Insurance Industry's Windfall Sends Real Estate on Downward Spiral

Weather forecasters are not the only ones paid when they make mistakes. Insurance companies profit pretty well, too.

And the Florida real estate industry is paying the price.

It’s been two years since a hurricane struck The Sunshine State, but residents continue to face rising insurance rates or dropped coverage. According to the Insurance Information Institute, rates are likely to rise between 20 and 100 percent over the next year for the 43 percent of the U.S. population living in coastal areas stretching from southern Texas to the northern tip of Maine. In addition, the Institute singles-out Florida as a possibility for even higher increases.

While current commercial and residential borrowers struggle to pay the premiums and prospective ones become hesitant to buy because of it – thus slowing the real estate sales market – insurance companies are laughing all the way to the bank. According to a St. Petersburg Times article last week, the property and casualty industry in America made almost $60-billion in 2006.

Eight hurricanes and three tropical storms either struck or brushed Florida between 2004 and 2005. Before, the average cost of homeowners insurance in Florida was $930. After, the cost had nearly doubled to about $1,600. For those living on or near the coast, such as Panama City residents, the cost of insuring a condominium or a house is closer to $3,000. Combine that with the fact that the last two hurricane seasons have been quiet and it’s clear why insurance companies are doing well.

Since the real estate industry took a hit from the active hurricane seasons, it should also benefit from the slow ones. The finger pointing for why this hasn’t happened goes to hurricane forecasters. These forecasters are trying to justify their grants and jobs by coming up with more reasons why they cannot be relied upon, but still should be considered an authority.

Dr. William Gray, a University of Colorado professor, has been prognosticating hurricane seasons since 1984. In April 2005, he and research associate Philip J. Klotzbach predicted that seven hurricanes would emerge that season (15 eventually did). The next year, they projected 17 named storms and nine hurricanes (there were actually 10 named storms and five hurricanes).

Gray and Klotzbach’s report released last week has a similar prediction for 2008: 15 named storms and eight hurricanes. This year’s forecast does include something new, however – a disclaimer. It reads: "Everyone should realize that it is impossible to precisely predict this season's hurricane activity in April.”

That hasn’t stopped some insurance companies from taking it as gospel and crying global warming – thought by many professionals to result in more hurricanes. Insurance companies are now using global warming as an excuse to raise rates and even dump clients, according to an article published last August on Scientific American.com. Florida Consumer Action Network Executive Director Bill Newton backed up the claim.

After living in Panama County for 37 years, I have concluded that I may have to be here hundreds of years, maybe thousands, to truly understand climate and weather patterns. One thing I do understand, however, is the only constant right now are raising insurance rates. That needs to change. Florida’s real estate future depends on it.

Like a Good Neighbor?

Historically, Florida has been known for a few specific things.

We are the Spring Break capital. Any college football fan can’t deny our talent for producing great players all over the State. Just this year, one of our very own was the youngest player ever to be awarded the Heisman Trophy. Ask any 4 year old where Disney World is and he can tell you.
Oh, and hurricanes. We have those, too.
Since 2005 when hurricanes ravished our State, insurance companies all over the Atlantic and Gulf Coasts have gone into panic mode. Rates for homeowners have sky-rocketed…that is, if they didn’t drop you entirely.

Enter State Farm Insurance; probably one of the most well-known insurance companies in America. Well, minus Florida.

Need car insurance, health or life insurance? Great! They’ve got you covered. But you’re left out if you own a home. Sorry.

This reminds me of a commercial that Burger King runs. People go up to the speaker at the drive-thru window and are told Burger King no longer serves the Whopper. What? Isn’t that what they’re known for? What good is a fast-food restaurant without their specialty food item?
Now, if that really happened, Burger King would probably go out of business pretty quickly. People would just stop going there if their favorite menu item was no longer available. And what would happen if Florida was the only state that Burger King no longer served the Whopper? CNN would be camped out in our back yards!

But for some reason, State Farm doesn’t seem to think it should be a big deal they’ve taken away our “Whopper.” They still believe they deserve a piece of the pie anyway, with the other types of insurances they offer us.

While I’m on a roll with these food analogies, I’ll throw in one more. Should insurance agencies be allowed to carry out business as a buffet line, where we are only allowed to choose from whatever they’ve decided to serve us?
I say no. Why should Floridians continue to give money to a company who doesn’t believe we’re deserving of the full menu?

We can all agree that businesses are in business to make money, right? But it’s my understanding that State Farm can be found in all states. Over the past ten years, Tennessee has been hit with more tornadoes than I can count. Betcha they still offer homeowners insurance there, don’t they?

In any business dealings, the day I feel like I have to beg anyone to take my money is the day I walk away from that company and never look back. And that’s what we Floridians need to do. Change car insurance companies, life insurance, etc. If State Farm is so worried about losing money on us, they don’t deserve one dime of what we work for.

Come on, State Farm. We don’t care if you go away mad…we just want you to go away. Faster than the wind speeds of those hurricanes that have your wallets so scared.