Law is a strange animal. It lurks in the undergrowth out back in the yard and, most of the time, we never see it. Every now and then, we hear a rustling but, if we are lucky, it never comes into our lives. Should our luck fail, it pushes its way into the house and acts like it owns everything it sees (including us). Then something weird can happen. For reasons we never really understand, it behaves as our friend and wacks everyone in our way. The rest of the time, we end up poorer and no wiser as to what happened. So welcome to the world of insurance. This is the package we buy to protect ourselves, except it can end up paying us nothing as our home lies in ruins.
It should all be very straightforward. You pay the premium and the insurers pays out on all the most obvious risks. Except what sounds reasonable suddenly turns unreasonable when you find your home flooded and you start hearing that flooding is not water damage. It’s the same when a tornado dismantles part of your roof and your insurer suggests this is not wind damage. Indeed, so exciting are these legal debates that they become political issues. Take Florida as an example. Down there you might think hurricanes would be the “big thing”. Well, you’d be wrong. The real problem is sinkholes. This is a kind of subsidence where the ground gives way and drops part or all your home into a hole. They form where the rock under your home is mainly limestone and, because this “stone” dissolves in water, you can find passages and caverns slowly opening up in the ground. The first sign may be cracks in your walls or floors. Doors and windows that used to shut smoothly, don’t anymore. Then the hole opens. In 2006, the insurers paid out $209 million. In 2009, this rose to $406 million. It seems there’s an epidemic of holes.
Never one to resist a challenge, the lawmakers in Florida are proposing new laws to make it more difficult to claim for sinkhole damage. It’s always good to see elected representatives on the side of their voters. Indeed, the state may take over insuring against this risk and let the private companies off the hook. Quite what this would do to property values is anyone’s guess. Florida’s deficit is deep. Adding in sinkhole liabilities should premiums not be sufficient to cover the losses would be a wonderful gift to the taxpayers.
So this example should give you a clue about the scale of the problem. Northern states have taken a battering this winter, flooding has been on the rise, there have been more mudslides and forest fires during the summer have been threatening more homes. The home insurance industry has not been doing well. A surprising number of companies have stopped writing policies for the more obvious weather risks. Some have shut down altogether. This is going to leave more states with a big decision. Do they take over where private corporations cannot make insurance profitable? It would be interesting to see big government suddenly become a home insurance provider, particularly in GOP-controlled states.
