In 2018, extreme weather had a devastating impact on certain states – primarily driven by increasing severity, rather than frequency, of catastrophic events. LexisNexis Risk Solutions‘ recently released, fourth annual Home Trends Report highlights the impact that the 2018 extreme weather events had on insurance losses. A staggering 56% of all catastrophe claims come from just four states: California, Colorado, Florida and North Carolina.
States hit by Hurricanes Florence and Michael, the California wildfires and severe hail saw the most catastrophic losses. Claims in these states are also up to 56% from the 36% of claims these states accounted for in 2017. The latest Home Trends Report underscores the growing need for insurers to understand and respond to by-peril loss trends and the potential for climate change and extreme weather to drive these losses.
While fire losses have continued to increase since 2012, catastrophe claims accounted for nearly 40% of fire losses in 2018 – the highest in a decade and a significant jump from the previous high of 15%. As a result of hurricane devastation to North Carolina and Florida, 2018 was also the worst year on record for wind claim severity, up 15% from 2017. Hurricane devastation also led to a costlier September in North Carolina, with loss costs 17 times more than a typical September. While Colorado was unaffected by the hurricanes and wildfires, the state ranked the highest in loss cost overall for 2018, as well as the highest over the six-year period (2013-2018) that the study tracks. In terms of hail, Texas continued to top the nation for claims, representing 29% of total volume.
The report highlights some of the challenges that home insurance carriers face in managing by-peril risks, including increasing severity and unpredictability of weather-related patterns and their impact on catastrophic claims. The report also underscores how it is imperative that home insurance carriers collect, analyze and use aggregated by-peril data to help generate a deeper understanding of the risks associated with a particular location and of how to price future policies accordingly. For the long term, aggregated by-peril data can enable more accurate pricing, a healthier book of business.
If you are interested in learning more about the impact of extreme weather events on insurance losses, click here for the LexisNexis Home Trends Report.
Medicaid has several components, but at its core it is a health insurance program for the poor. States can differ, but most provide for those below the poverty level. Federal health reform requires expanding Medicaid to those earning up to 138% of the poverty level (about $25,000 for a family of 3). The U.S. Supreme Court has ruled that each state can accept or reject the expansion of Medicaid. Like other states, Georgia must make that choice. This analysis addresses the human impact — not state financing, our national debt, or deficit spending. The key question: Is Medicaid expansion beyond the poverty level a “hand up” or a “handcuff?”
Unlike other income levels in America, getting ahead is less likely if you are in the bottom 20%. The Economic Mobility Project of the Pew Charitable Trusts shows 65% of children born in the lowest 20% of incomes stay in the bottom two quintiles.
Upper Limit of U.S. Income Quintiles: 2010
Lower limit of top 5%
If the core philosophy of Conservatives is producing upward economic mobility and Progressives are for helping the poor, why have both ideologies failed the poorest among us? Scott Winship, a researcher at the Brookings Institute has said, “The bottom 20% in the U.S. looks very different from the bottom 20% in other countries.” Americans are more likely than foreign peers to grow up with single mothers. In poor communities, drugs, alcohol, violence, and ineffective primary and secondary schools represent a huge barrier to economic mobility. The United States also has uniquely high incarceration rates, and a longer history of racial stratification.
With all those challenges, the Brookings study showed that regardless of race or ethnic background, if you stay in school at least through high school, don’t have a child until you’re married and over 21, and work full-time at any job, your chances of being poor are only 2 percent and your chances of joining the middle class are 74 percent.
More than other countries, poor Americans have to educate and work their way up from the lower levels. The United States provides many benefits for the poor, disabled, and unfortunate. No one of any rational political or ideological persuasion is opposed to helping those in need.
The key part of Medicaid is also called “Temporary Assistance for Needy Families” or TANF. Under health reform Medicaid would be expanded to 18-20 million new lives. Other health reform subsidies through exchanges are available up to 400% of the poverty level (about $92,000 for a family of 4). Programs affecting larger percentages of the population can create an attitude of entitlement and a culture of dependency that traps segments into intransigent generational poverty.
A study of entitlement programs in Colorado illuminates the concerns for Georgia and other states. Programs are available to low income families to provide housing, food, healthcare, educational, and other subsidies. A single mother with two children making $25,000 could be eligible to receive about $18,000 in government benefits.
Medicaid expansion and other health reforms add new subsidies for low and middle income families. Using the same example of a single mother with two children, Medicaid expansion to 138% of the poverty level can provide an additional $7,500 in benefits to those making $25,000.
What are the effects on real people as they try to advance economically? The marginal effective tax rate from federal income taxes, payroll taxes, and state income taxes, for a single mom with two children earning $25,000 is about 29.4 percent. If one includes other programs, SNAP (food stamps), state children’s health insurance program, and the new health reform subsidies, the marginal tax rate rises to 54.5 percent.
If benefits like Temporary Assistance for Needy Families, federal housing subsidies, and WIC (nutritional program for Women, Infants, and Children) are considered, the marginal tax rate is as high as 81.9 percent because families lose even more benefits due to higher earnings.
Who would work harder, take that extra job, or seek a promotion when most of the added earnings would be taxed away or government benefits are reduced? The destruction of initiative can be the inevitable consequence of expanding Medicaid with an additional $7,500 (for a total of over $18,000) to someone making $25,000, but providing nothing to a similar family making $75,000.
Clearly, even the most compassionate among us can see that accumulated effects of entitlement programs can break the spirit of personal responsibility and the motivation for upward mobility. Medicaid expansion and the new health reform subsidies to over 50% of the population are likely to produce the same dependence and economic barriers to upward mobility already evident in the lower 20%.
The standard of living in Georgia is directly related to its citizens’ ability to produce goods and services others want to purchase. Subsidizing able-bodied populations does not create economic growth for those individuals or for the state. In our compassion to help those in need, we tend to look away from the politically driven expansion of those programs and the debilitating dependency culture they enable. Georgia has apparently decided not to play that destructive game. Good for us.
As we look to the future and better ways to solve the problems of healthcare and health insurance, maybe Georgia can create an island of opportunity within a sea of growing dependency. Maybe we can remove the handcuffs of those chained to the programs and ideas of the past and offer a hand up rather than a handout.