Insurance changes come in the wake of Joplin tornado
On May 22, 2011, a powerful tornado struck the town of Joplin, Missouri. The tornado was classified as an EF5 and was a catastrophic event that decimated much of the town. The tornado had caused $2.8 billion in damages to property and vehicles and claimed 158 lives. In the wake of the disaster, it was expected that the state would make revisions to its insurance regulations in an attempt to prevent fraud and protect consumers from the exploitation that ran rampant in the aftermath of the Joplin tornado. Missouri lawmakers have finally passed such regulations and target mutual insurance companies.
New regulations concerning mutual insurance companies announced
The Missouri Insurance Department has announced that new regulations for mutual insurance companies have been adopted. These regulations will require mutual insurance companies that provide coverage for properties to fortify themselves from any future disasters that may be on par with the Joplin tornado. Insurers will need to ensure that no disaster, natural or otherwise, will deplete their surplus funds by more than 20% in a single year. Insurers are expected to live up to this standard by attaining additional reinsurance coverage.
Mutual insurance companies faced heavy losses in wake of disaster
In the wake of the Joplin tornado, many insurance companies faced severe losses due to the high frequency and extreme nature of claims. Typically, mutual insurance companies are non-profit co-ops that supply adequate coverage to properties located in rural Missouri. As non-profit entities, these insurers are susceptible to financial losses in the event of a catastrophic event. The Joplin tornado was an extremely rare event and struck at a time where these insurance groups had already been struggling financially. The new regulation aims to ensure that these companies do not fall into a financial trap in the future.
Insurers expected to cope well with new regulations
Regulators note that the new regulations will take effect on January 1, 2013. The state’s mutual insurance companies have recovered from last year’s disasters and have enjoyed a relatively calm 2012 in terms of natural disasters. Most insurers are expected to fully comply with the state’s new regulations with little to no trouble.