Farmers Pulls Out of North Carolina: The Insurance Circle is Broken

This bit of breaking news from the National Underwriter caught my attention. Here is how the circle works, insurers flee coastal areas forcing thousands of residents into the state’s insurer of last resort. The rapid growth in the state wind pool scares off other insurers scared of the potential risk. Insurers fleeing risk; makes you wonder what economic market value they plan on bringing in the future.

The news inspired me to song for our friends in North Carolina:

I was standing by my window,
On one cold and cloudy day
When I saw that hearse come rolling
For to carry Farmers Insurance away

Will the policy be unbroken
By and by, lord, by and by
There’s a coverage home a-waiting
In the sky, lord, in the sky

I said to that insurance commissioner
Commish please drive slow
For this company you are carrying
Lord, I hate to see her go

Will the policy be unbroken
By and by, lord, by and by
There’s a coverage home a-waiting
In the sky, lord, in the sky

Oh, I followed close behind her
Tried to hold up and be brave
But I could not hide my sorrow
When they laid Farmers in the grave

Will the policy be unbroken
By and by, lord, by and by
There’s a coverage home a-waiting
In the sky, lord, in the sky

I went back home, my home was naked
Missed my insurer, she was gone
All of my brothers, sisters crying
What a home so sad and alone

Will the policy be unbroken
By and by, lord, by and by
There’s a coverage home a-waiting
In the sky, lord, in the sky

We sang the songs of policyhood
Hymns of faith that made us strong
Ones that Good Neighbor taught us
Hear Lecky King sing along

Will the policy be unbroken
By and by, lord, by and by
There’s a coverage home a-waiting
In the sky, lord, in the sky

Will the policy be unbroken
By and by, lord, by and by
There’s a coverage home a-waiting
In the sky, lord, in the sky

5 thoughts on “Farmers Pulls Out of North Carolina: The Insurance Circle is Broken”

  1. Here is an article from the News & Observer:
    http://www.newsobserver.com/news/story/1178620.html

    What we have here is a campaign by the insurance industry to force the NC Beach Plan to buy more overpriced reinsurance. The $75 billion possible Beach Plan loss suggested by the industry is absolutely ridiculous. That would require every insured property in NC to suffer a total loss in one event.

    Excerpt
    Farmers insures about 200 homes in coastal areas, Davies said. But it is pulling out of the state entirely because the Department of Insurance requires all insurers — even those who don’t insure coastal properties — to participate in the Beach Plan and cover the state pool’s losses.

    “The current value of risk to Farmers is almost double our annual premium, and that’s not tenable,” Davies said. “We’re not allowed to charge customers for those [costs], so it all comes out of company reserves.”

    Farmers could be assessed $50 million to cover hurricane damage to Beach Plan customers, Davies said.

    The Insurance Federation of North Carolina, a trade group, has argued that the Beach Plan doesn’t have enough money to cover full damages that would result from a major hurricane. The group says the Beach Plan can cover up to $2.5 billion in losses, far short of the $75 billion in property damage that it says could result from a severe windstorm. The federation is lobbying the legislature to raise rates on coastal properties insured by the Beach Plan.

  2. I’ve stuck my nose in Mississippi and Florida so I guess I can stick it in here as well. This story and the other further down about New Jersey, and all the previous stories about carriers pulling out of states have 2 things in common: 1) everybody on one side of the issue says the companies are being greedy and 2)the companies relate a story of being unable to accept the risk in an area due to the harm it could cause the company as a whole and its other policyholders. It seems to me that if a company such as Farmers says we are out of here (without some sort of rate hike threat, etc.) it shows the problem in a greater detail. If the homeowners market is as great as what people make it out to be, why are so many wanting to get the hell out of it? Are the people in those states REALLY going to be better served by either one HUGE company that takes up all or an extremely high percentage of the market or by a bunch of smaller carriers that one has to hope can keep their promises after “the big one?” It is a really tough concept and I am not sure I know the answer. For whatever reasons if an insurance company decides it can no longer meet its business model and keep its promises to its policyholders and its shareholders, be it good or bad, if they decide to stop doing business, that is what a capitalistic system is about. IF the government enacts laws that in effect “Socialize” or “Nationalize” these companies (like Venezuela did with the oil companys there,) then are we on a slipperly slope to government doing more harm to the economy?

  3. Good morning, surely you’re eastern mountains – it’s mighty early for big thinking on a Saturday!

    What you’re saying makes perfect sense – the problem is that you’re buying “excuses” and not “reasons”.

    Not often, but once in a while, I’ll get so frustrated with all of the illogical aspects of one of these issues that I whine (don’t tell) to Sop about how hard this stuff is to grasp.

    I am constantly surprised by the people that don’t grasp the concept of market – and am not saying you’re one. It creates all sorts of problems when enough of those who don’t understand get together create a public perception different from reality.

    A viable market has to have base of potential consumers who can and are willing to pay what the seller/provider can and is willing to charge.

    IMO the insurance market consists largely of the unwilling seller/provider and the can’t pay -consumer.

    That sort of market attracts people like flies who think they are smarter and so forth that those at a standoff. So they jump in and really screw things up. At least that’s my perspective and I’m seeing indications it applies to insurance as well.

    your turn, gotta heat my coffee.

  4. This is the system the insurance companies asked for, in fact demanded. Their complaints would be more believable if they had not had record profits through this period.
    These companies could write coastal policies and buy reinsurance coverage but they know it is ridiculously overpriced, so they force the states to set up risk pools that have to buy overpriced reinsurance.
    Farmers hasn’t been writing coastal policies at all. This complaint is that the wind pools expose insurance companies to catastrophe risk. That was always the point. It is a risk pool. Not a no-risk pool.
    The industry doesn’t want the federal government to cover coastal wind, but they don’t want to cover it either individually or collectively through wind pools unless all the risk is on premiums through reinsurance or on taxpayers through federal or state backstops.

  5. You hit it the other day Brian, nothing will work until Congress cries Uncle and takes on the risk with no little to no oversight .

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