Will the insurance companies pay for all the property loss and damange caoused by natural disasters in MidWest

Question

Those are huge sums.. With the low demand for financial stock, how these insurance companies are going to deal with all the claims?

I am a student, and I was just wondering.. Thank You!

Answer 1

No.  Not all the properties are INSURED.    Homeowners policies don't cover FLOOD, and I'd bet about 25% of those people actually have FLOOD insurance.

"Natural disaster" isn't an insurance term.  Insurance is MUCH more specific - fire, flood, wind, hail, etc.

Insurance companies have RESERVES to pay claims.  They don't sell stock to raise money to pay claims.  

Any insurance companies that go bankrupt paying claims, that are admitted in the state to do business, are protected by that state's insolvency fund - so their insureds won't be left holding the bag.

Bottom line- anyone who has flood insurance, will be covered up to the policy limit.  Anyone who doesn't have flood damage, but has other damage, will be covered according to their policy terms and conditions.  It's the UNINSURED and UNDERINSURED that will be left, well, uninsured.  Uncovered.  And whining about the rotten insurance companies, who don't sell you what you don't pay for.

Answer 2

i'd imagine they'll only pay them if people actually have insurance (stupid, but some people don't and expect to get bailed out), and if the insurance covers natural disasters - it's all in the small print...

also, insurance companies generally deal with claims as slowly as possible, so they keep money for longer, hence more interest for them.

i'd imagine they'll still be in profit - people will always need insurance, and most people don't have regular natural disasters, so never need to claim

Answer 3

Flood is excluded from the standard homeowners policy. So only those people that purchased a flood policy (NFIP) will be covered for flood damage.

As far as wind (tornado), most homeowners policies provide coverage for wind damage.

Insurance companies have re-insurance. It's insurance for insurance companies. And insurance companies pay very hefty premiums for re-insurance. In a large disaster, after the insurance company has paid out a certain amount, the re-insurance kicks in to pay the insurance company back for some of the losses the company paid out.  A good re-insurance program can keep an insurance company from going bankrupt in a large loss.

How do they work the claims?  

One claim at a time.

The companies will bring in help from other states.  These "cat teams" will hustle to keep the claims moving. But, even with all the extra help, you can only work the claims one at a time. So, in a week or two when the news is putting some fella on tv complaining "it's been 2 weeks and I have not heard from my insurance company"  -- keep in mind, the claims can only be worked one at a time. The adjusters are going to get to you....but it may take time to get to everyone - due to the volume of claims they have to work.

It's a myth that we work them slowly just to get the interest on the money. And any one who says that is ignorant.

When you have a claim -and this is a very simplistic explanation -  insurance companies take money out of the big pot and put it in a little pot with your name on it. It's called a "reserve". When money is tied up in reserves - it can't be invested - it cant be used to pay employees, buy supplies equipment, nothing.  The only thing it can be used for...is to pay your claim.  

Insurance companies generally over reserve. That means, they set aside more money then they think they will need for your claim. This is one of the ways they make sure to have enough money to pay everyone.   When the adjuster pays you - the left over money from your reserve (the little pot with your name on it) gets dumped back into the big pot where it can be invested, used to pay salaries, equipment etc.  So the financial incentive is to actually work the claims as fast as possible so the left over money from all the little pots can be put back into the big pot and the insurance company start to use it for investments etc.