Insurance Claims and Hurricanes

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News reports out today say insurance companies are going to be on the hook for anywhere between $2.8 billion and $5 billion dollars from losses covered during Hurricane Florence. This figure includes losses caused by storm surges on the coast, flooding inland, high winds everywhere, and coverage provided by the National Flood Insurance Program.

The first thing I wondered “is this figure big enough to bankrupt the insurance industry?”

The answer – absolutely not.

Property and casualty insurance companies in the United States take in between $600 and $700 billion dollars in premiums every year. Every year! And – a Hurricane Florence doesn’t happen that often, does it?

To put this in perspective, the total insured loss of Florence is like an unexpected repair bill of $250 dollars hitting someone making $35,000 a year. Not a catastrophic financial incident.

There is another consideration to add to the equation, though. If a couple of companies insured a disproportionate amount of property in the loss zone, their premium to claim ratio would not look as good. For instance, in North Carolina, there are 4 companies that insure over half the homes in the state. Number 1 on that list is State Farm. We know they sell insurance everywhere so their ratio should be okay, but the Number 2 company is the North Carolina Farm Bureau Insurance. I doubt, just by the name, they sell insurance outside the state. If the percentage of claims follow the premiums, then between 1 and 2 homes out of 10 with a claim will be paid by this company. I doubt they will fair as well.

Still, if you have State Farm, and as big as they are it’s a fair chance you do, I bet they take the opportunity to raise premiums anyway.

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