AnalysisMilitant Journalism

Insurance companies flee the South in search of higher profits

I never believed I would become a homeowner, but I have been one for the past two years. I was excited to get out of horrendous apartments and high rents. Not that I was saving money,  but I thought I was creating more stability and getting some perks like an extra bedroom for guests, a nice kitchen, a very small outdoor space and a covered place to park the car.

However, in January of this year, my homeowner’s insurance increased $100 and I was frantically calling insurance companies all over to try to get a better quote. Little did I realize I was not the only one on the phone.

In 2021 in Florida alone, 55,000 people were dropped from their homeowners’ insurance policies. Now a year later, the crisis is growing. This time last year The Florida Sun Sentinel published an article entitled “Dropped insurance policies leave Florida homeowners scrambling.”

In Louisiana, over 15 insurance companies have left the state recently. All over the Gulf Coast, people are frantic, then realizing they’re not alone and helping each other out, trying to find insurance which is required as a condition of having a mortgage.

What is homeowners’ insurance anyhow? The idea is every homeowner pays insurance premiums but most people will not ever need the insurance. For such people it only provides peace of mind. Of course, some people do need the insurance to cover catastrophes like fire, flooding or trees falling on the roof. It sounds nice: everyone pays into a system to take care of the much smaller number of people who will actually need emergency help. 

However, the insurance companies are for-profit entities. While they often provide essential services in replacing or repairing damaged homes and furnishings, they are in essence engaged in a form of gambling. The insurance company is betting that the cost of paying out claims will be less than the amount of money collected in premiums. This means that the companies have an incentive to deny or undercut claims, to protect profits. 

At the moment, It’s hard to even find a company to sell an insurance policy in Louisiana and other Southern states because the companies are pulling out. Why? Climate change is increasing the intensity of storms which were already an annual problem in many Southern states. Thus, more homeowners are experiencing catastrophic damages and requiring large payouts. The companies are now responding by abandoning these markets, leaving homeowners without anyone to sell them an insurance policy. 

I actually thought I was making a good decision with the purchase of the home even though the bank really owns it, because I’m on a fixed income. I also purchased a home located in a no-flood zone, which constitutes only 3% of properties in Louisiana, which seems like it should have helped me in terms of insurance issues. 

What I thought was going to be my least concern — buying insurance — has become my biggest nightmare, but I’m not alone. It’s impacting other working and poor people all throughout the South.

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I spoke with a number of my neighbors and friends in the region to see how they are dealing with this crisis.

Bradley Digerolamo from Lake View wrote in response to the discussion on this topic on the app Next Door:

“I had State Farm for 25 years. It wasn’t a bad price but there was a fight every single time there was damage. This last hurricane, I had to get the insurance commissioner involved and start the process of a lawsuit. I currently know of 4 others currently suing them and at least 20 who finally gave up but dropped them. I dropped them finally too.  A decent rate isn’t worth it if you know they will never pay out.”

“My premiums were $1000 cheaper compared to Liberty mutual for homeowners with the same coverage. These companies are taking advantage of Louisiana residents and dropping them off after a year,” said Asimenye Shafer, a Baton Rouge school teacher.

Felicia, who lives  not far from me in Baton Rouge, told me, “We received a phone call and a letter to tell us to start looking for a new company. But, what I understand is that in the last three months, the homeowners’ insurance went up $400 and now they’re going out of business, that’s an extra $1200 that we lost.

“I hope everybody can get what they need,” concluded Felicia.

“I think if I told you what I really believe I’d end up in federal prison,“ a FEMA worker told me of her disgust with the severely inadequate government response to this crisis.

Despite being a busy mother, this FEMA contractor volunteers her time to help other people. She went to great lengths to intervene when one of her clients’ insurance was canceled, taking pictures and looking for insurance companies that would be responsive.

A seasoned commercial lines underwriter, who chose to remain nameless for job security reasons, said:

“Like any free market, everyone takes advantage of any possible way for personal gain. Lawyers know this is a catastrophic state and insurance companies won’t fight claims, it costs them too much, so insurance companies settle with lawyers. So now, they want to avoid these costs by pulling out of these areas. There’s a virtual exodus of insurance companies in the South.”

This is a contradiction that has no resolution under capitalism: we will never feel safe in such a system. Whether you weather a storm or get sick, you should be taken care of. In socialist countries like Cuba, instead of a for-profit home insurance industry, the government has a comprehensive safety plan for natural disasters, and rebuilds damaged homes as quickly as possible; Cuba’s healthcare system is world-reknowned and provided free to all Cubans. 

With the assistance of my community here in Baton Rouge, I  was able to find an insurance broker, so that my payments would stay relatively the same. This makes safe housing a reality for me at least for a few more months. That is, until we have socialism.

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