Property Insurers Of Last Resort See Record Policy Growth

Six years since Hurricane Katrina and with no major hurricane making U.S. landfall in 2009 or 2010, the assumption might be that the residual property market in hurricane-exposed states would have reduced significantly in size and regained its financial equilibrium.

However, this year’s report by the Insurance Information Institute (I.I.I.), like the reports of the last four years, records the ongoing growth in the exposure base of the residual market property insurers along with the still-precarious financial condition of some plans.

The ongoing growth in the residual property market comes at a critical juncture for private U.S. property insurers and the global property catastrophe reinsurance market as the first-half of 2011 has seen record catastrophe activity with severe tornadoes and other events resulting in an estimated $17 billion in insured losses through June 30 in the U.S. alone.

According to the newly updated paper, total exposure to loss in the residual market (FAIR and Beach/Windstorm plans) rose from $419.5 billion in 2005 to $757.9 billion in 2010 – an increase of 81 percent – and since 1990 exposure to loss in the plans has surged by 1,286 percent.

Meanwhile, total policies in force (both habitational and commercial) in the plans practically tripled from 931,550 in 1990 to 2.8 million in 2010 – a record high.

Many of the plans have become home for the most highly exposed, wind-only risks – in other words the least attractive types of business. In some cases, this has left plans with huge concentrations of risk, the I.I.I. study notes.

Consequently, it is not surprising that many of the plans experience severe financial difficulties in certain years.

It is important to recognize that because most of these plans do not charge rates that reflect the true cost of risk, demand for the coverage they provide remains high.

As long as the plans continue to grow, state finances will remain under threat and ultimately taxpayers, many of whom live nowhere near the coast, will continue to face the prospect of increased assessments in the years ahead.

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