The Great Insurance Debate

The Associated Press article on “Catastrophic losses threaten future of insurance industry coverage” that ran in the Atlantic City Press on Sunday November 20, 2005 only tells part of the story. The estimated “insured” losses of 34.4 billions dollars do not give the actual losses by the people in the Gulf Coast area that were insured.

This past summer I spent a lot of time in New Orleans Louisiana, Gulf Port, and Biloxi Mississippi. As Hurricane Katrina approached, I was on one of the last fights out. Six weeks later, I returned for a week and found the area in an insurance nightmare. “The Great Insurance Debate,” as I call it, has not received much press outside of the hurricane damaged areas, but everybody needs to understand this is a big problem to all of us.

In my opinion the insurance problem resulted from a common practice of banks giving homeowners stipulations on what we need to do and have for closing on a house. All of us are accustomed to hearing that your house is so many feet from a river, gulf, or ocean and we are below 12 feet and need flood insurance. We understand that flood insurance is a federal program because insurance companies do not want to cover major events like hurricanes. Homeowners feel safe with our investment because the banks feel safe giving us all that money in a mortgage to close and own a great place to live. Banks in the Gulf Coast region also required that people purchase insurance called Hurricane Wind Insurance above flood prone areas.

This Hurricane Wind Insurance coverage was a surprise to me since I always thought a homeowner’s policy would cover wind damage. Gulf Coast area the homeowner’s insurance does hurricane wind, so they need a second policy. The people in Gulf Coast had homeowners for fire and liability, flood or hurricane wind from hurricane damage, so they felt insured.

So much for being insured when the flooding went to 20 feet and in some areas over 30 feet above the mean sea level. Most of the people even 200 yards from the Gulf of Mexico were above 15 feet and therefore had to have homeowners and hurricane wind damage policies. I have heard so many people say something like this, “I have insurance but the insurance company said my house was damage by a flood and I’m not covered.” The insurance agencies should have done something to help. Money for clean up at the very least, instead of letting the houses mold over. Oh, by the way, the insurance companies have removed mold from the new policies and have limited coverage on older policies. I can not believe the insurance companies feel no obligation to help these people.

Have the insurance companies done there part or just covered the insured with despair and a plea from the area for help? I have received numerous e-mails from people in the area like Jilianne Bocek, who writes, “Our neighborhood was completely leveled. Out of 67 homes not one is left standing, they are all slabs. The outlying area looks similar for a 1-2 mile radius….We, like our neighbors…in outlying areas are receiving the run around from insurance. They are saying this is only flood damage.” The people have to prove they have wind damage before the flood to have a claim. Insurance companies have told thousands of insured policy holders that they have uninsured losses.

But, why is this problem for us in New Jersey?

First, the New Orleans, Gulf Port and Biloxi are not built on barrier islands like we are in New Jersey. The area affected by this hurricane hit areas up to Interstate 10 and along rivers and low lying areas up to 10 miles inland in some areas. Interstate 10 and The Garden State Parkway are about the same distance from the coast; their coast is really like our bay area. I wonder: how many people are above 12 to 15 feet and without flood insurance along the Garden State Parkway? Second, would we be covered by our homeowners insurance if we were not flooded but our house was leveled or damage by a hurricane wind event? Third, I talked to a lot of young couples with their first house, will they get enough support or will they lose everything? Will banks go under because of foreclose losses? Will banks be interested in continuing to give mortgages any where along the shore? Finally, everyone needs to have the right insurance since I have found out that the more policies that are required, the less insurance you have. One property, I once owned, needed four different insurance policies, each giving me protection but I felt that with all the exceptions I was not truly protected, even though I was paying about four thousand dollars each year for insurance. Two policies were not enough for the gulf coast; they needed three, mold is now not covered you need four, or is it five to be truly covered?

I personally think that the insurance industry must determine which direction they want to follow: Write policies that truly cover people in their homes when those moments of need hit or they need to look for other investment places. If the insurance companies do not wish to be involved then the only thing that makes sense to me is all homeowners policies in the entire United States are given over to the National Flood Insurance Agency. All policies written will cover fire, liability, hurricane wind and flood. A comprehensive policy that truly covers people in need, not two, three or four that have clauses written in them so the insurance company can get out of the contract. This will give the agency money to deal with all true emergencies. People not living near a coast line might not be interested in flood insurance but the truth is any house can flood when it happens to rain thirteen inches in any given day. Let’s cover everyone, everywhere the right way. We need insurance but we need to be covered correctly so we do not lose everything because of the fine print of an insurance contract.

By David Jungblut, Geologist
The Great Insurance Debate, Part 2 further highlights issues and solutions with respect to insurance.