September 4, 2007
Home Insurance Woes Mount in Coastal States
By John Gramlich, Staff Writer
Private insurers are raising rates or pulling out completely in areas where costly seaside development continues and where, according to forecasters, powerful storms are likely to hit again and cause huge property losses.
Under pressure from residents who can no longer find affordable homeowners insurance-or any homeowners insurance-states are scrambling to fill the void left by the private firms. In some cases, they are taking on more of the insurance burden themselves and, in other cases, courting insurers with tax breaks and other incentives in an attempt to expand access and drive prices down.
But a popular solution has yet to emerge.
The Gulf Coast , still nowhere near recovery after Katrina left more than $40 billion in insurance claims in its wake, remains the center of attention. The governors of Alabama , Louisiana and Mississippi met with insurance executives last Sunday (Aug. 26) in Biloxi , Miss. , to discuss the coverage crisis and call attention to the scope of the problem.
Alabama Gov. Bob Riley (R) said at the meeting that he "can't get insurance" for homeowners along the state's 53-mile coastline; Louisiana Gov. Kathleen Blanco (D) urged the insurers to meet with her immediately to find ways to provide more policies in the Bayou State. But the governors at the summit did not agree on any formal policy initiatives, reflecting a lack of consensus on how states can address the problem even as lawmakers try a variety of approaches.
Louisiana has offered financial incentives to insurers willing to do business in the state, including grants of up to $10 million. South Carolina has offered tax credits to insurance firms, and the state is extending tax breaks to residents if they agree to strengthen their homes against storm damage to attract insurers.
Meanwhile, coastal states as far north as Maryland and Rhode Island-where hurricanes are less common but still a threat-recently have set up task forces to study insurance availability and affordability. The densely populated Northeast Corridor is becoming a growing concern for insurers, according to industry representatives, who claim that hurricanes there would cause even bigger losses.
Under Gov. Charlie Crist (R), Florida -where 80 percent of property lies in coastal areas-has fought more aggressively than any other state to resolve its insurance problems, rolling out a series of changes aimed at reducing rates for homeowners. But many of the changes have proven divisive, including an expansion of the state-run "insurer of last resort," Citizens Property Insurance Corp. , to cover 1.3 million residents-more than are covered by any private firm in the state. Critics argue that the state is taking on far too much financial risk without enough in its coffers to deal with the aftermath of another storm of Katrina's magnitude.
Insurers, for their part, contend that homeowners policy rates are based on risk and that state efforts to lower those rates encourage development in vulnerable areas without regard to the dangers.
Many state lawmakers across the country agree with that assessment, said Candace Thorson, deputy executive director of the National Conference of Insurance Legislators , a group of lawmakers who share information about public policies on insurance. But Thorson said recent state action has been driven by angry residents who cannot afford insurance anymore and are demanding help from lawmakers.
"It's pretty hard when your constituents are banging on your door and saying their homeowners rates have doubled. That's a tough spot to be in as a legislator," she said.
Florida, which held a special session just after Crist took office in January to address its insurance crisis, has led calls for regional or national catastrophe funds that insure insurers and which supporters say would help bring premiums down. But the idea has been slow to catch on regionally and at the national level because states with far fewer risks are reluctant to pay for reconstruction in the Sunshine State or other states where hurricanes are relatively common. Officials in Florida and other coastal areas counter that catastrophe funds would cover other disasters including tornados and earthquakes that can affect states nationwide.
The White House has rejected a national fund, claiming that the federal government should not be the insurer of last resort and that states are largely responsible for their own problems because they regulate private insurance firms.
Even an initiative that has received support from lawmakers, insurance firms and residents alike-stricter building codes to make homes more resilient to storms and attract lower insurance rates-faces obstacles because homebuilders generally oppose such action, according to Florida Senate Minority Leader Steven Geller (D), who has spoken out frequently on the insurance shortage. Florida has the toughest building code in the nation, a policy Geller said he considers vital to preventing damage and lowering rates.
"If all the buildings in New Orleans were built under our building code, it would have reduced two-thirds of the damage" during Katrina, Geller said.