Jason Horn (the Insurance Guy)'s letter to Senator Shelby

Dear Senator Shelby,

 I want to thank you for taking the time to read this. I am writing this on behalf of the roughly 500,000 people of Mobile and surrounding areas, including Baldwin County, Al. I am an active member in the Eastern Shore Chamber of Commerce. I am involved in two committees, Governmental Affairs and the Insurance Sub Committee, as well as an Ambassador. My goal in writing you this letter  is to inform you of the dire crisis we face as a community in South Alabama. Insurance Reform is no longer an option, but a crucial mandate for our area to survive, much less flourish.

 I would not attempt to bring this to your attention if I did not feel it was a matter that is worthy of national attention. I am an Insurance Broker, specializing in Homeowners Insurance in Baldwin County. My clients consist of residents of Baldwin and Mobile county. I moved here around a year and a half ago, so I have a unique view of the situation. I have not witnessed a major storm on these shores, but as a former Catastrophic Claims Adjuster, I have been present in many dire situations. I was one of the first to arrive after a major hurricane/tornado. I have witnessed the devastation that a Category 3 or higher storm can bring to an area. Enough about me.

 I understand that many think that there is no crisis affecting South Alabama. As I understand, this is where the wealthy folk of the State live and work. I myself have not met many of these wealthy people, but each and every day I talk to the average citizens that make up the bulk of our community.

 In 1969 Hurricane Camille roared ashore, primarily on the Mississippi Coast. While doing substantial damage to both states, the storm quickly moved inland, flooding large areas of Kentucky and even West Virginia and Virginia (my home state).

 In 1979, the one that people still mention to this day, Hurricane Frederic was the costliest hurricane to ever hit the Gulf Coast, until Andrew and Katrina. On the night of September 12th, my birthday, Fredric made landfall on Dauphin Island. This storm changed Gulf Shores and Alabama forever.

 In 1997, Hurricane Danny entered the Gulf of Mexico and made landfall, affecting Alabama. Danny was widely known for the large amounts of rain fall and flood. Danny went on to affect Massachusetts with record rain and wind.

 In 1998, Hurricane Georges affected Alabama, but causing far more damage in other states and countries, making landfall a total of seven times during its formation.

 2004 gave the Gulf Coast Hurricane Ivan, making landfall with 132 mph winds. Gulf Shores took the brunt of this storm as a Category 3. This was an unusual storm, being the 6th most intense storm on record, with a minimum pressure of 910 millibars. Ivan may have the largest ocean wave ever recorded, ranging from 91 feet to 131 feet.  Ivan also continued to proceed to the north, devastating Kentucky and Ohio with record amounts of rain and flood.

2005 was, well, the Katrina years. We all know about the destruction caused to New Orleans. While almost destroying New Orleans, it also caused damage here locally, in Alabama.

 But, through all that, many of the residents and homes survived. And businesses re established and communities continue to try to grow.
 First of all, to even attempt to predict the future, we must learn about the past.  As I understand, several years ago, pre Katrina, hurricane deductibles were optional, allowing the homeowner to save premium by opting for a separate deductible. Generally, this deductible is a percentage of the structural amount.  It is unknown to anyone why it’s a percent of the full structural amount, and not of the damage caused. For example, if the structure is insured for $200,000 and the damage is $50,000, a reasonable person would assume that the percentage of wind deductible would apply to the damage, not the structural coverage.  A 5% deductible of the entire amount would equal $10,000. A 5% deductible of the damage would equal  $2500.

 Based on current conditions, there are no admitted carriers writing with wind. State Farm, like many coastal states, has begun to pick and choose the homes it wants to insure. Alfa, Farmers and Allstate recently cancelled or non-renewed up to 14,000 home here in the Mobile area. Imagine receiving that news in your mailbox one day. After 23 years, and no claims, the company you trusted for a combination of insurance products is no longer willing to insure you. Of course, keep in mind, the mortgage companies require wind/hail insurance on the home. So, you are forced to satisfy the mortgage requirements and find insurance somewhere. Well, for most cases, you have two options. Geovera, a non admitted carrier, or the Alabama Wind Pool, which is widely known as the carrier of last resort. So, you begin to call various agents attempting to receive quotes, which all come back the same because there simply is no competition to drive prices down. Many times, if there is no mortgage, the client will decide to self insure.

 Homeowners are reporting rate increases of 250% since 2005. The homeowner then reads the Newspaper about more cancellations. As an example, Alfa cancels thousands of policies, then later announces they only made $500 million profit for the year. All the while, companies are cancelling insurance policies, but we are forced to watch their smiling faces on commercials. They tell us they are our friends and will take care of us when we need them, or how they can save us money by switching today.

 Another thing to mention, is how the North part of the State, generally believes they are subsidizing our rates locally. A $200,000 home in North Alabama may cost $700 a year to insure. Many companies will fight for this business, all admitted carriers. Yet, twice a year, tornados will pass through and cause focused damage to towns all over the northern part of the State. Ripping off roofs, damaging buildings that are insured for moderate fees.  That same home in Baldwin County would cost $2300 to insure, if it is even remotely close to the shore line.
 So, to recap, many of the hurricanes caused damage here. No one will deny that. But, it also caused damage to inland cities and other states, such as Kentucky and Ohio. Northern Alabama will receive widespread damage, from tornados , twice a year, and we are paying the brunt of all of this.

 Now, imagine the worst. It’s estimated by industry professionals locally that as much as 20% of homeowners in this area are uninsured, typically by choice as they simply cannot afford the premiums.  A storm hits, 20% of this community will not be able to rebuild. They will be forced to spend savings to move to another part of the State, or even another part of the country. I think it’s safe to assume that another 20-40% will simply not rebuild here, due to fear of even higher increased fees from insurance companies.  So now, we are left with 40-60% of a once thriving community. Mobile was recently named one of the top ten cities to quickly recover from a recession. With only 40% of the community left, devastated by a storm, the area’s population will likely continue to erode. Schools will no longer have the revenue to operate, as a large portion of the tax base will have left the area. Our schools are already underfunded, like many across the country. It’s estimated!
 that they have 16 hours worth of funds needed to operate in a crisis. Businesses will begin to shut down, because they simply have no traffic to generate revenue.  Home Depot’s, hotels, restaurants and movie theatres will close their doors. Over a very short period of time, this area will be a shell of its former self.

 A young couple decides to venture out into life and purchase a new home. With a $800 a month budget, options are great right now. They go to a Realtor to view houses.  They choose the perfect home to begin their family. Unfortunately, the home costs $1000 a month. Well, they can trim back on the cell phone, cut the cable bill and make that extra $200 a month available. It’s a stretch, but it’s also a dream. Then the Realtor contacts me, and the price is another $240 a month for insurance. So, the builder doesn’t sell a home. The Realtor doesn’t sell a home. The insurance agent doesn’t write a policy. An industry segment is not stimulated to continue. And lets not forget, the most important factor, a young couple doesn’t realize their dreams in starting a new family.

 As I have explained, we are in a crisis. It invades everyone’s minds, dominates almost every casual conversation. It’s the top news topic for this area. Just today, on the front page, we read how Farmers Insurance is cancelling another 10,400 policies. Its estimated that over  50,000 policies have been dropped/non renewed since 2005. What part of this situation is not a crisis? We are caught in a political situation that lets the wants of a few dictate the needs of many.  We are in a situation where the insurance companies are running the State, not the State running the insurance companies. Insurance is primarily based upon the Law of Large Numbers. The profits of many gain more than the loss of a few. Insurance is not a guarantee, yet the insurance companies are creating that. I am not one that is against profit. Profit creates wealth, wealth creates industry. I own two businesses here locally; I get up every morning to make money. However, when a company that pulls out from insuring the area, cancels thousands of policies states that they only made a $500 million profit for the year, the general populace gets confused, me being one of them. How can the northern part of the State claim to subsidize us when we pay the outrageous rates? These storms, as stated above, do damage here. But they also do damage in other states, far north of us. We just pay the rates associated with the damage.  Locals are beginning to get angry about the current status here. I have heard mention that we hold 40% of the State’s tourism dollar, with all of the States Gulf Oil revenue.  This is estimated to be 30% of the entire States revenue. One gets the feeling that people will no longer be satisfied with asking and will start demanding our representatives to represent us. I firmly believe that we have to start with building better homes, more wind resistant. I also believe that until we give competition a reason to compete, we will remain in this situation.  There is a local uproar about where the money is going that we contribute, only to be told by State Senator Lloyd Barron “I am 400 miles away from the coast line, I don’t have to care about the insurance rates.”  Sen. Roger Bedford, D-Russellville is quoted as stating “that north Alabama lawmakers would frown on subsidizing the Gulf Coast. “ People are angry because we are sending all this money north, only to pay three to four times what others in the State are paying. People can only be consoled for so long before they begin to react.  State Senator Ben Brooks and State Senator Tripp Pittman work hard to take ideas, write a bill proposal, only to encounter repeated resistance from law makers in North Alabama. Why? For fear of rate increases to their constituents? Or fear of reprimand from the large PAC’s that they represent? When  a representative of my State, of any part of it, tells me how they do not care about my quality of life, it breaks down my belief in the entire system of government we have in place.

 My goal is to achieve insurance reform. I intend to make this a State, and if possible, a national issue. So often our Federal and State governments come in after the disaster to provide assistance. For once, lets be involved before the disaster hits to minimize the disaster itself. I honestly do not know what the solution is. I talk to others on the matter every day. There are some sane and some radical ideas presented, but the worst ideas are those unspoken.  We need to address this situation immediately, before we watch history re written, in a way that will not be remembered well. It starts with competition and knowledge. We cannot stop the hurricanes, but we can build more wind resistant homes. We can give tax incentives to citizens that will retro fit with safety features such as wind resistant windows, hurricane straps, etc. We can work with the insurance companies to develop a plan to keep this area insured, instead of working against the insurance companies. We can have better State regulation. We can have more informed citizens by instructing on how to prepare for a storm, how to prepare for claims. We simply must find a way to allow this area to be insurable again. After all, the only thing worse than high priced insurance is no insurance at all. Please focus your attention on this matter, the crisis that we are facing. We have continued to face this alone, feeling separated and alienated from the rest of our State. We also feel that our Northern representatives are not representing the interests of the entire State. It is of utmost importance that we act now, today, this very minute.


 Jason Horn
The Insurance Guy
Daphne, Al.

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