Transcripts

Hurricane Insurance Premiums Are Causing A Storm of Trouble

SUSIE GHARIB: December 1st will mark the end of the 2006 hurricane season, a season which so far, has been surprisingly calm. But that calm has done little to help business owners in coastal areas, many of whom are now facing extraordinary increases in their insurance costs. As Jeff Yastine reports, the high price of insurance is forcing some businesses to pick up and leave.

JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Each year, hundreds of dentists pay up to $3,000 each for three day-long sessions at this facility, the Pankey Institute, where they learn about new advances in dental techniques and technology. But the institute will soon be moving its molars, packing up its dental simulators and lab gear, and heading out of the region. It's even selling its building, specially designed to withstand hurricane-force winds and storm surge. The reason? A huge, sudden jump in the cost of buying insurance for such storms.

CHRISTIAN SAGER, CEO, PANKEY INSTITUTE: We sit here and you're a $3.5 million or $4 million a year organization and you've established all of your policies and your procedures and your pricing structure for tuition with that kind of understanding. And then there was no advance notice. So all of a sudden, we're going to go, we actually went from $240 or $250,000 a year in insurance, to $575,000 a year in insurance.

YASTINE: It's a change that thousands of owners of commercial property in hurricane-prone coastal areas are facing these days. Property insurers are re- assessing the costs of writing policies covering wind damage for business structures like warehouses, retail stores, and office buildings. A survey by the Florida Chamber of Commerce showed that 25 percent of business owners had their insurance policies cancelled this year and more than half saw higher policy costs or made do with less coverage and higher deductibles. Insurers say it's the new reality of insuring for hurricane risks.

ROBERT HARTWIG, EXEC. VP & CHIEF ECONOMIST, INSURANCE INFORMATION INSTITUTE: Insurers expect that we are in an extended period of tropical cyclone activity that is going to be more frequent and more intense than what we've experienced in the recent past. The best minds in meteorology, whether they're in the private sector or academia or in government all expect that we're looking at the next 10 to 20 years where elevated activity is going to be expected and is going to be the norm.

YASTINE: But consumer advocates say cycles of increased hurricane activity are by now well-known and should already be reflected in the insurance industry's risk models. And that consumer advocates say, is part of the problem.

J. ROBERT HUNTER, DIR. OF INSURANCE, CONSUMER FEDERATION OF AMERICA: Its very hard to figure out what they're doing because its in a black box called a model and they suddenly, the numbers, which they assured us a few years ago would bring stability and we would never see big rate increases, are suddenly changed by magnitudes of multiple times and without any explanation of what they changed in the model.

YASTINE: Florida lawmakers activated a statewide insurance pool earlier this year for commercial property owners. There are also proposals for region-wide catastrophe funds for the hurricane-prone southeast. But such efforts are no help for commercial property owners facing big insurance bills now which means that more job providers, like the Pankey Institute, with a highly-paid staff of 30, are likely to pick up and leave for cheaper places to do business. Jeff Yastine, NIGHTLY BUSINESS REPORT, Key Biscayne, Florida.