The Insurance Mess Over Sandy
Reading this Reuters coverage of post-Sandy insurance squabbles is sure to make you grit your teeth. Of course while it's easy to root for the homeowners that have been through hell -- and apparently still going through it -- versus the big insurance companies, it shouldn't be all that surprising that the insurers are pushing off the costs of flood damage. After all, insurance as a business doesn't work if you pay out settlements on risks that you didn't price into your coverage.
From Reuters: "Only 14 percent of homeowners in the Northeast hold flood insurance policies, according to the Insurance Information Institute."
(not that it works ethically if you're arguing away legitimate settlements that you can technically pass off on other causes, flood in this case)
Over the short term, the result for major insurers in the area like Allstate (NYSE: ALL) and Travelers (NYSE: TRV) may be a lesser hit from Sandy than could otherwise have been the case. But a longer term concern is that if there's a growing drumbeat of homeowners that were seriously put out by Sandy and left high and dry (so to say) by their insurers, there's always the possibility for the government to step in with some sort of "solution." And that solution may not be great for insurers or their investors.