Transcript Facts about Coastal Alabama’s Homeowners’ Insurance Crisis

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 facts
out of the way,
first.
Despite the increase in natural disasters,
the U.S. insurance industry was the richest
it has ever been in March 2011.
US Policyholder Surplus:
1975–2011*
($ Billions)
$600
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.
$550
$500
$450
$400
$350
$300
$250
$200
$150
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance organizations
$100
$50
$0
75
77
79
81
83
85
87
Source: A.M. Best, ISO, Insurance Information
Institute. * As of 6/30/11.
89
91
93
95
97
99
01
03
05
07
09 11*
Dr. Robert Hartwig slide
They’re nowhere near
going broke.
Another fact to get behind us . . .
156
Companies write Homeowners Insurance in Alabama.
A lack of competition is not the problem
Who
are Plan Members?
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
11/21/2011
•
23 voluntarily write sufficient coastal property to be exempt from AIUA assessments
Alabama Insurance Underwriting Association
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.
In 2006
When this Crisis Started
the coastal counties
Paid the State Average.
The Alabama Average today is about
$850
a year
Alabama Coastal Premiums today
Are 250 to 325% Higher
than other Parts of the State.
ALABAMA HOMEOWNERS RATES
Average 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%
In 2006
(the time of abundant news about Global Warming)
The DOI decided Alabama’s coastal counties
would be wildly more expensive to repair than
the rest of the state.
Warmer oceans would make hurricanes
more frequent and damaging.
The Alabama DOI allowed Insurance Companies to
Introduce
Wildly Experimental
Hurricane Catastrophe Models
Coastal Insurance Prices skyrocketed
10,000s of Mobile and Baldwin Families were Dumped
10,000s of Coastal Families are Now
Functionally 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
REALLY
300% more Expensive
To Repair
Than the Rest of the State?
In 2006
The Wildly Experimental
Hurricane Catastrophe Models
predicted
$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 Coast
REALLY
More Expensive to Repair than Inland?
If not. . .
then Coastal Alabama
Should pay the State Average
Like it always Paid
In the Past
$850
a 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 Ivan
Alabama’s Disaster Counties after
Hurricane Ivan
Disaster Summary For FEMA-1549-DR, Alabama
Declaration Date: September 15, 2004
Incident Type: Hurricane Ivan
Incident Period: September 13, 2004 through September 30, 2004
Individual Assistance
(Assistance to individuals and households):
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,
Public Assistance
(Assistance to State and local governments for the repair or replacement of disaster-damaged public facilities):
Hale,
Jackson,
Lamar,
Lawrence,
Limestone,
Autauga,Henry,
Baldwin, Bibb,Houston,
Bullock, Butler, Calhoun,
Cherokee,Jefferson,
Chilton, Choctaw, Clarke,
Cleburne,Lauderdale,
Coffee, Colbert, Conecuh,
Coosa, Covington,Lee,
Crenshaw,
Cullman, Dale, Dallas, Dekalb, Elmore, Escambia, Franklin, Geneva, Greene, Hale, Houston, Jackson, Jefferson, Lamar, Lawrence, Lee, Lowndes, Marengo,
Lowndes,
Macon,
Madison,
Marshall,
Mobile,
Monroe,
Montgomery,
Marion, Marshall, Mobile,
Monroe, Montgomery,
Perry,Marengo,
Pickens, Pike, Shelby,
Sumter, Talladega,Marion,
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
Morgan,
Pike, Randolph, Russell, Shelby, St. Clair, Sumter, Talladega,
eligible costs for aPerry,
period of upPickens,
to 72 hours.
Tallapoosa,
Walker, Washington, Wilcox, and Winston Counties.
Hazard
Mitigation GrantTuscaloosa,
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
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.
Mid-day – Aug 28 –
Began to Dissipate
8:30am – Aug 26 –
Landfall in LA
8:50am Aug 24 –
Landfall in FL
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 Kinds
Of wind-and-hail events?
2011 Catastrophic Homeowners* Claim Activity
in Alabama, by Event**
Alabama suffered
Five
“Catastrophic”
Wind or Hail events in
2011 – not just one.
Four others in addition to
the April 27 Tragedy.
Date
Perils
Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %
Event Total
2011:Q1 Total
Event Total
Event Total
Event Total
2011:Q2 Total
It suffered significant
wind damages in
2009,
Too.
Event Total
2011:Q3 Total
2011 YTD Totals
**Through Dec, 7, 2011.
Source: PCS Division of ISO.
*Includes all categories of dwelling policies,
such as home, condo and renters’ policies
“Alabama averaged
59
tornadoes each year from 2000-2010. . .”
Tornado Tracks by Enhanced Fujita
(EF) Scale, January – July 2011
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
12/01/09 - 9pm
eSlide – P6466 – The Financial Crisis and the Future of the P/C
Alabama averaged 1 Hurricane
every 11 years during the 20th Century
59 (Tornadoes a Year)
X
11 (Years between each Hurricane) =
649
Tornadoes per 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
In 2011 alone,
In Alabama alone,
There were
217
There were
1,288 severe
weather reports
in AL through
Dec. 5
“severe” Hail reports
170
Tornadoes
901
Source: NOAA Storm Prediction Center;
http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
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 the
Alabama 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
Not
Have 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’s
DOI
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 upstate tornado tragedy in 2011 was a
1-in-250
Year 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)
The DOI says the 1-in-250 estimate was
given to them by
an independent company named
AON
But . . .
What does AON say?
Model Miss: April, 2011 Storms
DOI capping at 1:250 years based on countrywide model estimate
Will this hurt availability?
Is tornado/hail risk changing?
The incident is
“more likely”
a
50-year
event.
And what has
Actually
happened
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
1974
Super Tornado Outbreak
Left 78
Upstate 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 ONE
Governor Bentley’s Commissioner of Insurance – Jim Ridling –
is a member of this commission
Yet a couple months later,
Governor Bentley’s
Commissioner Ridling
told the Associated Press . . .
•Print
•Share
•A
•A
Panel still studying ways to reduce insurance rates
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.
Associated Press
Montgomery Advertiser
March 26, 2012
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.
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?
YOU
Study the evidence and tell us.
Meanwhile
What next?
Alabama Law & Policy requires
that the DOI
insure fair pricing practices.
ALABAMA RATE STATUTES
Alabama statute says that rates must not be:
* Excessive
* Inadequate
* Unfairly discriminatory
•
It’s time to require that the DOI follow the law
It must quit
Guessing
That 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 expensive
than the rest of the state. . .
Let’s quit guessing
And
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.
What else you can do . . .
-- Especially come
to public meetings
when HHII brings
in people who
have the power
to make change.
-- Get on a
committee.
Sign up tonight.
www.hhii.us
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