Flooding and no insurance coverage is about to become much more common in the Mississippi Gulf Coast. State Farm announced that it will not be renewing homeowners policies to those living within 1,000 feet of the beach and those between 1,000 and 2,500 feet will not be getting wind coverage renewed. Mike Chaney, the Mississippi Insurance Commissioner, is confident that people will be able to get coverage and states that rates may even decrease.
However, I am wondering, will it really decrease the rates. And will everyone be able to get covered? The real question is whether any other insurance companies will follow suit. If they do, basic economics tells us that the rates will go up. The less companies offering insurance to homeowners in that area, the less supply. People are unlikely to move at any significant number away from the area so demand will not substantially change. This will drive up the price. Also, if less companies are offering the insurance, the more risk they are taking on to pay out, so naturally the price would increase that homeowners pay for insurance. The fear of flooding without insurance coverage is well deserved for homeowners after Katrina, and with the recent developments up north in the Midwest.