The refrain of an old country-music song about the West ends with the phrase, "And they call the wind 'Moriah!'" There are other names for wind as well: Diablo (the devil wind), zephyr, mistral ( a mountainous flow of air that can create psychological mayhem), tempest, hurricane, and so forth. Moriah is not normally associated with wind, but it is associated with faith and sacrifice. It was supposedly at Moriah where Abraham was to sacrifice Isaac, and it was on Mt. Moriah (possibly the same place) where Solomon's Temple was built. Wind is metaphorical in many ways; wind and its many synonyms appear in poetry, religion (the word spirit literally means "wind" or "breath"), adventure stories, even jokes (as in passing …, ah, better not go there!).
The guy who said, "It's an ill wind that blows nobody good," was obviously not thinking of the many catastrophe adjusters who make their living handling windstorm claims, or the contractors and suppliers who descend upon wind-destroyed properties to rebuild. But for the average Joe, ill winds such as Katrina and Rita and other named 2005 hurricanes, a multitude of tornadoes, and white-out blizzards are devastatingly ill. Just how devastating struck home recently when I received my Florida property insurance surcharge on a tiny little concrete condo miles from the ocean that the Big Bad Wolf himself could not huff and puff and blow away.
At the condo association meeting I was surprised to learn that the only insurer willing to write the property insurance was the state insurer, Citizens Property Insurance Corporation. That is some sort of political concoction put together under Florida Statute ?627.351(6), the residential equal of the commercial coverages provided under Florida's Property & Casualty Joint Underwriting Association, stemming from the old Florida Windstorm Association underwriting pool. It has been in the news constantly since created, and none of the news has been complimentary. Considering that insurance rates jumped from 40 percent to 4000 percent in 2006, Citizens has become the insurer to despise.
The Only Game in Town
According to Foley & Lardner, LLP, the Florida Office of Insurance Regulation unscientifically determined that 17 percent of respondents they surveyed were unable to find any property coverage last year. Some 10 percent could find it only with a higher deductible, and 39 percent said that they found the premiums unreasonable. Review of our condominium association's policy showed that in order to obtain "replacement cost," the coinsurance percentage was 100 percent. On top of that, the association was required to pay thousands of dollars for a new appraisal of the building's replacement cost before the insurer would write the coverage. Considering that the three buildings owned by the association have been there for nearly 50 years and have survived several hurricanes, the premium mechanism, like Moriah, seems a bit of a sacrifice, and quite a few folks have lost their faith in Citizens.
Put Blame Where Blame Is Due
Anyone who has ever lived in the South or the Midwest knows that tornadoes and hurricanes cause considerable death and damage every year. The Northeast sustains a few wallops as well. Theories about global warming suggest that things are going to get worse before they get any better — but let's take a look at the damages. The bulk of the damage in New Orleans from Katrina was not from wind, but from flooding. The same was true for the coastal damage in Mississippi and Alabama. Despite the rulings from Federal Judge L. T. Senter, Jr., cited in this column last September ("The Battle Over Storm Surge Claims," page 66) Judge Senter has apparently changed his tune. One wonders why. In Claims' February 2007 National Report ("Cloud of Doom Gathers in Mississippi," page 6), Associate Editor Eric Gilkey reports that in Broussard v. State Farm Judge Senter allowed for a $220,000 policy limits claim for alleged "storm surge," along with $2.5 million in punitive damages. Watch for appeal.
With that kind of judgment hanging over the head of insurers, no wonder they are unwilling to renew old coastal property coverages or write new business. But that remains a flood issue, not wind. Insurers need to continue arguing that any form of flooding is not "windstorm," even if the wind pushes the water. But it was not flooding that led to the big Florida property insurance crisis — it was the three hurricanes that hit the state in 2005, one of which curled back and hit twice.
Yet, that is exactly the point. Who and what got damaged? While I was relaxing in that condominium this February, a major tornado hit the Lady Lake area of Central Florida, killing nineteen people and causing considerable damage. Most of the damage, with the exception of a few houses in a new community called The Villages, was to mobile homes. Even in the 2005 hurricanes, what did we see on television of Florida damage over and over again? Mobile homes — flimsy trailers and double-wides so easily torn apart that they get distributed all over the next two counties every time there's a bit of a breeze. That's what gets damaged most often, not concrete block buildings.
After Hurricane Andrew, my wife and I drove around the southern part of Dade County, where we had previously lived for nine years. Yes, it was houses – not mobile homes – that were damaged or destroyed. There were a few commercial buildings and apartment houses we saw that were also torn apart in the area south of Kendall Drive, but many of these had only had their windows blown out or some roofing ripped off. In the aftermath it was learned that many of the damaged houses had not been built to code, or they had their roofs anchored to the concrete blocks with little more than staples and flimsy straps.
Too Many Nails
A story circulated that South Dade homes that survived Andrew the best were those in poorer neighborhoods build by Habitat for Humanity volunteers. Having worked on a number of Habitat homes, I understood. Whereas "professional" carpenters use nail guns or staplers to attach things, we amateur builders hammer in about three times as many nails as probably needed. With that many extra nails, our houses are not going to blow away very easily.
So if the damage that the Florida insurers fear is going to be primarily to mobile homes and shoddily-built houses, why pick on my condominium association to pay the difference? The concept of insurance rating is that a rate is supposed to be fair, adequate, and non-discriminatory between large numbers of homogeneous exposure units. My three-story concrete block fortress with one exposed window (to the north) is not a homogeneous exposure compared with a trailer hooked up to a gas line or a house put together by unskilled laborers passing themselves off as "carpenters." What ever happened to the "carpenter's union" where one had to work as an apprenticeship for a couple of years and become a master carpenter before a contractor would consider hiring him? (Oh, I forgot — it's the anti-union South. Sorry.)
The question that many newspaper reporters and columnists in Florida are asking is, "What ever happened to real 'underwriting,' where the nature of the risk is taken into account?" Apples and oranges sell for different prices because they are different. To mandate things such as a 100 percent coinsurance requirement might well be appropriate for a mobile home or a shoddy frame house, but it makes no sense for a well-constructed solid structure. It's just a means of raising the cost of insurance.
Future Doom and Profit
As this column reported last July ("It's Not Your Father's Insurance Industry Any More," page 66), despite a reported $56 billion in insured catastrophic loss in 2005, the domestic insurance industry's net income for 2005 rose 24 percent from 2004 to $35 billion, according to sister publication National Underwriter. So why the big hue and cry in 2006 with insurers opting out of renewals and new coverages, and the state having to move in? Well, the domestic profit came at the cost of foreign and domestic reinsurers, who ended up with a 23-point increase in their combined loss ratio between 2004 and 2005. Aw, shucks! But don't weep too much — most of them still managed to post a profit, and that of Allianz AG went up 38 percent!
If the public wants a better insurance deal it needs to start pointing fingers and sending messages to legislators. The fingers need to point at the culprits — shoddy construction contractors who can slap a house together in two days, call it a mini-McMansion, and sell it for $900,000, and a mobile home industry that builds death traps for poorer folks in tornado belts, sans any sort of safety considerations.
Legislate tougher building codes. Legislate storm shelters and reverse 911 warnings for mobile home parks. Legislate better underwriting rules where the homogeneous nature of risks is required as part of a fair and non-discriminatory rate. As rates must also be "adequate," raise the rates on poor construction, mobile homes, and coastal property, and lower them for those who opt for better construction in solid buildings that are less exposed. It won't be doom for the insurers – there will still be room for profit. Then we can re-name the wind.
Ken Brownlee, CPCU, is a former adjuster and risk manager, based in Atlanta, Ga. He now authors and edits claim-adjusting textbooks.
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