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State Farm's no nukes policy another sign of the scary times
© St. Petersburg Times If you are one of the millions of Floridians whose vehicles are insured by State Farm, brace yourself. If your vehicle is caught in a nuclear blast or radioactive meltdown, State Farm no longer plans to cover such nuclear-related auto claims. Unlike a good neighbor, State Farm won't be there if the Big One comes. State Farm, the biggest auto insurer with 2-million Florida customers and 40-million nationwide, will be mailing out notices of its new exclusion to policyholders in the state later this year. Talk about a sobering sign of the times. That State Farm feels compelled to specify it will not cover nuke hits to your SUV, minivan or car is a perilous reminder of our brave new suburban world. Blame Osama, Saddam and North Korea. Think global. Pay local. I'm not sure whether to cry or laugh. It's not as if State Farm would likely field too many calls from upset policyholders in a postnuclear event: State Farm: (answering phone) Good morning, State Farm. Customer: Uh, yeah, my Ford Explorer just got nuked on I-275. State Farm: I'm sorry, but we don't cover vehicle damage from the searing heat, catastrophic aftershocks or resulting radioactive fallout from the blasts of A-bombs, H-bombs or dirty bombs. Customer: Well, what about the passengers? State Farm: Our new policy excludes coverage of bodily injury from nukes, too. But surely I could interest you in a State Farm annuity or home equity loan? After the Cold War gave way toan era of presumed immunity from the nastiest of man-made destruction, the nuclear threat is back and about to be spelled out in an auto insurance policy. State Farm, headquartered in Bloomington, Ill., is quietly informing its auto policyholders of the change state by state. Customers in Idaho were the first to get the news on Dec. 1. Arizona and Michigan customers were informed Jan. 1. Oregon learned on Feb. 1. Californians are receiving their notices in the mail this month. Floridians will get a letter from State Farm, probably this spring or summer, as soon as the insurance company gets approval from state regulators. All State Farm policyholders are expected to receive the notices by mid 2004. Tom Hagerty, State Farm spokesman in Florida, says adding a specific nuclear exclusion to auto policies will make its vehicle coverage consistent with its homeowner policies. The insurance company has excluded home coverage from nuclear damage since the 1950s. That's when the Cold War nuclear threat was prominent and children were taught to protect themselves by diving under school desks covered by white sheets. After the wakeup call of Sept. 11, the insurance industry realized it was a sitting duck if a nuclear disaster occurred on U.S. soil. No insurance company, State Farm says, could withstand the financial impact of insuring a nuclear accident or attack. After all, even without a nuclear claim, State Farm last week reported an annual loss of $2.8-billion for 2002. Geico, another prominent auto insurer, last fall told policyholders in the nation's capital their cars are not insured for nuclear disaster or biochemical attacks. Most auto policies already exclude coverage for acts of war. But many state insurance regulators have barred insurers from dropping coverage for terrorist acts from personal policies. (Terrorism losses can be excluded from commercial policies.) Excluding claims from a nuclear power-plant meltdown or a nuclear bomb explosion in a populated area is another matter. "This was not something the insurance industry has had to think much about before," says P.J. Crowley, a vice president of the Insurance Information Institute. The industry-run information service coincidentally is located three blocks from the site of the World Trade Center in lower Manhattan. "When you think of weapons of mass destruction, that is not what personal insurance policies are geared toward and not something that has been priced into this type of coverage," he says. "You look to insurance to cover things like hurricanes, fire and burglary, where there is some sort of physical damage or loss." (Of course, after Hurricane Andrew -- the 9/11 of storms -- struck South Florida in 1992 with $16-billion in insured losses, the insurance industry successfully lobbied to separate hurricane and wind coverage from traditional homeowners policies and shift some of the financial burden to the state taxpayer.) We've heard the debate over terrorism-related coverage before. Soon after the Sept. 11 attacks, owners of vulnerable downtown office towers, sports stadiums, shopping malls and commercial businesses clamored for affordable terrorism insurance. When the private insurance market balked, the federal government reluctantly stepped in to help last fall with the Terrorism Risk Insurance Act. It requires insurers to offer commercial policies with the federal government covering 90 percent of losses above $10-billion, up to $100-billion. The shared responsibility ends in 2005. Crowley, who once worked for the National Security Council, is no stranger to big-picture risks. Now, as an advocate of the private insurance industry and State Farm's decision to exclude nuclear blast coverage, he asks some legitimate questions: -- When talking about weapons of mass destruction, including a terrorist's dirty (radioactive) bomb, who is more responsible for protecting individuals and their property, the private insurance industry or the government? -- How can insurance companies anticipate -- and insurance actuaries (the folks who analyze risk) price the likelihood of and potential damages from -- an act of terrorism involving nuclear devices? Last year, the normally cautious investment guru Warren Buffett (who owns Geico) startled the American public when he bleakly predicted that a terrorist attack with a nuclear device on American soil is "virtually a certainty." He just didn't say when. Until then, drive carefully. -- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.
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