Category Archives: Coastal Property

State-Run Insurers Lack Risk-Based Pricing

Most state natural catastrophe programs do not charge premium rates that reflect the full risk of loss, according to a new report by the Government Accountability Office (GAO).

GAO said that six of 10 states charged rates that do not fully reflect risk of loss, potentially discouraging private market involvement.

State natural catastrophe programs in Alabama, California, Florida, Louisiana, Mississippi, North Carolina, New Jersey, South Carolina and Texas were reviewed for the report.

GAO also found that while most states were taking steps to address mitigation, support of public policy goals varied across the programs.

Officials of nine of the 10 state programs reviewed told GAO they are addressing or considering mitigation, including providing mitigation credits or attempting to develop a more effective mitigation plan.

According to GAO, public policy goals are: charging premium rates that reflect the risk of loss; encouraging broad participation; encouraging the private market to provide natural catastrophe insurance; and encouraging mitigation.

GAO also found that some state-run programs do not use reinsurance or capital markets to protect against catastrophic losses because they are structured to post-fund losses. As a result, many of these programs are at financial risk.

The report also identified four proposals contained in past proposed legislation that would increase the federal role in natural catastrophe insurance and could affect the reinsurance industry’s participation in natural catastrophe insurance market.

These proposals include: facilitation of risk transfer; guarantees of state pre- and post-event bonds; a federal lending facility for qualified state natural catastrophe programs; and a federal reinsurance program.

However, GAO found that the proposals would involve trade-offs that would have to be balanced. For example, while these proposals could lower premium rates for and increase public participation in state natural catastrophe programs, they could discourage private market participation and mitigation efforts and increase taxpayer exposure to potential costs.

Check out online articles at National Underwriter and Homeland Security Today for more on this story. Check out the I.I.I. white paper on residual property markets  for related information.

Hurricane Season Opener

The 2010 Atlantic hurricane season gets underway today and by all accounts it’s going to be a busy one and perhaps the most active since record-breaking 2005. Tomorrow Colorado State University’s Tropical Meteorology Project team will issue its latest forecast.

Speaking on the sidelines of the Florida Governor’s Hurricane Conference last week to Reuters, William Gray, founder of the CSU storm research team said CSU will be upping its forecast for the season.

Back in April, CSU called for 15 named storms, including eight hurricanes, four of which were expected to be major (Category 3-4-5) hurricanes. It put the probability of U.S. major hurricane landfall at about 130 percent of the long-period average.

In its latest seasonal outlook, the National Oceanic and Atmospheric Administration (NOAA) said this hurricane season could be one of the most active on record and underscores the importance of having a hurricane preparedness plan in place.

NOAA said there is a 70 percent chance of 14 to 23 named storms, including eight to 14 hurricanes, of which three to seven could be major hurricanes (Category 3, 4, or 5; winds of at least 111 mph).

NOAA and CSU are not alone in predicting above-average activity this season. WSI (Weather Services International Corp), London-based consortium Tropical Storm Risk and Accuweather.com have all pointed to hurricane activity being well above norm in 2010.

WSI in particular, noted that the Northeast United States faces an increased risk of hurricane landfall this season.

Whether the forecasts call for below- above- or just average seasons and whether or not their estimates prove accurate, the fact is that for coastal residents hurricanes are a constant threat. Policyholders that take the time to prepare now will have the best chance of recovering from a hurricane or any other disaster. Check out the I.I.I. video on making your home more hurricane resistant.

Hurricane Forecast Warns of East Coast Risk

The Northeast United States faces an increased risk of hurricane landfall this season, according to the latest 2010 tropical forecast from WSI (Weather Services International) Corp. The warning came as WSI said it expects the 2010 hurricane season will be the most active since record-breaking 2005.

WSI says the coastline from the Outer Banks of North Carolina to Maine is under a significantly increased threat of a hurricane this season, according to its statistical landfall forecast model. In a press release WSI Chief Meteorologist Dr. Todd Crawford is quoted as saying:

Our model suggests that the threat to the Northeast coast this season is on par with that in Florida and the Gulf coast states.†

Homeowners and businessowners in the Northeast would be wise to take note. Despite never making U.S. landfall and remaining hundreds of miles out at sea, Hurricane Bill, the first Atlantic hurricane of 2009, ran parallel to the East coast from the Outer Banks of North Carolina all the way up to New England and claimed the lives of two.

It’s important to recognize that while exposure to windstorms and high property values combine to make Florida the state with the highest potential for property losses, New York State is second highest, according to risk modeling company AIR Worldwide.

A recent study by AIR Worldwide put the value of residential and commercial coastal property in New York at $2.4 trillion, after Florida with $2.5 trillion. Connecticut, Maine and Massachusetts were other East Coast states where insured coastal property values exceeded 50 percent of the state’s total insured property values.

The last major hurricane to devastate the Northeast was the 1938 Long Island Express, which crossed Long Island and moved into New England, resulting in approximately 600 fatalities. Check out I.I.I. facts and stats on hurricanes.

Hurricane Season Countdown

The National Hurricane Center yesterday said a low pressure system centered about 500 miles south-southwest of Bermuda has a 30 percent chance of becoming the first named storm of the 2010 Atlantic hurricane season. The official start to the 2010 Atlantic hurricane season is just a week away.

The system is producing a large area of showers and thunderstorms along with gale-force winds, according to an NHC bulletin issued last night. “There is a medium chance of this system becoming a subtropical or tropical cyclone during the next 48 hours,† the NHC said.

By this morning meteorologists at Accuweather.com said they believed the low has little, if any, chance of developing into a true tropical system. The more likely scenario is that it takes on both tropical and non-tropical characteristics, making it a “hybrid† storm. Hybrid systems can be named as subtropical storms or depressions.

However, Accuweather.com observed that whether the system develops into a pre-season tropical storm or not, it will have some impact on the southeastern United States as it continues its trek northwestward through midweek.

Forecasters have said they expect this year’s hurricane season will see above-average activity with as many as 18 named storms possible. Updated forecasts for the 2010 Atlantic hurricane season are expected from forecasters at the National Oceanic and Atmospheric Administration (NOAA), Colorado State University’s Tropical Meteorology Project and others in the next few days. Check out I.I.I. facts and stats on hurricanes.

CSU Ups Hurricane Season Forecast

Colorado State University’s Tropical Meteorology Project team today upped its forecast for the 2010 Atlantic hurricane season, from its December predictions. The CSU team said the predicted weakening of El Nià ±o conditions combined with a very strong anomalous warming of the tropical Atlantic are the primary reasons why it is increasing its forecast. In a season it expects will see above-average activity, the CSU team now expects 15 named storms – including eight hurricanes, four of which are expected to be major (Category 3-4-5) hurricanes. The probability of U.S. major hurricane landfall is estimated to be about 130 percent of the long-period average. There is a 45 percent chance that a major hurricane will make landfall on the U.S. East coast, including the Florida Peninsula, and a 44 percent chance of a Gulf Coast landfall from the Florida Panhandle west to Brownsville. The team also predicted an above-average (58 percent) probability for at least one major hurricane tracking into the Caribbean. The forecast for above-average activity ties in with recent predictions from AccuWeather.com chief hurricane forecaster Joe Bastardi who warned this year has the chance to be an extreme season with 16 to 18 tropical storms, including five hurricanes, two or three of which will be major landfalls for the U.S. Check out I.I.I. facts and stats on hurricanes.

Overture to Hurricane Season

Early forecasts indicate this year’s Atlantic hurricane season will be above-average, so it will be interesting to hear the latest updates to those predictions from forecasters attending next week’s National Hurricane Conference in Orlando.  Today’s Sarasota Herald-Tribune article by Kate Spinner points to a new study by NOAA researchers that may hold the key for forecasters making their long-range predictions. Apparently the research shows that the Atlantic and Pacific oceans act as opposites. In other words, a busy season in one ocean makes for a more tranquil season in the other. The study, by NOAA researchers Chunzai Wang and Sang-Ki Lee, is reported to be the first to demonstrate the dynamic clearly over five decades. The Sarasota Herald-Tribune states: “Last year’s quiet hurricane season in the Atlantic coincided with an active Pacific season. The reverse happened in 2005. This year, the Pacific is expected to be mild again, and the Atlantic, if the correlation holds, will be abuzz with hurricanes.† The NOAA study is published in Eos, a journal of the American Geophysical Union. Just last week, Joe Bastardi, chief long-range meteorologist and hurricane forecaster at AccuWeather.com warned this year has the chance to be an extreme season with 16 to 18 tropical storms in total and above-normal threats on the U.S. coastline. Bastardi called for five hurricanes, two or three of which will be major landfalls for the U.S. Look out for an updated forecast of 2010 hurricane activity April 7 from Colorado State University’s Tropical Meteorology Project. Check out I.I.I. hurricane facts and stats.

Soft Market Continues With One Exception

Online insurance exchange MarketScout says coastal property rates in select geographic locations are firming, bucking the trend of ongoing rate reductions in the property/casualty market. The comments came as MarketScout reported the average property/casualty rate decrease was 5 percent in February, compared to 8 percent a year ago. “While property rates were down 5 percent on a national basis, rates for wind capacity in the Gulf Coast, Florida and the East Coast up to and including North Carolina are moderating or increasing,† said Richard Kerr, CEO of MarketScout. Kerr went on to note that admitted insurers in some coastal states are restricted from raising rates beyond a certain point and that some of these insurers are choosing to reduce their exposure because they cannot achieve rate adequacy. In addition, several large non-admitted insurers who traditionally offer coastal property capacity are simply choosing to sit on the sideline as they wait for rates to increase. Meanwhile, rumors persist there will be two new entrants in the coastal property market before July 2010 according to MarketScout. However, this new capacity will not result in rate reductions because these insurers are entering the market at a time where they hope to catch rates on the upswing. “It’s a pretty good bet coastal property rates are going to increase soon,† Kerr added. By the way, business interruption, D&O liability, EPLI, fiduciary and crime were the coverage classes experiencing the smallest decreases in February with an average rate reduction of 1 percent. Commercial property, general liability and workers’ compensation experienced the largest rate decreases at 5 percent. Check out I.I.I. info on the property/casualty insurance cycle  and catastrophes and insurance issues.