REINSURANCE AND YOUR INSURANCE COMPANY
CURRENT CONDITIONS:
Well, it’s now the beginning of October 2024, and the fires that have plagued the beautiful state of California continue to burn.
The latest figures from the front lines indicate the following. Please note this includes both for State Parks and Recreation areas, as well as National Forest areas.
1. Number of Acres Burned 995,977
2. Structures Destroyed 1,433
3. Fatalities (1)
STATE FARM INSURANCE COMPANY’S REACTION:
On September 30, 2024, Newsweek declared the following:
“June filings submitted to the California Department of Insurance found that if the insurance company continues to decline, its sector involving property insurance, comprised of homeowner's insurance and business liability, could face a total policy count drop from 3.1 million to under 2 million in just five years.”
THE HIDDEN INSURANCE HELPER:
After having spent so many years in the Homeowners Claims field of insurance, I have been surprised at how little the potential assistance a Reinsurance Policy has been mentioned.
Let me tell you what a Reinsurance Policy is and what it can do. Reinsurance is basically insurance for insurance companies. Investopedia provides the following example for us:
“ Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit their own total loss in case of disaster. Described as "insurance of insurance companies" by the Reinsurance Association of America, the idea is that no insurance company has too much exposure to a particularly large event or disaster.”
I know for a fact that State Farm, Allstate, USAA and the many other companies that have threatened to leave California, or stop writing property coverage insurance altogether, did not have to pay every dollar spent for the home and business repair, but received financial help from their reinsurance carriers.
In June of 2022, State Farm Insurance received capital assistance from Merna Re II in the amount of $500 million dollars which would be there to access in the event of a catastrophic loss. In an effort to determine how much help from Reinsurance carrier(s) State Farm received, I was advised that information does not have to be made public.
Please note this Reinsurance practice spreads far and wide across the Insurance industry.
A SUGGESTION:
I am offering a suggestion at this point to provide an even greater sharing of the risk when catastrophic losses occur such as the wildfires.
Since the Federal Government will become involved in restoring homes and businesses through FEMA, let FEMA, or another governmental organization, be set up and fitted out to monitor the dividing up of Reinsurance to the Reinsurance carriers involved in the loss.
It would work something like this: let’s say you have a structure valued at Replacement Cost of $500,000, Reinsurance could be divided between the Insurance provider Company for $300,000, then Reinsurance Carrier A could have the next $100,000, and Reinsurance Carrier B, which would be Federal Government Reinsurance, the remaining $100,000. As a result, the risk of loss would not be the responsibility of only one Insurance company, which would share the risk and not have the total bill for repair placed on one company.
What an Insurance Company receives from their Reinsurance Carrier should not be a matter that is kept quiet, but posted for all to see.
Respectfully Submitted
Norman Lambe
nwlambe@gmail.com