Blue State Blues

Daryl Angier

At our 5th annual Succession Planning Conference last month, Bernd Heinze, executive director of the American Association of Managing General Agents, spoke about some of the forces shaping the US broker channel. In discussing where the US currently sits in the market cycle, his choice of words was eminently-Tweetable. He described a “crème brulee market”: hard on the outside (i.e. the heavily urbanized states on the east and west coasts), and soft in the middle (the more rural central and Western states).

Heinze’s description closely mirrors the US electoral map. If you live in a red state like Kansas that was carried by Mitt Romney, you’re probably enjoying close to flat renewals for your home or business property insurance. Whereas if you live in a blue state like California or New York that helped re-elect Barack Obama, your property rates are almost certainly going up next year.

This is obviously true on the east coast. The images of towns in New Jersey devastated by Hurricane Sandy have raised unpleasant memories of the damage wrought upon New Orleans by Hurricane Katrina in 2005. The cost in human life from Sandy was thankfully much smaller: approximately 100 deaths compared to nearly 2,000 from Katrina. But the insured and economic losses could prove to be as great or greater. Early loss estimates for Sandy climbed quickly to nearly $50 billion a week after the storm and are sure to go higher. The full cost of contingent business interruption won’t be known for some months.

For some years now, insurers have been warning about the rising concentration of risk in coastal areas of the developed world as they become more heavily urbanized. More people moving to places like New York, Vancouver and Shanghai, means more buildings, more infrastructure and just generally more stuff concentrated in the same space, all requiring insurance coverage. That risk is now being realized. There’s no question we’re seeing more frequent and more severe storms hitting coastal areas like the Northeastern US. While it previously may have been possible to dismiss last year’s Hurricane Irene as a freak occurrence, the enormous magnitude and impact of Sandy makes it much harder to do so now.

Blue-state residents can enjoy a four-year respite from the seemingly endless barrage of election advertising. But their troubles with catastrophes and high insurance rates may just be beginning.

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Copyright 2012 Rogers Publishing Ltd. This article first appeared in the November 2012 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.