Shared benefit of strong insurance market
As we honor today the boundless contributions of Martin Luther King Jr., I’m reminded of one of his many noteworthy statements: “All men are caught in an inescapable network of mutuality.” With relief efforts for Haiti top of mind, the necessity of mutuality seems evident. While we’ve experienced natural disasters in Florida, the devastation pales in comparison to Haiti’s situation. But King’s words got me thinking about how a focus on mutual benefits in all things is likely the only way to achieve lasting, positive improvements, including actions directed at regaining a stronger private insurance market in Florida. Mutual benefits already exist, but consumers may not know that.
Insurers want their policyholders to have enough insurance coverage to rebuild their homes, not because agents eke out a few more bucks in additional premium, but because you won’t have enough money to rebuild otherwise. According a 2008 survey by Marshall & Swift/Boeckh, 64 percent of houses in the U.S. are under-valued for insurance purposes. Of those, the average homeowner has enough insurance to rebuild only about 81 percent of his or her dwelling. There is a mutual benefit to having the right amount of insurance protection for your home and your car. With proper insurance protection, policyholders return to normal after a calamity, and the insurance company fulfills its promise by collecting enough premium for the level of risk it assumes. This is one of those win/win scenarios that don’t make the evening news. (When asked about the dearth of good news insurance stories, a journalist will explain that would be akin to a newspaper headline stating, “Another plane lands safely at airport.” In other words, things working as intended are not news.)
Four Florida insurers were taken over by the state last year, and people may ask how that happens in a year without hurricanes. When companies grow too fast, they take on too much risk and can wind up underestimating claims costs. Insurers are required to have reserves to pay for claims they expect in a given year, plus have a financial cushion (surplus) to pay for unexpected, large claims. (Click here for an insurance glossary.) For insurers, this cautious conservatism enables them to function normally despite a global economic crisis. The benefit for policyholders is timely payment of claims and no interruption of coverage.
Many new property insurers have started operating in Florida since 2006, and others may be interested in opening shop and/or expanding, given the right financial and market conditions. There are mutual benefits to a healthy insurance environment, and focusing on creating more such benefits matters.