# 2006 Hurricane Risk Case Study Essay

1674 Words Aug 3rd, 2010 7 Pages
1. How profitable are property and casualty insurance companies? Answer: Property and casualty insurance protects property (houses, cars, boats, and so on) against losses due to accidents, fire, disasters, and other calamities. Property and casualty policies tend to be short-term contracts and, that’s why the subject to frequent renewal is, and one more characteristic feature is the absence of savings component. Property and casualty premiums are based on the probability of sustaining the loss. To estimate the key determinant of the price of an insurance policy, i.e. risks, insurance companies take third-party proceedings that develop models of catastrophe loss probabilities. Based on the numbers form Exhibit 5 of the case we see that …show more content…
The reason for this is that the deductible for hurricane-related damage is typically a percentage of his home’s value, and can be quite high in some cases, in our case it is - \$14 000, it is 2% from the home’s value (for 2006 – \$648 390). Another extremely important point is that hurricane coverage is generally limited to wind damage, and thus does not cover damage due to a possible storm surge or subsequent flooding. As such, Joe Martinez will need to purchase flood insurance if he wish to be fully protected. Finally, given the potential for water intrusion during and after a hurricane, he should check to see if he is covered for mold damage. Mold can be an extremely expensive problem to deal with, and many homeowners’ insurance policies explicitly exclude mold damage, or at least limit the coverage associated with mold claims.
So, you can see that there are a lot of reasons to buy the hurricane insurance. Analyzing Joe Martinez’s earnings (175 000\$ annually), we can say that the total premium for \$ 13 000 is quite large amount (7% of annual earnings). If we will compare this amount with his monthly earnings (\$ 14 583) it is 89%. But from another point of view, his eventual losses from hurricane’s devastation maximum can be \$648 390, in case of 5th and 4th categories of hurricanes. We would like to give an advice to Joe Martinez, to buy standard and wind coverage insurance for \$13 000, and he should think about