If you were going neck and neck with another company in your industry, wouldn’t it make sense to willingly sell them down the river in the interests of expanding your customer base? Any business would say yes. What doesn’t make sense is willingly turning away hundreds of potential customers a year to other providers, which is exactly what many private homeowners insurance companies have done with last resort homeowners insurance.
All right, so you have to look at the big picture a little. Insurance companies hate paying out millions of dollars in claims every year, even if that is their job. Yes, they’ll stand behind their promises (the good ones, anyway) but when it comes right down to it they all would rather see that money go into their company’s profits. As a result they tend to be extremely picky about who they’re willing to insure, and it’s only getting worse. As the cost of housing continues to rise (with or without the recent real estate crash housing is still considerably more expensive than it was thirty years ago) insurance companies are narrowing the number of homeowners they’re willing to extend coverage to in a determined effort to keep their profits as high as possible.
Enter last resort homeowners insurance. These programs, such as the National Flood Insurance Program and the Texas Windstorm Insurance Association, were founded in the interest of helping homeowners in high risk areas find the insurance coverage they needed at a price they could afford, which simply wasn’t going to happen with the way private homeowners insurance companies were doing business. Rather than stepping in and attempting to pass a law that would require these private insurers to offer everyone who applied coverage the government chose to create a separate set of providers.
These “last resort” providers offer high risk homeowners affordable insurance, subsidizing the cost by sharing it with other insurance providers in the state and across the country. In essence, they’re doing private homeowners insurance companies a favor by taking the responsibility for the homeowners they didn’t want to insure in the first place-and, in the grand style of profitable enterprise, private homeowners insurance providers have found a way to take advantage of that.
In an effort to raise their profit margins even more many private homeowners insurance companies have disposed of any sense of corporate social responsibility, gleefully handing off their “high risk” customers to these state funded insurance programs with the justification that they had another option. On the surface these private insurers would appear to be your average, everyday brand of greedy. If you looked a little deeper, however, you’d discover that what they are actually doing is setting up these “last resort” providers and the homeowners they insure for failure.
If hundreds of houses in a localized area were to be destroyed as the result of a hurricane or tornado, what do you suppose the cost would be? Astronomical. By insuring these homeowners at low rates many last resort organizations are not going to have the funds they need to make good on their claims if that “what if” would ever become a reality, leaving the insurance companies floundering and those homeowners who had “other options” sitting homeless with nowhere else to turn.
In short, these private homeowners insurance companies are slowly but surely selling these last resort homeowners insurance providers straight down the river. It’s only a matter of time.
Anthony M. Peck is the Senior Developer, Software Project Manager, and Director of Business Development for QuoteScout.com, specializing in matching consumers with the best rate on their homeowners insurance. For more information, please visit them on the web at http://www.QuoteScout.com.