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QuestionerKatrina created litigation that resulted in some rulings that combined flood damage and wind damage where the insurance companies thought they covered wind only. As a result, some insurance companies are significantly reducing coverage in those states. Florida recently empowered their insurance company called citizens to be more aggressive not only with windstorm but also with homeowners while at the same time not allowing requested rate increases of other insurance companies. The result is that some solid insurance companies have announced reducing their coverage or pulling out of Florida. Is this type of government interference, a random fluctuation in insurance or a major cause of concern for the future?
WarrenWell, that's an easy one to understand both sides of the question on. I mean, the average homeowner is not going to sit there and read line by line what is in as an insurance policy. And a lot of times, the agent is not going to explain it carefully to them. So when something comes along and he thinks it's insured and it turns out that he bought a policy where it wasn't insured, he's going to feel very unhappy about it. And when tens of thousands of people feel unhappy about it, you're very likely to get some kind of governmental inferent and probably an inflation by judicial degree or by threats of the government to, in effect, extend the terms of the policy beyond what the insurance company thought it was insuring. Now, an insurance company that's had that kind of experience is going to be very reluctant to write insurance policies in the future if they don't think that the words will be adhered to. And on the other hand, I can fully understand some guy who's had his house blown away in a storm, and a lot of it was water damage and a lot of it was wind damage, thinking that, you know, that he's been wiped out. And the insurance company comes around waving a policy that's got a lot of small print in it, you know, he's going to be unhappy. So it's a, it's a. real tussle on that. And, you know, I guess I would, if I were writing policies, I would put the exclusions in very big, very big type and very easy to understand. But I still would expect that if thousands of people suffered losses, that courts and legislators would probably seek to stretch the terms or even abrogate the terms of the contract in order to take care of their own constituents and figure that guys like
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Warrenme, or institutional investors who own insurance companies, can afford it better than their homeowner. So you're going to have that tussle go on, and you'll really have that tussle go on, if you get a $100 billion or $150 billion insured loss in a Florida, because that will mean a huge change in taxation if the government, if the state of Florida steps in to compensate people, there'll be calls for Washington to pay for. But, you know, it's how much people who are not exposed to a risk should pay for the people who have elected to be exposed to the risk is, you know, it becomes a political question. And my guess is that sometime in the next five or ten years, you'll see a struggle on that subject that exceeds, far exceeds what we saw on Katrina.