I have been insured for 20 years with Allstate on a home I own in Spring Hill, Fl. My nightmare started two months ago when I was told despite never having made a claim that my policy was not being renewed. Allstate arranged for us to keep our insurance through another company, Royal Palm Insurance. That doesn’t sound too bad but the reality was a 300% increase in our premium and close to no other options but to pay.
More after the jump.
My premium for 2006 was $1497.00 which was nearly doubled from where it was in 2004. I expected a large increase from where it was due to the unusually harsh hurricane seasons in both 2004 and 2005 but luckily I had managed to survive all the storms with no damage. This past season saw no storms but the residents of Florida are experiencing a totally different, but in some cases equally as destructive storm of a different nature. Allstate has decided to cut nearly 90,000 policies in the state and many other insurers are following suit so once you are dropped there are very few companies willing to underwrite your policy. Our policy was transferred to Royal Palm as I stated above and this week we were lucky enough to receive our premium notice. Our annual premium has skyrocketed to $4680.00. For anyone on a fixed income those numbers could mean a decision between food, medicine and insurance and no one should ever have to make those type of decisions. This all led me to start some investigations into the problem and what I have discovered should make any homeowner in the nation stand up and take notice.
As most of you must think it could not have been possible for Allstate to be profitable after the hurricane season of 2004 but according to their financial statements for 2004 you can see that is not the case:
Highlights: In 2004, Allstate incurred $2.0 billion in losses related to the
four hurricanes in the Southeastern U.S. Nevertheless, net income grew to $3.2 billion. Operating income* increased by 16.1 percent to $3.1 billion.
We generated a record $33.9 billion in total revenues. And we delivered a 15 percent return on equity.
Well surely in 2005 after Hurricane Katrina and the unprecedented number of named storms they must have suffered losses but according to their financial statement for 2005 that was not the case:
Although Allstate generated record revenues in 2005, we incurred an unprecedented $5.7 billion in catastrophe-related costs as we helped customers rebuild their lives. That’s a big number — more than five times our annual average over the last decade. Return on equity fell 6.6 points for 2005, compared to an increase of 0.8 points in 2004. Operating income per diluted share* declined from $4.41 in 2004 to $2.37 in 2005.
I am sure we are all feeling sorry for the terrible burden placed on Allstate’s shareholders. Don’t feel too bad since there results for the first three quarters of 2006 show net income of 1.415 billion for the first quarter,1.217 billion for the second quarter and 1.158 Billion for the third quarter. They are on pace to earn over 5 billion dollars this year. Why then are they dropping policies in Florida and all along the coast up to Maine? Is it really the fear that hurricanes will become so numerous that they can’t take the risk or is it to push a political agenda that includes a national catastrophe fund to insulate them and their shareholders from future catastrophic claims?
Lets examine what Florida did after Hurricane Andrew. They started the Florida Hurricane Catastrophe Fund which would provide reimbursements to insurers for portions of their losses. The cost for this reinsurance is paid by the insurer but is passed to the policyholder in the form of higher premiums. This was done to keep insurers in the state of Florida which had been very successful until the hurricane seasons of 2004 and 2005. Are insurers leaving the state as a result of risk or is there another more political motivation behind the Florida Homeowner’s Insurance Crisis? I believe there is a political motivation since the record insurance industry profits do not lead me to believe it is simply the risk of more hurricanes.
What these insurers will do to gain higher premiums is to set up stand alone companies such as Allstate Floridian Insurance which are wholly owned by the parent company but which will stand alone when applying for rate increases with the state. They can in effect say that the company lost money and needs a rate increase and will be granted one even though the corporate entity made record profits. It is this satellite company that will purchase reinsurance through the Catastrophe Fund which can sell this reinsurance at a lower cost than traditional reinsurers because of the fund’s tax exempt status. This is a win/win situation for the insurer as it lowers the cost of reinsurance and allows them to pass this cost onto the policyholder in the form of higher premiums and caps the losses that they can occur.
Insurance companies traditionally buy reinsurance to protect them from catastrophic losses but that cost is rising and eating in to their still record profits and they are looking for a way to protect their bottom line. It is this fact that makes the Florida situation something that will effect all homeowners in risk areas. Allstate has recently announced that they will not write new policies in several states such as New Jersey, DE, CT, and some parts of NY and that they will limit their exposure in all 15 states from Texas to Maine. Other insurers are sure to follow suit leaving homeowners scrambling to find coverage. Why are they doing this in the Northeast which hasn’t seen a major hurricane in my lifetime? The answer seems simple. They are trying to get the federal government or each individual state to set up these disaster funds which would lower their reinsurance costs and raise the premiums they can collect. The ones left footing the bill are the taxpayers. The Attorney General of CT has started to investigate Allstate for anti-trust violations but there is no law that forces them to sell insurance in the state. There needs to be national debate on this issue before policyholders all over the nation feel the pinch of skyrocketing insurance premiums with no end in sight.
One possible solution could be to purchase Hurricane Insurance through the Federal Government just like earthquake and flood insurance. If that route is taken then each state will need to go back to each insurer and lower the rates they charge due to the lower risk they face. I would couple this with a receipts tax that would be charged to the insurers and the proceeds to go directly to the Insurance Fund to lower premiums.
I hope that you will recommend this diary so that more people will become familiar with this issue and get involved to stop the theft of even more of our hard earned dollars by these insurance giants.
If action is not started now many other states will face the same crisis that Florida is now facing and could force small businesses into bankruptcy and lower and middle income citizens out of their homes.