Earthquake-insurance prices soar in Washington, and companies hold all the power

[TexasTowelie]

State Farm collected $350 million in premiums from Washingtonians over a decade by betting against earthquakes in the state. It concluded that wasn’t enough.

In 2014, the company filed documents with Washington state’s insurance regulator seeking approval to raise earthquake rates around the state, including by 39 percent for commercial property in King County and by 117 percent for Grays Harbor and Pacific counties.

A state insurance official called State Farm’s proposed profit “absurdly high” and objected to any rate increase, according to state records. But the regulator, negotiating on the public’s behalf, was at a disadvantage: Insurers in Washington don’t have to offer earthquake insurance if they dislike the terms, and State Farm is the state’s largest licensed provider of quake coverage.

When the company refused to back down, Washington’s insurance regulator approved the rate hike, as requested.

Read more: http://www.seattletimes.com/seattle-news/earthquake-insurance-prices-soar-in-washington-companies-hold-all-power/

[HassleCat]

1. Many people will drop it.

If you have to use it, you're probably dead anyway.

[TreasonousBastard]

2. Before making out State Farm as the bad guy...

understand that often US insurers are beholden to their London reinsurers who set the rates and conditions. These rates were set every three years, so underwriters had to eat claims for two years before they could try to get their money back.

Catastrophe coverages were getting expensive when I was in the business years ago, and no doubt are getting worse. The amount of physical damage, and the values involved, are getting enormous and there may not be enough cash on the planet to pay for a big one.

[TexasTowelie]

3. I certainly am not going to make State Farm out as the bad guy.

I was statistical analyst for a property-casualty insurer and had to provide loss data for claims with reinsurance companies so I am aware of the function of reinsurance. Without the capital of reinsurance companies it would lead to many building projects being left on the table since the risk would be far too severe for either banks or primary insurers to underwrite. In addition, one of the ways that companies likes Lloyd's of London obtain the capital to provide the capacity to underwrite the risks is through their syndicates which are funded primarily by wealthy individuals who willingly trade the potential exposure for the opportunity to receive a high rate of return that isn't available in safer investments.

The Pacific Coast has been very fortunate over the past four to five decades in that the losses have been concentrated in single markets and there hasn't been a more catastrophic disaster affecting the entire coastline. I hope that none of those areas ever have such a disaster, but if they did then I certainly want to know that my insurance company is financially sound so that they can pay my claim. Otherwise, the losses will be addressed by the federal government and paid by all taxpayers rather than those individuals and businesses that have chosen to live in a higher risk area.

[TreasonousBastard]

4. It could be worse than that...

I was an underwriter for both the Hartford and Firemans Fund. The Hartford had the bulk of the Great Chicago fire losses and the Fund was almost wiped out by that big earthquake (ironic that it's headquartered in SF...)

Both companies survived by making deals with the policyholders for pennies on the dollar. Because of huge losses like that, international pools of reinsurers came to be.

Lloyds is a fairly small player as far as placed insurance goes, but it is one of the biggest ratemakers. And its pledge of unlimited liability for its members has been put to the test. By now they may not have unlimited liability any more, but I don't know. I placed a lot of reinsurance and saw both rates and retentions skyrocket when I was in the business. In ocean marine we also insured war, and boy was that a lot of fun when the Suez Canal was closed. I don't have any connections in the business any more, but I am curious how war coverages are doing lately.

Anyway, if the insurers do go under, and things like New York's fund run out of money, there just isn't any money around. The Feds don't have any obligation to bail out insurers, or to make good on claims. Everybody is on their own.

Now, there have been things like Sandy, where around here uninsured beachfront properties were sort of replaced by FEMA mainly because said uninsured owners whined like little babies. Of course, there have been catastrophes like New Orleans where the common good is served by the government spending money, and some Sandy expenses were certainly justified. But, should the implausible failure of the entire San Andreas fault happen, or that huge megavolcano in Yellowstone go off, there just ain't no money to rebuild. From anyone.

Anyway, values right now are astronomical and there really isn't any cash around for a really big loss. CAT covers may be becoming a joke, and basically a gamble that a catastrophe won't happen.

Back in the 60's, when I got my first insurance job, it was noted that fire-resistive premium rates were so low that all the premiums generated in NY State would not have paid for one NYC high rise if it was totaled. We were betting on none being totaled. Or at least putting 50 years of premiums in the bank before a bog one.

You ran the numbers, so you know how companies asses their risk and try to limit coverage in some areas. And I guess you know that when we get that big hit we're in trouble.

It's 2:30 in the morning and I'm rambling...