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Skyrocketing Hurricane
Insurance
By JOHN PAIN, Associated Press,
May 27, 2004
MIAMI - Retired police officers Ed and Nancy
McCue are thinking about leaving their dream home near the shores of
Biscayne Bay because it's in a prime target area for hurricanes.
It's not the storm threat itself that's pushing them out, but soaring
insurance costs _ $1,000 a year for a homeowners' policy and an
additional $2,100 for windstorm coverage, a bill that has tripled in the
last five years.
"I've worked really hard to rebuild this community," Nancy McCue said
from the $150,000 home she and her husband rebuilt after the devastation
of Hurricane Andrew in 1992. "But this is one of the factors that is
driving people out."
Homeowners are paying increasingly higher insurance rates as more
people flock to the coasts and insurers try to cut back on the billions
of dollars of losses they've absorbed from previous storms. Many
residents in high-risk areas, like the McCues, have to buy separate
hurricane or windstorm insurance on top of their regular homeowners'
policies.
Florida's homeowners insurance rates have increased more than 150
percent since the 165-mph Andrew, which caused $31 billion damage and
stands as the costliest natural disaster in U.S. history. Texas' average
premiums are up about 75 percent and Louisiana's have risen around 50
percent since then, according to state estimates.
Sharon Ryan, of Jamaica Beach, Texas, pays about $6,000 a year for
insurance on two homes on stilts on Galveston Island about a mile from
the Gulf of Mexico.
"It's beyond your comprehension, the insurance costs here," Ryan
said. "It's just funny, because people come down here and retire and you
think you'd have a job to just pay the insurance and the taxes."
On North Carolina's Outer Banks, Dahl Clark has watched about a dozen
nearby beachfront houses crushed by storms within the past few years.
During last year's Hurricane Isabel, he was lucky. His
2,300-square-foot Kitty Hawk home was elevated enough to avoid getting
wiped out. But he lost a ground-floor refrigerator and water heater _
damage he didn't even report for fear it would cause yet another
increase in his $2,000 annual insurance bill.
"It's shot up a lot in the last four or five years," Clark said. "I
think the insurance is a big issue, especially for retired folks down
here, and there's a lot of them."
Insurance industry officials say higher premiums are necessary to
keep insurers from going belly up when a destructive storm hits.
Bob Hartwig, chief economist for the Insurance Information Institute,
said more sophisticated computer forecasts and the practice of insurance
companies buying reinsurance to protect themselves have made the
industry better prepared. But he said a major hurricane could still
bankrupt smaller insurers.
Florida accounted for about half of all insurance losses due to
hurricanes in the 20th century, the highest of any state, according to a
study cited by the institute. Texas came in second with about 21.4
percent of losses; Louisiana was next with 6.8 percent.
But Florida was only the third most expensive state in which to
insure a home in 2000, after No. 1 Texas and Louisiana, according to the
latest average premium data from the National Association of Insurance
Commissioners.
That's because homeowners insurance normally includes coverage for
fires, hail, tornadoes and other catastrophes. Texas is the most
expensive because it's in "Tornado Alley" and it has been hit by
billions of dollars in mold claims recently, Hartwig said.
In most Atlantic and Gulf Coast states, homes in coastal areas may be
dropped by normal insurers and homeowners are forced to get policies
from insurers of last resort that offer windstorm insurance specifically
for hurricane and wind damage.
In Florida, the average annual windstorm premium has risen more than
200 percent over the past decade to reach $1,445 this year. In Texas,
windstorm rates have gone up just 30 percent over the last decade to hit
an annual average of $574.
Insurers say those rates reflect Florida's geography as a peninsula
with so much coastal land, while most other states have large swaths of
territory far from the water. The rapid housing development of
multimillion dollars buildings along Florida's beaches also contributes
to those spiraling costs.
Consumer advocates say homeowners in certain areas are overcharged
because the paths of hurricanes are so unpredictable and they could
strike anywhere along the thousands of miles of Atlantic and Gulf Coast.
"The idea of insurance is to spread the risk, not to isolate it,"
said Bill Newton, executive director of the Florida Consumer Action
Network, a watchdog group helping citizens.
One homeowner on Mississippi's Gulf Coast, Dale Buchanan of Belle
Fontaine Beach, said he pays about $2,800 a year for insurance, several
times the state's average. He said he can understand the insurance
companies' side of the rate increase issue, adding that his company was
cooperative and helped him after Hurricane Georges damaged his house in
1998.
"They're in business to make money and that's hard to do when you're
getting hit with big losses," Buchanan said. "I don't really hold that
against them; I just wish they would spread it out a little more
evenly."
Some homeowners also complain because their insurance may not cover
all catastrophes. For example, windstorm insurance usually doesn't cover
flood damage.
And soaring property prices in the current real estate boom mean many
people insured their homes for much lesser values years earlier. So if a
storm wipes them out, they might not be able to afford to buy another
house in the area.
Another shock homeowners may get is that many insurers have been
changing the way they charge deductibles for hurricane damage. In the
past, homeowners had to pay a set dollar amount for a deductible. But
after Andrew bankrupted many insurers, they started changing policies so
people would have to pay a percentage, usually around 2 percent, of the
total damage as their deductible.
"If there is a big storm," said Jeanne Salvatore, an insurance
institute vice president, "you're going to shell out a lot of money."
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