Katrina Reflux

So. It's come to this. Insurance companies (the ones who were supposed to have enough of a clue about things impacting their industry to know not only that a big-ass hurricane would do in Louisiana and parts of Mississippi but that it would cost the industry a bundle) have decided, after their initial attempt of "managing risk" (insurance-speak for "ways to not have our asses handed to us") by refusing to pay out homeowner policies for those catastrophically devastated by Katrina, to take another tack. They've opted to discontinue policies of people who live in much less risky places, like Rhode Island.

Now, now, settle down. It's not as bad as it was. At first, the insurers let their clients know that one reason they were getting canned was that they lacked tie-in insurance. But it turns out it's not legal to force clients to use your company for all of their insurance needs. So the insurers took that line out. Now don't you feel better?

Look. Insurance is a risky business. Insuring historically risky places needn't cost everyone. Charge people who want to live on cliffs, or next to forests, or on coastlines, or in places where mudslides are regular events, more money for their policies. (When I rule the world, these same homeowners will not be allowed to apply for FEMA services if they opt out of insurance. But they'll still be able to get blankets from the Red Cross, b/c I'm soft that way.)

Risk is profitable, always has been. Wildcatters know it, and so do hedge-fund players. But the risk for insurers is more manageable than other industries b/c it's largely not an unknown. There will be hurricanes, and fires, and bridges will fall apart while people are on them. If the companies were so greedy that they didn't budget for the lean years, the years in which they'd be paying out historic amounts of cash, is that anyone else's mess to clean up? One could argue that the government who didn't serve its constituents is at least partly to blame. But the little guy who's done nothing but pay on his policy is blameless.

One view is that a market economy breeds competition, and so the little guy can go elsewhere. But what happens when the whole industry does it? Where does Joe Sixpack go then?

Consumer advocates, product liability lawyers, and state board of insurance, it's your time to shine.

Source:
http://www.nytimes.com/2007/10/16/nyregion/16insurance.html