The Good, the Bad, and the Ugly about Hurricane Sandy

[Kevin W Johnson]

Were I an insurance company, I would just charge sufficient premiums to cover the expected losses, with appropriate breaks for disaster-resistant construction features...

Yep. And I'm bettin' that most larger insurance companies can just about narrow down homes by address and the rate total loss in these high risk areas. And while people in these areas pay higher premiums, the premiums in no way reflect the cost to rebuild.

It's way past time for the people that insist on living in the highest risk areas to start bearing the brunt of the cost. Premiums should match those areas better, and people either agree to pay them, assume their own risk, or we leave those areas uninhabited. Yes I understand the premise of insurance being spread among us all. But that doesn't mean we should be paying to replace a house every 2-20 years.

[Scott Shepherd]

Yes I understand the premise of insurance being spread among us all. But that doesn't mean we should be paying to replace a house every 2-20 years.

I think you won't find a much more weather violent place in the US than the coasts of Florida. I can't recall a single story about having to rebuild the same houses over and over and over. Long Island hasn't had to rebuild all those home over and over and over. New Jersey hasn't built those home over and over and over.

The facts just aren't on your side. What you're suggesting might happen in some rare cases, but it's by no means the rule.

[David Weaver]

Funny, last time I checked, my premiums went into a pot that got used to pay for those homes. So I helped subsidize those homes built in "fire prone" areas or "tornado prone" areas. Doesn't matter to me, I paid for it both ways. So yes, I AM paying for those people to live in those places at affordable rates. Stop making me pay for those higher risks places and I'm fine with that.

The rest of the population already ARE paying for those houses to be replaced, via your insurance premiums. Anyone had your insurance company come in lately and say "great news, we're lowing your premiums"? Yeah, I didn't think so.

You paid a state rate for the houses built in tornado areas? Unless a state limits rates (as florida either did or wanted to do, which caused insurers to exit the market), you pay a premium that is representative of the risks in your area. You pay for the houses in midwest no more so than you pay for their groceries at wal mart because both you and they buy groceries from the same corporation.

Their premiums are rated for their risks, and yours are rated for your risks. The assets are pooled, but rates don't generally increase for you due to fairly homogeneous risks like tornadoes, they increase when something like sandy occurs, or when something like the last mississippi river flood occurs.

Insurance is regulated by state, not federally unless it is a risk that is not considered insurable without a subsidy. Tornados are not in that category, you do not subsidize anyone who is exposed to tornado risk.

[Scott Shepherd]

You paid a state rate for the houses built in tornado areas? Unless a state limits rates (as florida either did or wanted to do, which caused insurers to exit the market), you pay a premium that is representative of the risks in your area. You pay for the houses in midwest no more so than you pay for their groceries at wal mart because both you and they buy groceries from the same corporation.

Their premiums are rated for their risks, and yours are rated for your risks. The assets are pooled, but rates don't generally increase for you due to fairly homogeneous risks like tornadoes, they increase when something like sandy occurs, or when something like the last mississippi river flood occurs.

Insurance is regulated by state, not federally unless it is a risk that is not considered insurable without a subsidy. Tornados are not in that category, you do not subsidize anyone who is exposed to tornado risk.

So you'd like me to believe that if I have Allstate insurance in North Carolina, and California takes a beating by some weather event and Allstate has huge payouts, then not a penny I paid into my insurance will go to pay those payouts? I don't believe it. If that were the case, they'd go bankrupt in those trouble states.

The payouts to those people comes from their bottom line, all of which I contributed towards. If they have higher payouts nationwide, then you'll see higher rates, nationwide.

[Kevin W Johnson]

. What you're suggesting might happen in some rare cases, but it's by no means the rule.

Not that rare at all. Two hurricanes hit the exact same spot of North Carolina in the same summer of 1996 alone. The 55 year map from 1950-2005 shows many hurricanes making landfall in very close proximity of each other. With the size of a hurricane, they need not hit the exact same spot each time to inflict damage to the same homes over and over.


It's a matter of high risk areas need to change building codes so that when structures are damaged beyond repair, the chances of the replacement structure being wiped out are greatly reduced. It would be a win-win for the proprty owners, and the rest of us that have our home-owners insurance rates increase on a continual basis due to rebuilding these areas.

The really sad part, is that many times we pay twice or atleast in more than one way in many of these hurricanes. Not only do the rest of us pay higher HO insurance, but we also pay again through taxes, since the National Flood Insurance Program is federally backed. The NFIP doesn't take in enough in premiums to cover it's payout, leaving taxpayers on the hook. The program only has about $3 billion more that it can "borrow" from the treasury before it hits its $20 billion cap and has to have Congress raise that cap. And that will certainly happen with the damage left behind from Sandy.

Nearly all of these coastal localities take in enormous amounts of tourist dollars, yet it seems very little is ever saved in "rainy day" funds to help with rebuilding costs. They all count on the feds to bail them out.

[David Weaver]

So you'd like me to believe that if I have Allstate insurance in North Carolina, and California takes a beating by some weather event and Allstate has huge payouts, then not a penny I paid into my insurance will go to pay those payouts? I don't believe it. If that were the case, they'd go bankrupt in those trouble states.

The payouts to those people comes from their bottom line, all of which I contributed towards. If they have higher payouts nationwide, then you'll see higher rates, nationwide.

A subsidy in insurance only occurs when the insurer collects premiums and in the long run they are collecting more from someone else than expected claims plus expenses and profits to pay for someone where they are collecting less than expected claims plus expenses and profits. I'm not aware of anywhere that's the case for tornadoes or earthquakes. I don't know much about earthquake coverage, but what I do know is the only time I've heard of general rate increases across the board is after hurricanes, and perhaps mississippi flooding (and i'm not sure about the latter).

You subsidize flood coverage, I don't know where, if it's just from general taxes or if your premiums are loaded for it, but I seriously doubt you subsidize tornado coverage or earthquake coverage.

What you explained is insurance in general, you're not exempt from tornadoes, hail damage or wind damage in virginia, so to the extent that dollars pooled might pay for tornado or hail damage, they could very well be someone else's dollars paying your claims. If there is an increased risk that someone in the midwest will incur those losses, then they will have already paid higher premiums because of it. Either you're misunderstanding what a subsidy is in insurance, or you're suffering from the same disease that most people do - the thought that they receive no value from insurance if they can't remember having a claim (go without insurance if you think a period of coverage has no value to you).

The general function of risk pooling with premiums paid for expected claims is no the same thing as paying disaster costs for otherwise uninsurable risks.

[Jim Matthews]

So you'd like me to believe that if I have Allstate insurance in North Carolina, and California takes a beating by some weather event and Allstate has huge payouts, then not a penny I paid into my insurance will go to pay those payouts? I don't believe it. If that were the case, they'd go bankrupt in those trouble states.

The payouts to those people comes from their bottom line, all of which I contributed towards. If they have higher payouts nationwide, then you'll see higher rates, nationwide.

To the point - flood insurance is underwritten by the FEMA arm of the Federal government.
It's funded by discretionary spending. It was originally written to protect home owners
along our waterways like the Mississippi where flooding was a catastrophic rarity.

Few of the homeowners in those locales had any alternative for insurance.

It's now extended to beachfront property, particularly along the East Coast.
Private insurors have continued to write expensive policies for such homes,
with the clear indication that any flood damage will be passed to FEMA.

That both inflates property values and encourages unsound building practices.

Were private parties bearing the full brunt of premiums, fewer of these homes would remain so close to the waterline.

We're comparing two very different risk pools here; one that is covered by spread risk and one that has a familiar "too big to fail" imprint.
I, for one, am tired of carrying risk for people engaged in what would appear to be engaged in reckless behavior that I can't enjoy myself.

Given that so many of these communities have restricted access, I'm paying for their exclusivity.
That's a transfer of wealth, by any measure.

[Brian Elfert]

My uncle's house is on the NJ shore, was damaged by hurricane Sandy, and is covered by flood insurance. His house took on 6 feet of water, but was not swept off the foundation or anything like that. He has been told by government if the cost to rehab exceeds 50% of the value he will be required to raze the home and rebuild on piers.

[Jim Matthews]

How is he holding up?

It's pretty cold there, today.
I'm nearly 15 miles from the ocean, and it's a bitter wind blowing through...

[Brian Elfert]

How is he holding up?

It's pretty cold there, today.
I'm nearly 15 miles from the ocean, and it's a bitter wind blowing through...

I haven't heard a thing since I heard about razing the house if the repairs are more than 50%. I'm getting the information second or third hand from my father who has been busy.