Following the disaster in Joplin, new regulations will soon be put into place.
There will be some significant changes to be made for tornado insurance in Missouri following the lessons that were learned through the destruction in Joplin.
The Missouri insurance department has announced that these rules will start next year.
The department has stated that the mutual tornado insurance companies will face new regulations, with the purpose of preventing the type of drain on the finances that was seen a short time following the deadly Joplin twister.
New state tornado insurance regulations will make requirements to protect against future losses.
The regulation will necessitate that any mutual insurers which provide tornado insurance coverage for property owners must do so in a way that any future losses will not create a depletion of surplus funds by any more than 20 percent within any single year. Those insurers would be able to do this by purchasing adequate reinsurance coverage to mitigate their own risks.
The department has explained that the change was made was as a result of the tremendous financial strain that was suffered by a large tornado insurance company located in southwest Missouri as a result of the claims that came in when the twister ripped its way through Joplin in May of last year.
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The mutual insurers are usually made up of nonprofit cooperatives that provide businesses and homes with coverage such as tornado insurance throughout a large amount of the rural regions in the state. Due to their nature, they keep their premiums down by remaining relatively small and maintaining a “no frills” form of operation.
However, by adding reinsurance protection to their tornado insurance and other policies, they will be able to make certain that a single large event such as the one faced in the spring of last year, will no longer place their entire existence at risk and threaten their ability to pay policyholders their legitimate due for their claims.
The tornado insurance industry changes will go into effect on January 1, 2013 and will apply to all mutual insurers that offer property coverage policies.