Facts about Coastal Alabama’s

Homeowners’ Insurance Crisis

and

The Solution.It’s time to FIX this Crisis -- Not Dabble at it

(Based on the hhii Best-Case Scenario)

Let’s get a couple important factsout of the way,

first.

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11*

Source: A.M. Best, ISO, Insurance Information Institute. * As of 6/30/11.

“Surplus” is a measure of underwriting capacity. It is

analogous to “Owners Equity” or “Net Worth” in

non-insurance organizations

($ Billions)

Surplus as of 6/30/11 was a near-record $559.1 down 1% from the record $564.7B as of

3/31/11, but up 27.9% ($122B) from the crisis trough of $437.1B at 3/31/09. Prior peak was

$521.8 as of 9/30/07. Surplus as of 6/30/11 was 7.1% above 2007 peak.

Despite the increase in natural disasters,

the U.S. insurance industry was the richest

it has ever been in March 2011.

Dr. Robert Hartwig slide

US Policyholder Surplus:1975–2011*

They’re nowhere near going broke.

Another fact to get behind us . . .

•All licensed insurers writing P&C coverage insurance in Alabama•Current Members (Plan year 2011)•485 Companies•329 Exempt from participation•306 write no P & C in AL•156 Companies are subject to assessments ranging from .0001% up to 19.5546% •69 Companies report voluntary written premium in eligible areas•23 voluntarily write sufficient coastal property to be exempt from AIUA assessments11/21/2011

Alabama Insurance Underwriting Association

Who are Plan Members?

156Companies write Homeowners Insurance in Alabama.

A lack of competition is not the problem

If Money’s not the Problem&

And Competition’s not the problem?. . .

What

is The Problem?

The Problem:An Alabama Department of

Insurance (DOI) Lack of Information & Bias . . .

. . .that leads to unfair price Discrimination

Against the Coastal Counties.

The DOI assumes

Alabama’s Coastal Counties

are more expensive to repair

due to wind-and-hail

than the rest of the state.

Significantly more.

In 2006When this Crisis Started

the coastal counties

Paid the State Average.

The Alabama Average today is about

$850a year

ALABAMA HOMEOWNERS RATESAverage Premium Relativity (with Wind) by City for a $200,000 Home:

Birmingham (35242) = 100%Huntsville (35801) = 110%Montgomery (36117) = 111%Tuscaloosa (35401) = 120%Camden (36726) = 135%Gadsden (35901) = 136%Dothan (36301) = 139%Saraland (36571) = 263%Mobile (36608) = 294%Bay Minette (36507) = 300%Fairhope (36532) = 311%Gulf Shores (36542) = 328%

Alabama Coastal Premiums todayAre 250 to 325% Higher

than other Parts of the State.

In 2006(the time of abundant news about Global Warming)

The DOI decided Alabama’s coastal countieswould be wildly more expensive to repair than

the rest of the state.

Warmer oceans would make hurricanesmore frequent and damaging.

The Alabama DOI allowed Insurance Companies toIntroduce

Wildly Experimental

Hurricane Catastrophe Models

Coastal Insurance Prices skyrocketed

10,000s of Mobile and Baldwin Families were Dumped

10,000s of Coastal Families are NowFunctionally Uninsured or have simply Dropped

Their insurance Altogether.

Some have Lost their Homes.

$200 million premiums in excess of the State Average is siphoned out of our Two Counties

each year. That’s a lot of Jobs.

Was the DOI right?

Are Coastal Counties

REALLY300% more Expensive

To RepairThan the Rest of the State?

?

In 2006The Wildly Experimental

Hurricane Catastrophe Modelspredicted

$60 billion

in US hurricane losses over the forthcoming 5 years

(from 2006 – 2010)

Karen Clark – the Inventor of the Models – found that the actual losses were only

$15 Billion.(The models overpredicted losses by $45 billion.)

Karen,-- The Inventor of the

Hurricane Catastrophe Models -- Has

Repudiated her Invention,And proposed a New Way.

In 2011

RMS

A company that Predicted

$67 Billion in Losses

Dramatically Revised its

Hurricane Catastrophe Model

Their colored map shows the effects of their revisions.

The modeler Overstated the costs in Mobile & Baldwin counties 50%.

& Understated the costs inland by as much as 400%.

Is the CoastREALLY

More Expensive to Repair than Inland?If not. . .

then Coastal AlabamaShould pay the State Average

Like it always PaidIn the Past

$850a year

There’s more. . .

As RMS figured out,

When hurricanes strike Alabama’s coastal counties, they don’t stop at the county line.

Hurricanes do significant inland damage,

too.

FEMA declared 65 of Alabama’s 67 counties Disasters after Hurricane Ivan

Designated Counties for Alabama Hurricane IvanDisaster Summary For FEMA-1549-DR, Alabama

Declaration Date: September 15, 2004Incident Type: Hurricane Ivan

Incident Period: September 13, 2004 through September 30, 2004Individual Assistance

(Assistance to individuals and households):

Public Assistance(Assistance to State and local governments for the repair or replacement of disaster-damaged public facilities): Autauga, Baldwin, Bibb, Bullock, Butler, Calhoun, Cherokee, Chilton, Choctaw, Clarke, Cleburne, Coffee, Colbert, Conecuh, Coosa, Covington, Crenshaw, Cullman, Dale, Dallas, Dekalb, Elmore, Escambia, Franklin, Geneva, Greene, Hale, Houston, Jackson, Jefferson, Lamar, Lawrence, Lee, Lowndes, Marengo, Marion, Marshall, Mobile, Monroe, Montgomery, Perry, Pickens, Pike, Shelby, Sumter, Talladega, Tallapoosa, Tuscaloosa, Washington, Wilcox, and Winston Counties for assistance for debris removal and emergency protective measures, including direct Federal assistance, at 100 percent Federal funding of the total eligible costs for a period of up to 72 hours.

Hazard Mitigation Grant Program(Assistance to State and local governments for actions taken to prevent or reduce long term risk to life and property from natural hazards): All counties are eligible to apply for assistance under the Hazard Mitigation Grant Program.

FEMA Disaster Summary For FEMA-1549-DR, Alabama

Alabama’s Disaster Counties after Hurricane Ivan

Autauga, Baldwin, Barbour, Bibb, Blount, Bullock, Butler, Calhoun, Chambers, Chilton, Choctaw, Clarke, Clay, Coffee, Colbert, Coosa, Conecuh, Covington, Crenshaw, Cullman, Dale, Dallas, DeKalb, Elmore, Escambia, Etowah, Fayette, Franklin, Geneva, Greene, Hale, Henry, Houston, Jackson, Jefferson, Lamar, Lauderdale, Lawrence, Lee, Limestone, Lowndes, Macon, Madison, Marengo, Marshall, Marion, Mobile, Monroe, Montgomery, Morgan, Perry, Pickens, Pike, Randolph, Russell, Shelby, St. Clair, Sumter, Talladega, Tallapoosa, Tuscaloosa, Walker, Washington, Wilcox, and Winston Counties.

Two-thirds of all claims after Ivan were made north of Mobile and Baldwin counties,according to a source cultivated by Alabama State Senator Trip Pittman.

Some hurricanes do more damage inland than on the coast.

The eye of Hurricane Katrina, skipped Alabama’s coastal counties,

curved from the Mississippi Coast back east to clip the northwestern corner of Alabama,

the only part of the state that the “eye” touched.

Your tax money being spent for Katrina Relief in

Tuscaloosa.

8:50am Aug 24 – Landfall in FL

8:30am – Aug 26 – Landfall in LA

Mid-day – Aug 28 – Began to Dissipate

Hurricane Andrew behaved in a similar way

Hurricane data alone suggests inland Alabama incurs more wind losses than the models predict.

And they just deal with

Hurricanes alone.

What about

Other KindsOf wind-and-hail events?

**Through Dec, 7, 2011.Source: PCS Division of ISO.

2011 Catastrophic Homeowners* Claim Activity in Alabama, by Event**

Date Perils Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %

*Includes all categories of dwelling policies, such as home, condo and renters’ policies

2011 YTD Totals

Event Total

2011:Q1 Total

Event Total

Event Total

Event Total

2011:Q2 Total

2011:Q3 Total

Event Total

Alabama suffered

Five“Catastrophic”

Wind or Hail events in 2011 – not just one.

Four others in addition to the April 27 Tragedy.

It suffered significant wind damages in

2009,

Too.

Tornado Tracks by Enhanced Fujita(EF) Scale, January – July 2011

12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

Source: NOAA at: http://www.spc.noaa.gov/wcm/2011-jan-jul.png

Alabama averaged 59 tornadoes per year from 2000-2010, but 128 from Jan. – July

2011, the highest in the country

AL had the highest concentration of EF-3, 4 and 5 storms in 2011

“Alabama averaged

59 tornadoes each year from 2000-2010. . .”

Alabama averaged 1 Hurricane

every 11 years during the 20th Century

649Tornadoes per Hurricane

59 (Tornadoes a Year) X 11 (Years between each Hurricane) =

Are the

Coastal Counties

REALLY More expensive to Repair

Than the rest of the State??

Severe Weather Reports in Alabama,January 1—December 5, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

There were 1,288 severe

weather reports in AL through

Dec. 5

In 2011 alone,

In Alabama alone,

There were

217

“severe” Hail reports

170

Tornadoes

901 Other “severe”

wind reports

Are the Coastal Counties

REALLY More expensive

?How do we answer that question?

Simple

Compare the costs to repair the coastal counties with the cost to repair inland counties.

So.

Why not do this?

Because theAlabama Department of Insurance

does

not collect data

on a county-by-county basis.

Huh?The DOI suddenly allows

Companies to charge Coastal Counties

300%more than the rest of the State,

And . . .It does

NotHave any of its own supportive,

county-by-county historical data justifying this

Unquestioning use of wildly experimental catastrophe models and huge change in price?

Is a Pattern Emerging?

The DOI allows companies to charge Coastal Counties more

for . . .

FIRE Insurance,

Even though they know there is no

actuarial justification for the difference.

Another suggestion of Bias

In Governor Bentley’sDOI

The DOI says the upstate tornado tragedy in 2011 was a

1-in-250Year Event

(The years 1761 to 2011 = 250)(If such events happen only once every 250 years, then there is

no need for upstate to share in wind losses with the Coast)

HOMEOWNERS RATE COMPONENTS

The non-hurricane wind rate is developed from either the individual company’s 20- or 30-year historical claims data for Alabama or from industry claims data for Alabama. The losses for the 20 years are compared to the premiums for those 20 years to develop a non-hurricane wind load, which is then added to the hurricane load developed from the models.

In the case of the April, 2011 Alabama tornadoes, which may be considered a 1-in-250 year event, the DOI has announced that it will only permit 8% of these losses to be included in future rate filings. (8% / 20 years = 0.4% = 1/250).

The DOI says the 1-in-250 estimate was given to them by

an independent company named

AON

But . . .What does AON say?

The incident is

“more likely”

a 50-year event.

Model Miss: April, 2011 Storms

DOI capping at 1:250 years based on countrywide model estimateWill this hurt availability?Is tornado/hail risk changing?

And what has

Actuallyhappened historically

?When was the last similar event?

“Two of the worst tornado disasters in the state occurred on the same day as part of the famous Super Tornado Outbreak of April 3 and 4, 1974, which produced 148 tornadoes and affected 13 states across the south and midwest. On the evening of April 3, two F5 tornadoes on the Fujita Scale hit Tanner approximately 30 minutes apart and left 55 dead. Later that same evening, another F5 tornado hit Guin and left 23 dead. Other notable tornado disasters in Alabama include the Birmingham tornado of April 15, 1956 (25 deaths); the Huntsville tornado of November 15, 1989 (21 deaths); the Palm Sunday tornado that destroyed the Goshen United Methodist Church in Cherokee County on March 27, 1994 (20 deaths); and the Oak Grove tornado of April 8, 1998, (32 deaths).

The 1974Super Tornado Outbreak

Left 78Upstate Alabamaians dead

Suggesting that – historically – these upstate events at a 1-in-37-Year Event

Why does the DOI -- fudges risk for upstate policy-holders -- publicly paints a minimalist upstate wind-and-hail picture . . . While . . .

-- subjecting the coast to extraordinarily experimental, sky-high pricing models?

BIAS?

One more example

Governor Bentley’s Affordable Homeowners Insurance Commission is heavily stacked with insurance people. It has a strong presence of people from upstate.

At one of its meetings, Senator Ben Brooks listed all the bills that he’s pushing, and then asked all members of the commission if they saw a single one that would cause premiums to increase upstate.

They saw none.

NOT ONEGovernor Bentley’s Commissioner of Insurance – Jim Ridling –

is a member of this commission

Yet a couple months later, Governor Bentley’s

Commissioner Ridlingtold the Associated Press . . .

Panel still studying ways to reduce insurance rates12:49 PM, Mar. 26, 2012 | Comments•Email•Print•Share•A•A

Republican Sen. Ben Brooks is a member of the governor’s Affordable Homeowners Insurance Commission. / AP

Written by

Phillip Rawls

The Associated Press

•Filed Under•News•Alabama•Robert Bentley

GOV. ROBERT BENTLEY HAS NOT YET KEPT A CAMPAIGN PROMISE HE MADE IN 2010 TO HAVE THE LEGISLATURE ADDRESS THE RISING COST AND DECLINING AVAILABILITY OF HOMEOWNERS’ INSURANCE IN ALABAMA.ALMOST A YEAR HAS PASSED SINCE HE ANNOUNCED THE CREATION OF A COMMISSION TO STUDY THE INSURANCE ISSUE, AND HE’S STILL WAITING ON THE GROUP’S RECOMMENDATIONS.Panel still studying ways to reduce insurance rates

Panel still studying ways to reduce insurance rates

DOI Commissioner Jim Riddling:“What the people on the coast want is for me and the governor to cut their rates and raise the rates for everybody else in the state. I don’t have the ability to do that, and I don’t think the governor does,” Commissioner Jim Ridling said.

Associated PressMontgomery AdvertiserMarch 26, 2012

The governor’s official

insurance cabinet member persisted in telling

upstate legislators and residents

that all we on the coast want is. . .

“to cut (our) rates and raise the rates for everybody else in the state”

Cheaper fire premiums upstate

Tornado modeling the emphasizes Event minimalism

Governor Bentley’s cabinet-level Commissioner of Insurance

telling the rest of the state that all we want is a free ride

Is the governor’s state regulatory agency

BIASED?

YOUStudy the evidence and tell us.

MeanwhileWhat next?

ALABAMA RATE STATUTES

•Alabama statute says that rates must not be:* Excessive* Inadequate* Unfairly discriminatory

Alabama Law & Policy requires

that the DOI

insure fair pricing practices.

It’s time to require that the DOI follow the law

It must quit

GuessingThat the Coastal Counties are

more expensive than the rest of the state.

It must quit

Discriminating

against the Coastal Counties.

It’s time that the DOI treat all Alabamians fairly.

Like the law requires.

What’s needed is the

The Clarity Bill.

It allows us to do the math.It requires the DOI to

collect,

Aggregate,

and publish on- line,

by zip code and peril:

a) dollar amount of claims

b) dollar amount of premiums

c) total number of Policies

And

d) to use this historical data as a guide

when determining fair premiums statewide.

With this data we can compare actual losses around the state.

It will serve as a plumb line to check the wildly experimental models.

Texas Does It

Are we really more expensivethan the rest of the state. . .

Let’s quit guessingAnd

Do the Math

What you can do . . .

Before the Coastal Counties can speak persuasively to the rest of the state,

The Coastal Population and Leaders must be united behind the Solutions.

Presently our leaders – from elected officials, to civic club officers, to chambers, to pastors, to media – are

all over the map regarding solutions.This must change.

YOU have to require it.

What you can do . . . Get on the HHII email list and stay informed.

Pay close attention to proposed

solutions and decide if your legislators and state officials are proposing something that fixes the crisis. . . Or only dabbling at it

Repudiate the Governor’s “Affordable Homeowners Insurance Commission,” if it does not deliver a solution. Make your repuidation loud and clear.

Occasionally come to hhii meetings in your area.

-- Especially come

to public meetings when HHII brings in people who have the power to make change.

-- Get on a committee. Sign up tonight.

What else you can do . . .

www.hhii.us

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