will be dropping all earthquake coverage country-wide except for four states (Kentucky, Connecticut, Rhode Island, and Florida) where it is legally required, and they are in negotiations in those states! They currently write this coverage for over 400,000 homeowners.

Earthquake, of course, is another 'catastrophic' insurance coverage, meaning that it has the potential to affect a large number of properties in the same event. And since we have had relatively little earthquake activity in the past few decades, there has been a lot of building in areas that previously were considered dangerous because of underground faults. This is similar to all the building that has gone on near the coast during the last couple of decades when we were in a 'low' time for hurricane activity.

It seems that the industry is going into full panic mode. This is going to be an interesting couple of years for homeowners because once this sort of ball gets rolling, it's going to be hard to stop it. Although hurricane and earthquake clearly fall into the catastrophe classification, if you start 'massaging' the definitions, there are other coverages that could be questionable in the next round. War is already excluded, but terrorism is not, at least on privately owned dwellings. What else will they be able to think of?

In a strange way, this might actually help the Long Island and New York homeowners situation. One of the problems has been that the parts of the country that are not subject to hurricanes and flooding have been less than excited about programs such as the FEMA Flood Insurance to help those areas that are so exposed. If earthquake coverage also necessitates a government program, then we may find more support in general for things like government catastrophe backstops that are now being sought by the insurance carriers.

The other good thing that will eventually come of this is better building codes to reduce damage when the storm or other event does occur. Those take many years to implement, but they have to start sometime. As always, for more info on these or other issues, you can contact us through our web sites at http://www.nyinsurancewithservice.com/ and http://www.floodinsuranceny.com/.