The Post Katrina Insurance Flood of Trouble
Thursday, August 24, 2006PAUL KANGAS: The Gulf Coast marks a somber anniversary Tuesday, the first anniversary of hurricane Katrina. She was the costliest storm in U.S. history, and her wind and water caused big changes for the nation`s insurance industry. The homeowners` claims paid by insurers are now approaching the $1 million mark. Total insured losses have now reached $41 billion, with more than half of that from businesses. As Darren Gersh reports, now insurance companies are trying to cut their future losses and that means big changes for coastal communities.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: One year after Katrina, another flood is coming. Hundreds of thousands of families across the Gulf Coast are finding their homeowners insurance premiums are doubling. Many policies are being canceled outright. Alabama escaped the worst of Katrina, but now it is paying a price for the storm.
WALTER BELL, COMMISSIONER, ALABAMA DEPARTMENT OF INSURANCE: What we are seeing is that the premiums are skyrocketing, anywhere from three to 10 times what were the renewal periods of the past. We`re seeing insurers getting off of exposures by non-renewing people, not wanting to increase their exposures there.
GERSH: Insurance companies say the premium increases reflect the increased risks of hurricane disasters. And it`s not just the Gulf Coast, insurance companies are pulling back from markets as far away as Long Island and Cape Cod and homeowners near saltwater who can renew usually face higher deductibles and tighter limits on coverage.
THOMAS UPTON, INSURANCE ANALYST, STANDARD & POOR`S: So if you owned a home in the way of hurricane Katrina last year and suffered an out of pocket loss of $25,000, this year, under the same circumstances with the same home, the same loss or the same damage would result in a loss to you of $50,000.
GERSH: Katrina has also split the insurance industry. Allstate, State Farm and many companies selling homeowners insurance are pushing for the creation of tax-exempt, government-managed catastrophe funds to help cover losses from natural disasters. Re-insurers disagree. Those companies sell insurance to other insurance companies and say the private sector can handle hurricane losses, if premiums reflect the true costs of disasters. The industry does agree states should tighten building codes and restrict development in risky areas.
MARC RACICOT, PRESIDENT, AMERICAN INSURANCE ASSOCIATION: At what point in time are we going to have the courage and the integrity to say at some point in time, we have got to make some decisions about how many people can squeeze themselves along the coast and still be safe.
GERSH: As insurance companies cut back, state-sponsored insurance pools are taking on the risk and the red ink. But insurance commissioners say it`s unfair for company executives to drop policies they have been writing for years.
BELL: Somewhere along the line, it would have been more prudent for them to have slowed down their writings in these areas than to continue to write at a fast pace and then all of a sudden hit a brick wall and say, I`ve got to get off of all of that exposure that I`ve written within the last two or three years.
GERSH: In Louisiana, state law does not let an insurance company cancel a homeowner`s policy until repairs have been made or until the end of the year. That means thousands of New Orleans area homeowners may begin 2007 with a cancellation notice. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
