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I didn’t know an entire state could purchase hurricane insurance, but according to the Insurance Journal, the state of Alabama has done just that.
Under a deal that took effect last month, Alabama will pay $800,000/year for three years to global insurer Swiss Re, as a hedge against heavy hurricane damage to state-owned coastal property. In the event of a Category 3 or 4 hurricane with winds between 110 and 155 mph, Swiss Re will pay the state $5 million. If a Category 5 hurricane (with winds in excess of 156 mph) hits the Alabama coast, the payout would be $10 million.
Officials from the State Finance Department told the press that the money would be used toward all or part of the deductible that the state pays on it’s traditional coverage of state property, which includes parks, schools, and government buildings. According to Finance Department attorney Richard Cater, Alabama has a $10 million deductible for each named storm.
Swiss Re said that Alabama is the first U.S. state to purchase this sort of coverage, known as “parametric insurance,” but that similar policies have been issued to governments in Mexico and the Caribbean.
Nikhil da Victoria Lobo, a vice president of Swiss Re, told the press, “Swiss Re has provided these solutions across the globe to multiple governments, but has just recently begun this dialogue in the U.S. The state of Alabama initiated discussions with Swiss Re.”
Bill Newton, Alabama’s State Finance Director, said that Swiss Re was not the only insurer offering proposals when his state began looking for this type of coverage, but that their policy was based on an analysis of previous storm damage from hurricanes hitting the Alabama coast.
Swiss Re is the company that former Alabama Insurance Commissioner Walter Bell joined in 2008 when he left his state post to become chairman of the holding company for Swiss Re’s North American business. But da Victoria Lobo and Cater both said Bell was not involved in negotiating the contract.
Swiss Re representatives said that the policy allows the state to get paid quickly and avoid unpredictable expenses.