While hurricane Isaac threatens the Gulf Coast, residents in the area are safe proofing their homes and evacuating to safer grounds.  The Gulf Coast residents of Mississippi, Louisiana, and Alabama are all on alert as the tropical storm moves closer, while insurance companies are preparing for the worst.  The estimated damages of tropical storm Isaac are said to be from 300 Million to 7 Billion dollars depending on the severity of the storm once it reaches the shore.  While this storm is considerably less violent than that of hurricane Katrina in 2005, insurance companies are already calculating the potential dollars lost to insurance claims, which may mean higher rates for gulf coast residents after the storm passes.

If rates do rise, they will not only rise in the Gulf Coast region, but maybe companywide.  State Farm, one of the largest insurance companies with a presence in the region, will most likely take rate increases throughout different areas of the company to help make up for the losses sustained during the storm.  It is not feasible to only raise the rates of people living in the area impacted, nor would it be able to cover such extravagant claims costs.  Insurance companies have seen market gains slow in the last 5 to 10 years which has made it even more critical to manage their loss ratios, which is to say the amount of premium taken in compared to the amount of claims dollars paid.  This is why we expect to see insurance companies become even choosier when looking at the loss ratio or claims history of potential clients.  With smaller gains in the investing world, insurance companies must become more particular when deciding who and who not to insure.

One way to combat seeing your rates rise after hurricanes in the Gulf, or other natural disasters throughout the country for the matter, is to be with a regional carrier.  For instance, we have long represented Erie Insurance, and to this day they are one of our strongest carriers financially.  Erie Insurance, based out of Erie, Pa., is considered a regional carrier as they are only in a handful of states mostly covering the east coast and the Midwest.  The Erie Insurance “boundaries” so to speak, stretch as far west as Illinois and as far south as Tennessee.  Therefore, when a hurricane hits the gulf, or there’s a major earthquake in California, Erie Insurance will not have to pay out these claims which can potentially cost billions!  And therefore, rates will not have to rise throughout the company to make up for paying for these catastrophes.  Granted, the Midwest has its share of natural disasters (i.e. Tornado’s, Hail), but these disasters are on a much more limited scale than others, which helps the insurance company mitigate their losses.

While all of our thoughts and prayers are with the residents of the gulf coast area, it is important to understand the effects these disasters have on the insurance industry, which trickle down to all of us as the consumer.  Hopefully this post can give you a better idea of how the industry works and also an idea of the type of company you’d like to be insured with, like Erie Insurance.  Please keep abreast of the damages caused by tropical storm Isaac.  Here is a video recently posted of New Orleans by a UK News station:

Always remember that some of these people will lose their homes and all of their belongings due to this storm.  It is truly a humbling experience to see the devastation these storms cause.  I was fortunate enough to help provide relief after hurricane Katrina during my time at the University of Mississippi.  It was an eye-opening experience to say the least and many of my fraternity brothers at the time had horrible damage to their homes.  Here at the agency, we will all be crossing our fingers for the people of the Gulf Coast until this horrible storm passes.


Warmest Regards,

Aaron Steffey