The Eye of the Storm

Time for another of our occasional forays into the dark and mysterious world of Property and Casualty insurance. Last week, Bob wrote about State Farm (et al) and the insurance market aftermath of Katrina.

NOLA wasn’t, of course, the only area affected by hurricanes in the past few years; Florida has certainly seen it’s fair share (or more) of the deadly storms. And, of course, the insurance market there isn’t exactly considered a rosy picture.

But one carrier is bucking the trend, and intends to begin writing business in the Sunshine State:

“As most big insurers are cutting back coverage in Florida and other coastal states after a string of catastrophic hurricanes, Mr. Buchmueller has started a company offering policies that hardly anyone else wants to sell — and at as little as half the going rates.”

His “hook” is that his company will only write homes that are worth at least a million dollars. Why?

Well, for one thing, the industry’s own statistics seem to show that such homes (especially newer ones) are better built, with features (such as special windows and shutters) that are, to coin a phrase, hurricane-resistant.

And although he hasn’t explicitly said so, it occurs to me that such homes will also generate larger than average premiums, as well as little “extra’s” like scheduled items (lots of jewelry and art), and excess liability umbrellas (insert your favorite “umbrella in a hurricane” joke here).

He’s also hedging his bets in another way: limiting the amount of business (number of homes) that he’ll write this year (his first), and using a lot of reinsurance to offload his own exposure.

[ed: Reinsurance is a mechanism insurers use to limit their own potential losses. They contract with insurance “wholesalers” for specific amounts, so that the policy is really insured by at least two entities]

If nothing else, I like the creative thinking that went into this kind of plan. As to whether or not it’ll work, well, there’s always the next hurricane season to test it out.