It is an easy thing to overlook the broader trends of coverage when you focus on how individual claims and cases are decided.
It can also be more comfortable. In Florida, where I live, home insurance companies are excluding coastal areas from any coverage at all, even as the carriers are no longer covering many of the insurable risks in the rest of the State. Unfortunately, Florida is the tip of the spear as they say. These trends are happening throughout the United States, not just in Florida. See, e.g., Jacob Bogage, Home Insurers Cut Natural Disasters From Policies As Climate Risks Grow, WASHINGTON POST, online Sunday, Sept. 3, 2023.
Also, it's not just insurance companies in the coverage market any more. Some corporations are issuing their own catastrophe or cat bonds. The total cat bond market reportedly is North of $41 Billion. As one capital management director told The Washington Post, "I'm not renting out a room at the local Ramada and pitching a mass audience. It's still an investment for sophisticated investors. Our job is to answer the phone." See David J. Lynch, As Cost of Climate Disasters Grows, Some Profit With Catastrophe Bonds, WASHINGTON POST, online Tuesday, August 29, 2023.
The "sophisticated investors" who invest in catastrophe bonds include insurance companies eager to offload a risk. Other investors appear to be venture capital funds and private equity companies, although as the quotation above reveals, these outfits may also sometimes be middlemen between the issuers of the cat bonds and the investors in the bonds.
The role of private equity may not be precisely clear, but what is clear is that cat bonds are "all or nothing" investments with huge risk and huge returns. They are issued regarding particular risks, "a particular risk or 'peril' affecting a specific geography, such as a named storm in Massachusetts or an earthquake in Japan." Id.
Claims Handling Practices in Recent Catastrophes in Australia, Greece, Louisiana, Mississippi, Texas, California, Puerto Rico, Denver, New York, and Miami are explored in Volume 1 of CATASTROPHE CLAIMS / INSURANCE COVERAGE FOR NATURAL AND MAN-MADE DISASTERS § 2:13 by Dennis J. Wall (Thomson Reuters June 2023 Edition).
Please read the disclaimer. ©2023 Dennis J. Wall. All rights reserved.
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