How Many More Disasters Can the Property Insurance Industry Survive?
Abstract
If disaster occurrences keep growing exponentially and we don't find ways to relocate people out of risky areas we might face an insurance calamity that could put a huge burden on homeowners and taxpayers, leave billions of dollars of property uninsured, and even lead to a mortgage industry crisis. Property insurance exists to help fund repair and rebuilding after large natural catastrophe disasters, but it has a limit to what it can cover. Large insurance carriers like State Farm, Berkshire Hathaway, and Progressive are the big issuers of property insurance policies in the United States, but they are not the ones at risk long term. Munich RE's own website says "It is expected that major storms will occur more frequently in most regions." Even if insurance companies are able to stay solvent after a large disaster, they never pay for all of the damage that is done. To help property owners that now find themselves with little to no ability to buy property insurance, the state's legislation that limits how much private insurers can raise rates also created a not-for-profit state funded "Insurer of last resort" called Citizens Property Insurance Company. "Property insurance is required to get a mortgage, but once the loan is obtained there is often nothing keeping the owners from letting the coverage expire," Professor Macomber explained. "If mortgage companies start to enforce proof of insurance on an annual basis, we might see a big problem with either foreclosures or a decline in home values as the market considers the ballooning cost of insurance," said Macomber.
