Saturday, October 14, 2017

Are Hurricanes Getting Worse as Time Progresses?

What a season it’s been. From Harvey to Irma to Maria, the world watched as the US and the Caribbean lurched from one hurricane to the next, each successive one piling on more misery. 

The quick succession in which they came and the sheer amount of damage we all saw on TV has had people asking whether hurricanes are getting worse or not. According to scientists and experts in weather patterns, the short answer is “yes, they are getting worse.” However, that’s not to say we’re having more hurricanes.

The evidence suggests that hurricanes are in fact fewer. For instance, Harvey in the first hurricane to make landfall in the US in 11 years. However, what is getting worse is the intensity of those storms. They are stronger and causing far more damage. Hurricane Katrina had been the most expensive flooding in US history, at a cost of $160 billion, but experts believe that the recent storms will outstrip that number. Fortune magazine for instance, estimates that hurricanes Harvey and Irma, may end up costing between $150 billion and $200 billion in damage and lost productivity to cities like Houston and Miami, which were hit by them. 

What does this mean for the insurance industry?

Specifically, how will it affect flood insurance rates? Will the National Flood Insurance Program (NFIP) be gone, leaving only Write Your Own (WYO) Plans?

It is difficult to predict the answer to these questions and what effects these storms will have on the current flood insurance system. With regard to how the hurricanes will affect the insurance industry and flood insurance rates, it has been suggested that it could lead to a rise in insurance rates even for those who do not live in one of the areas hit by the hurricanes. This is because insurance companies will have to pay out billions of dollars to customers whose properties were destroyed or damaged by winds for, example.

Effect on NFIP and WYO

Financial analysts and insurance experts predict however, that it is the NFIP that will bear the brunt of these disasters. Established by Congress in 1968 after Hurricane Betsy, which had caused extensive flooding in Florida and Louisiana in 1965, the NFIP is administered through the Federal Emergency Management Agency. Even though Harvey and Irma were accompanied by heavy winds which caused their own damage, much of the damage that people suffered would have resulted from flooding, and this is covered almost entirely through the NFIP. But according to the Insurance Council of Texas, only about 20 per cent of homeowners have flood insurance in Texas, meaning that uninsured losses will be quite significant.

Fortunately for those with flood insurance through the NFIP, they can recoup some of the damages and will get money from the program to help rebuild their homes. However, whether the NFIP will be able to cope with the burden is another matter. The NFIP was already financially strained prior to hurricane Harvey and hurricane Irma, and was $24 billion in debt. With this in mind, it is not inconceivable that the projected cost of these new storms could overwhelm the NFIP, and probably lead to its demise.


If that happens, that would leave only the WYO Program available to people. WYO is a program available under the NFIP that allows participating property and casualty insurers to issue NFIP flood insurance policies in their own names. The companies receive an expense allowance for the policies they write and the claims they process, while responsibility for underwriting losses remains with the federal government, which reinsures 100 percent of the coverage. In a scenario where only WYO is available, then more private insurers could step in to the flood insurance market with private policies. This would give consumers more choices for coverage and possibly even lower rates than those charged by the government.

Monday, June 12, 2017

Will Houston outgrow Chicago and claim the number three spot?


Chicago, the Windy city has not been witnessing favorable winds recently. 

Chicago is one of the top twenty largest cities in America that has been posting a decline in its population. Families packing their belongings and loading them onto vehicles of movers and packers, is a common sight around the city. The people of the city are going to the winds never to return back.

Houston on the other hand, has been rejoicing with the surging population numbers. More people are moving to the city in search of better opportunities.

Why people are leaving Chicago?

Multiple factors have been behind the continuous decline in the city’s population. Chicago is one of the most expensive cities to live in due to its high taxes and costly housing. The city is still reeling and hasn’t fully recovered from the recession. 

The unemployment rate in the city is also rising leading to economic difficulties for people. The public schools are hampered by the lack of funds and are on the verge of financial crisis. People are leaving the city in search of brighter future for themselves and their children. The African-American population is one of the most prominent in moving away from the city.

Violence in the city has been another factor for driving people away. The crime rate in the city is escalating with the year 2016 witnessing 58 percent more homicides than the previous year of 2015. The month of August in 2016 had the highest number of violent crimes within the last two decades. The same can be attributed to the city’s gang culture which is rampant with over 100,000 gang members belonging to more than 60 gangs. Corruption is also said to be widespread in the city’s public departments.

The number of immigrants in the city is also declining gradually. Which formed a huge chunk of the population increase especially those from Mexico. With the government making the immigration norms more stringent, the number of people coming into the state and the country is declining.

What Are the Factors Driving the Growth Of Houston?

The state of Texas has an increasing number of oil and gas industries that are driving its economy to Houston. Which is generating more employment options for the people and giving them a better chance at sustainability. The housing in the city is much more affordable and generally comes with more land. The city has a lower population density with less crowded housing. The number of immigrants from Latin American countries and the Hispanic population in the city is also increasing with the availability of jobs. Frank Medina, owner of a Houston auto insurance agency says, "A lot of my clients that call me for quotes have an out of state license."

The Statistical Scenario and the Closing Gap

The city of Houston has been witnessing an increasing trend in its population over the past seven years consecutively. As per the US Census Bureau the population of the city was at 2,319,603 as of January 1, 2017 as compared to the 2,100,263 people the city housed in 2010.

US Census Bureau stated that the population of Chicago is estimated to have declined from 2,722,389 in 2014 to 2,720,546 in 2015. Although no numbers are out yet for 2016, the number of people leaving the city is expected to rise steeply. In 2010, Chicago was a home to 2,697,000 people approximately.

Comparing the stats of 2010 with today, Houston has already covered up almost half of the gap between these two in the last six years. With Houston having the second largest population increase across the country, and just being about 400,000 odd residents short than Chicago, the continuation of this trend could overtake Chicago and claim the number three spot in matters of population within the next decade or so.


The question of Houston overtaking Chicago and claiming the number three spot is no longer a question of ‘if’ but ‘when’. If the trend continues and there is no major reform implemented by the state of Chicago, Houston is going to be the clear winner.

Monday, June 5, 2017

Homeowners Insurance: The Difference between Actual Cash Value, Replacement Cost & Market Value.

Homeowners insurance helps to protect you as a homeowner, and it covers various aspects of your home. This includes the building, your personal property inside the home and medical expenses for injuries sustained by anyone on your property. 
Policies vary, but most of them include a standard policy coverage which provides a general protection of the home and property. There are also optional policies which you may select to protect specific items that are important to you.

Although most homeowners have the right insurance, they do not fully understand how it works or what to expect in the event of a claim. The first thing to understand is that home insurance companies have different ways of calculating the value of something, and hence, the amount to be paid out.

Generally speaking, homeowner’s insurance is designed to help replace damaged, stolen, or destroyed personal property but different coverages and methods of calculations means amounts paid for the same items will vary. Here are the most frequently used methods:

Actual cash value vs. replacement cost 
Actual cash value is the amount you would pay for a similar item at today’s cost minus depreciation. Depreciation refers to a decrease in value of an item due to age or wear and tear. Replacement cost on the other hand, is the amount you would pay for the same item at today’s cost. Here’s an example to of how it works:
Two years ago, you bought a piano worth $3,000. Unfortunately, your home and some property, including your piano, were damaged by a wild fire last week. You file a claim with your insurance company with the intention of replacing the damaged items, especially your piano, which you found out now costs $3100. So the insurance company ought to cut you a check for $3100, right? Well no, not really. The amount of money you will receive will depend on the type of coverage you have.

   If your coverage is for actual cash value:  the company will pay you $ 2500. The actual cash value of the piano today is $3,100 but the insurance company will pay you less because a depreciation of $600 is subtracted from today’s cash value of the item.

    If your coverage is for replacement cost: the company will pay you $ 3100 because that is what it would cost you to buy a similar piano today. Replacement cost coverage replaces the item at exactly the current cost without factoring in depreciation.

Most insurance companies prefer to give a down payment equivalent to the actual cash value of item and require you to submit the receipt for the bought item before paying you the balance. From the above example of the piano, the insurance company will pay you $2500, which is the actual cash value of the item. 

However, with replacement cost coverage, you will be paid $ 2500 first, which is the actual cash value of the item today, and when you submit the receipt showing the actual amount you paid, you will be paid the difference of $600.
Market value
Yet another method homeowners should know about is the market value. This is refers to the prevailing price that buyers are willing to pay to own your house, regardless of how much it cost to build it. The market value of an item is largely affected by external factors such as state of the economy, demand and location, among others. 

The replacement cost of your house on the other hand, is what it would cost to rebuild a house of the same size, on the same spot and with same quality of construction at today’s prices. Again, both of these methods can give two different numbers. 

For example, a home located in a depressed city suburb may have a market value of $130,000. The same house, located in an upmarket part of the city, may have a market price of $310,000, even though it would cost the same to rebuild the house after a loss in either location.

In doing their valuation, insurance companies generally use replacement cost, not market value.