Insurance Report

Florida State encountered a high risk exposure of hurricanes, so the government issued many policies to protect citizen from the potential hurricane damages. However, it seems that not all policies being accepted by citizens. The bottom line of insurance companies is that formed Florida Only subsidiaries, which collect the high insurance premium from customers and sent a sizable money to the parent company. Then, the insurance companies point to the Florida state insurance corporation that took the losses and increase the premiums for the losses when the hurricanes hit the state and loss tool place, while ignoring the bundle polices the parent company set up. By charging the higher premiums, so that they still make profits even in a year with significant losses. Insurance companies in Florida are earning profits and build reserve in good year (less hurricane attack year), and use the reserves to absorb losses in bad year. It seems that insurance company did a good work to mitigate potential risks by distributing them to insurance buyers quietly.

There are two separate issues with hurricane insurance, including political risk and risk sharing. The political risk that insurers face after hurricanes attack is whether the damage is covered by government. For example, in Florida State only the wind damage is covered by hurricane insurance, but local government have policy against insurers and force payment on damage most likely caused by rising water. Potentially, the hurricane insurance buyers paid double premium to insure their hurricane damages. The second issue is the risk-sharing inherent in all insurance contracts and the fees that have to be collected to cover the losses associated with the risks. The severity of damage and the likelihood of damage have been rising considerably.

Fair pricing of hurricane insurance depends on damage forecasts which depend on climate model forecasts. Unfortunately most of these models predict rising chances of severe damage...