When there’s no money left, solutions are limited.
This truth will be felt by thousands of Florida residents this summer when they are notified that their homeowner’s insurance policies will not be renewed. Finding a new policy may prove to be impossible, since many of these dropped customers have homes that are still damaged from past hurricanes. There is simply not enough money to solve this problem. The government doesn’t have it, the insurance companies don’t have it, banks don’t have it and most of all, the people left stranded by a hurricane don’t have it. It’s unpleasant, but humanity is still subject to the whims of nature.
Solutions to natural disasters are extremely limited. Profit margins on mortgages issued by banks are slim, and insurance companies, when hit with an unforeseen level of disaster, can certainly go broke. State governments suffer the same problem. Considering the disastrous performance of the Federal Emergency Management Agency (FEMA) and most federal programs in general, the government is clearly not the solution.
As of late, the firm at issue is Poe Financial Group and its Tampa-based insurance companies. According to the South Florida Sun-Sentinel, Poe’s Atlantic Preferred Insurance Company and Southern Family Insurance Company will not renew policies on an estimated 186,000 homes after paying $2 billion for hurricane damage claims in 2004 and 2005. Notifications of non-renewal have already been sent out, and many of these policy holders still have damaged homes from storms in 2004 and 2005.
This is a violation of Florida state law. Insurance companies are required to maintain policies on their customers’ homes that were damaged by storms precisely because those homes are uninsurable by other companies. State regulators did not give Poe an exemption to break the law, and the way regulators deal with this problem remains to be seen. Unfortunately, Poe may simply not have the money to give to its customers.
It would not be unreasonable to believe that Poe is broke. $2 billion is no small sum, even for a large insurance company. Certainly, Poe is paying for the inability to ensure its own future, which is now bleak. Unfortunately, this fact does not solve the problem for thousands whose policies are dropped.
Barring the re-acquisition of insurance by policyholders who are dropped, which is extremely unlikely, they can go to the state-funded Citizen’s Property Insurance Corporation. Unfortunately, Citizen’s lost $1.7 billion in 2005. The state of Florida has a limited amount of money to back this debt. The underlying problem is that there is simply no money.
It could be argued that mortgage lenders might extend a helping hand in this problem. It’s true that, in the case of a total loss, the required homeowner’s insurance will likely pay off most of a mortgage. Homeowner’s insurance also prevents a customer from defaulting on a mortgage, as costly repairs to homes will likely be covered. Mortgage companies also have Private Mortgage Insurance, which insures the lender in case of default when a customer has a down payment less than 20 percent of the total cost of the home. The bank does not pay for this insurance, of course, as they do not pay for the homeowner’s insurance. The customer pays. These insurance requirements provide a great deal of security for banks that issue mortgage loans.
However, mortgages aren’t exactly reaping massive profits. On a 15-year, $100,000 mortgage at 6 percent interest per year, a person will end up paying around $51,895 interest in total. This seems like a lot. After estimating inflation at 4 percent per year, however, this profit is substantially less, becoming approximately $15,832. After 15 years, the bank’s money has only increased 1.5 percent per year. This return is significantly below average.
With no money left, there’s no way to go about fixing the problem. There are some things about disasters that will never go away: People will lose money, businesses will go bankrupt, and the government, as usual, will not help much. The only solution is to rebuild economies impacted by hurricanes as quickly as possible in order to provide those who lost assets the ability to earn them back again.
With hurricane season beginning again on June 1, preparedness and economic reconstruction are the only possible ways to deal with hurricanes. Nature is not a factor that human beings can affect.
Jordan Capobianco is a senior majoring in English literature.