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Great catastrophes produce insurance woes, economic loss

By Eric Ture Muhammad -Contributing Writer- | Last updated: Dec 6, 2017 - 2:24:00 PM

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In this July 14, 2014 photo, construction equipment demolishes Jamilyn Spellman’s home in Long Beach, N.Y. Spellman is joined by more than 1,000 families whose homes were swamped by Superstorm Sandy are still fighting with the U.S. government over their fl ood insurance payouts, nearly five years after the storm struck the East Coast. Photo: AP/World Wide Photos

ATLANTA—Detailing losses due to significant natural catastrophes in the book, “Catastrophe Modeling: A New Approach Managing Risk,” by Huebener International Series on Risk, Insurance and Economic Security, a great natural catastrophe is defined as where an affected region is “distinctly overtaxed, making interregional or international assistance necessary.”

The book continues by stating, “This is usually the case when thousands of people are killed, hundreds of thousands are made homeless, or when a country suffers substantial economic losses, depending on the economic circumstances generally prevailing in that country.” 

In unprecedented fashion, relentless natural disasters have increased in America as never before. Infrastructure damage has run into the billions of dollars.   The country’s insurance woes coupled with the prevailing inability to rebuild after disasters and its the overall impact on the economy is an uphill battle as her citizens struggle to rebuild.

Homeowners and renters insurance customer satisfaction surveys have reached record highs following a multi-year run of declining catastrophic losses and relatively stable pricing, according to insurance industry leaders. Yet, these high levels of satisfaction will be tested in the coming months amid the historic losses and profit strains created by Hurricanes Harvey and Irma.
“Rain, hail, snow and earthquakes—these weapons all belong to God. America, how do you fight an army like this?” asks the Most Honorable Elijah Muhammad, the eternal leader of the Nation of Islam from his book The Fall of America (1973), pages 196-197.

Mr. Muhammad continues, “The four mentioned weapons of Allah (God) cannot be ignored. The whole year has been a year thus far of Allah (God) plaguing America day and night with storms, rain, floods; killing and destroying property … hail has been falling in some places the size of golf balls, baseballs and footballs …  Allah (God) is visiting America with great destruction which He has to pour on wicked America.”

The aftermath of many of these natural disasters leave survivors struggling to rebuild. Thousands took to the streets in New York on Oct. 28 marking the five-year anniversary of Superstorm Sandy which decimated parts of the East Coast.

“The lingering anguish of Sandy is shared by several hundred others in New York and New Jersey who have been unable to return home since the storm hit. Their houses lie derelict or in an ossified state of repair, with residents plagued by a confusing tangle of bureaucracy, delays, contractor fraud and the fear that any rebuilding in vulnerable areas will be nullified by another story,” reported The Guardian.

“A program called Build It Back was meant to have restored damaged New York City homes­— such as the Willis’s—by the end of 2016, but one in five eligible people still haven’t had their dwellings repaired,” continued the article titled “Hurricane Sandy, five years later: No one was ready for what happened after.”

From an underwriting profitability perspective, the Insurance Information Institute (III) speculates that “2017 will likely turn out to be a tough year.” The first half of half of the report noted a $4.5 billion underwriting loss in both the first and second quarters of this year.

“And thanks mainly to Hurricanes Harvey and Irma, the third quarter will likely deliver a third straight quarter of underwriting losses, making it especially hard to end the year with an underwriting profit,” the report suggests.

Although results from investing the industry’s assets rose slightly in the first half of this year, this does not in anyway, reflect recovery. The insurance industry’s overall rate of profitability fell from 6.4 percent in the first half of 2016 to 4.4 percent for the same period in 2017. 

“The bottom line? Net income after taxes dropped by 29.2 percent, from $21.8 billion in the first half of 2016 to $15.5 billion in the first half of 2017. This is the second straight year in which net after-tax income dropped by 29 percent from the prior first half,” read the report.

“Industry financial results for the first six months of 2017 continued to deteriorate in most categories,” stated Robert Gordon, Senior Vice President for Policy, Research and International, at Property Casualty Insurers Association of America (PCI). “While the worsening in the personal auto line seems to have slowed somewhat, auto losses will sharply increase in the third quarter from hurricane losses. Property catastrophe losses increased in the first half of 2017 on top of the already significant increases in 2016,” he added.

“Fortunately, industry surplus, bolstered by three straight quarters of large unrealized capital gains, continued to climb to a record $717 billion. Hurricanes Harvey, Irma, and Maria may wipe out some or all of the industry’s profits in 2017, but most insurers remain historically well capitalized, generally well reinsured, and in a rock-solid position of financial strength to respond to consumer needs,” noted Mr. Gordon.

However, he acknowledged that “unfortunately, many consumers will never fully recover from the storms, underscoring the need for expanded flood insurance coverage, stronger building requirements, and more resilient communities.” 

The United States’ infrastructure is not built to withstand the multitude of calamities, most analysts agree, therefore determining the costs of disasters to be extremely high. It should be noted that profits associated with industry surplus and capital gains in the insurance industry are in part, due to unpaid or underpaid claims of insurers that often go unchallenged.

Many homes across the nation have not been rebuilt due to the effects of many homeowners being underpaid, having to maintain a current residence or being unemployed or underemployed. In addition, many are still made to pay the rent or mortgage on the home that no longer exists. Landlords, mortgage brokers and banks maintain it is not their fault—and still demand that their rent or mortgage be paid.

In another article from The Guardian, Sept.1 regarding Hurricane Sandy survivors it reads, “Thousands of homeowners across New York and New Jersey were underpaid. Some got just a fraction of their policies. FEMA (Federal Emergency Management Agency) runs the government flood program. But it doesn’t write the policies or manage the claims. It pays private insurance companies fees to do that work.”

“When homeowners buy flood insurance,” it continues “they pay a fee that doesn’t actually stay with the insurance company. It goes into a pot of money to the flood program. After a disaster, the insurance companies that participate in the flood program decide how much a homeowner will receive. They then pay homeowners using the pot from the program. When that money runs out, as it has during big disasters in recent years, taxpayers pay the rest.

In theory, homeowners shouldn’t be shortchanged because the insurance companies are only acting as a middleman between FEMA and the homeowners making claims, essentially contracting with the government to evaluate damage and assess compensation,” it closed.

Since Hurricane Katrina of 2005, Superstorm Sandy (2012) and now Hurricane Harvey have in economic terms possibly outstripped the $160 billion tap left to bear on American taxpayers in its wake. While Sandy wrought about $70 billion in damage itself, preliminary figures suggest Harvey could be $190 billion, alone. Clearly, outlining America’s inability to guard against unfolding disasters.

From January 1 to October 6, 2017, there were 50,283 wildfires, compared to 46,618 wildfires in the same period in 2016, according to the National Interagency Fire Center (NIFC). About 8.5 million acres were burned in the 2017 period, compared with 4.8 million in 2016.

As of October, for the year so far, 2017 ranked higher in number of acres burned compared to the 10-year average. In early October, northern California was hit with an outbreak of wildfires which led to more than two dozen deaths and destroyed over 3,500 structures. According to Verisk Analytics’ 2017 Wildfire Risk Analysis, 4.5 million U.S. homes were identified at high or extreme risk of wildfire, with more than two million in California alone. The top 10 states ravished by wildfires according to NIFC ranked by amount of fires and acres burned were, Texas, California, Georgia, North Carolina, Alabama, Florida, Missouri, Arizona, Tennessee and Montana. Losses from wildfires added up to $5.1 billion over the past 10 years.

In the event of a sudden emergency such as a hurricane, of fire, you might have just minutes to gather your family and important papers and get out of your house; possibly for good.

With preparation and practice, insurance companies say people stand the best chance of getting out with what you and your family’s needs. Planning ahead is crucial. They recommend five steps that can help get you and your family on the road to safety:
Arrange your evacuation route ahead of time, create a home inventory, plan what to take; gather important documents and lastly, take just 10 minutes to get your family and belongings into the car and on the road to safety. By planning ahead and practicing, you should be able to gather your family members and pets, along with the most important items they will need, calmly and efficiently, with a minimum of stress and confusion, they maintain.