What’s Lacking.

As I write this column a significant number of Americans are still reeling from the devastation of Hurricane Irene. For some it may take years before they put themselves back together.

As Irene approached the eastern seaboard concerns ran high that this could be the storm that devastated metropolitan areas along its path especially New York City and Long Island. In actuality the hurricane damage was not nearly as bad as was being projected. It was the flooding associated with Irene that was particularly devastating to the infrastructure, property and people of Vermont, New York and New Jersey.

The real problem associated with the damage was that many of the people experiencing flood damage most likely did not have coverage and even those that did would still experience some financial loss. Even with flood coverage there is still damage that may go uncovered. To put it in perspective, the state of Vermont that was extremely hard hit by flooding ranks 47th out of the 50 states in flood policies in effect. That translates to 1.5% of households covered.

Although the Vermont figures regarding policies carried are very low I’m sure that New York and New Jersey aren’t much better. Having flood damage excluded from property policies and requiring a separate policy handled by a government body, the NFIP, doesn’t make sense. The cost is prohibitive, the coverage is limited and the majority of people who carry the coverage are mandated to do so by lending institutions that have a financial interest in the property.

Even though 1 out of every 4 flood losses occurs outside of a known flood plain most people are hesitant to buy coverage. They don’t understand the coverage, they feel the cost is prohibitive, they believe the government will take care of them if they do have a loss and worst of all they never think a significant flood loss will ever happen to them. Even the significant flooding in the middle of the country this spring didn’t seem to motivate many people into purchasing flood insurance.

If that’s not enough, the NFIP is a political football that is $18.3 billion in debt. There is real concern that it will not even be able to pay the insured flood losses associated with Irene. New Jersey has $52 billion in flood insurance in force and early estimates are the state may have sustained losses in the tens of billions of dollars. That doesn’t even take into consideration the significant flood damage in New York, Vermont and the rest of the states impacted by Irene.

The stage has been set for a major change in the way we handle damage associated with natural catastrophes in this country. It’s time our industry steps up and leads the campaign to add catastrophe coverage to every property policy across the United States. It’s the only way to adequately spread the risk thus making adequate coverage affordable and available in every policy written. By including coverage on every policy and placing it in the hands of insurance companies you can be sure that adequate capital and reserves to cover current and future losses will be maintained. It will also allow companies to implement loss control, encourage improved building construction, utilize reinsurance/excess insurance and provide properly trained, professional claims personnel to adjust losses.

The insurance industry has an undeserved poor public image. Even though prior to Irene our industry had paid almost $25 billion in disaster claims and may be looking at as much as $2-4 billion more from Irene we rank very low in the eyes of the public. Instead of concentrating on all the positive aspects of our industry and all that we do for our clients, their communities and the economy in general; the public focuses on the negative activities of a very small percentage of participants in our industry. I believe part of the problem is our industry’s failure to be proactive in pushing for positive change. Taking the bull by the horns on this issue is not only the right thing to do but may improve our public image.

I am of the opinion that many of the problems and issues we face today in this country are the result of a serious lack of leadership. Too many decisions are based on what is good for various special interest groups and not at what’s good for the country as a whole. As an industry we realize that the current method of handling catastrophe losses is not effective. We also realize that no amount of modification in the current system will make it viable. The only true solution is to spread the risk as widely as possible to make the cost affordable and to insure the coverage is there for whoever needs it. This issue also needs to be dealt with in a financially sound manner using the tried and true methods our industry has used for years. By taking over the handling of this exposure we can employ the various loss control and risk management techniques that will allow us to better control these losses. The real question is are we as an industry willing to step up and take the leadership role on this issue? Insurance is intended to provide financial protection for those unfortunate people and businesses that experience unforeseen and unavoidable damage. How do we sit idly by and watch so many people endure this destruction knowing that we could provide a real solution to the problem? I don’t know about you but it concerns me greatly that we don’t have the courage and conviction to take the lead. Maybe the public is right about us as an industry. Maybe we only care about making easy money and we don’t really care about the public we serve.