How’s this for a bet: Save hundreds of millions with no disaster, or pay perhaps billions with one.
That’s what states are doing by trying to get out of reinsurance for natural disasters.
ClimateWire: Public insurance programs in some coastal states are flirting with the notion of saving millions of dollars every year by shrinking or cancelling the coverage they buy from private reinsurers — the deep-pocketed companies that insure insurers whose exposure to loss exceeds the budgets of some nations.
States are the insurers in this case. And they are either tired of paying piles of cash for reinsurance policies that are rarely needed, or too broke financially to maintain coverage that has saved state residents from paying billions in hurricane damage claims. In the parlance of the insurance business, without coverage or a hedge against their expensive risks, they are “running naked.”
Texas, for example, opted out in May, less than a year after reinsurers paid $1.5 billion in Hurricane Ike claims; the policy cost $180 million. California, on the other hand, is also looking to save but had the opposite experience — the state public earthquake insurance program has paid $2.3 billion for reinsurance since 1997 but has collected just $250,000 in claims.
California, Texas, Florida and Louisiana are pushing Congress to get the government to pay into insurance programs.
Perhaps, though, the real bet is that if they’re hit by a horrible disaster, and aren’t insured against it, the states figure that Congress will step in and pony up the recovery effort.
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