LEE HOCHBERG: Allstate and State Farm, the two companies that dominate the New Orleans insurance market, have stopped writing new policies in most of its neighborhoods. It's part of a move by the insurance industry to reduce its risk in hurricane-prone areas.
For those Allstate already insures, premiums have soared as much as 52 percent. The New Orleans Times-Picayune called the increases "devastating" and said they could well hamper the redevelopment of greater New Orleans.
Bill Davis is an insurance industry spokesman.
BILL DAVIS, Insurance Information Institute: The problem here is the huge amount of payouts that we've had to make, 25 years' worth of premiums, homeowners premiums wiped out with Hurricanes Katrina and Rita. And that's a major, major problem that has to be dealt with.
LEE HOCHBERG: The way Allstate and other top insurers dealt with the problem was to stop writing policies in New Orleans and along much of the Gulf Coast. Davis said the Gulf Coast is in a new cycle of violent weather.
BILL DAVIS: A lot of this now looks like, instead of every 10 years or so, we're into this cycle where the storms are going to be hitting more and more frequently, so a lot of the companies are concerned about this. They are trying to make sure that the risk they have, they can meet.
LEE HOCHBERG: But some Louisiana officials argue the industry should already be able to meet that risk. Since Hurricane Andrew in 1992, the industry has collected increased premiums based on 100 years of weather records that reflect how often hurricanes occur.
Steven Ruiz of the State Insurance Rating Commission argues the industry had a $427 billion pre-Katrina surplus last year and $43 billion in earnings. He says it's really trying to maximize its profits.
STEVEN RUIZ, Louisiana Insurance Rating Commission: For the last 10 years, I've been giving a rating for each based on the fact that some day we were going to have this hurricane and we were going to have this kind of devastation. But what did they did with the money, you know?
They pay out a lot of bonus money to high executives; I know that. They don't want to talk about that, and that's private. These guys need to make money in this business, but they don't need to gouge people.
BILL DAVIS: We don't believe we're gouging. We're just -- we're prohibited from that. But we have to take the necessary financial steps to insure that we can pay our future obligations.
And we're helping the people down here. We've paid out billions of dollars in claims, over millions of claims, and we're continuing to pay out. And we're working to try to solve all of these problems and continue to do business down here.
JIM DONELON, Commissioner of Insurance, Louisiana: It keeps me awake at night.
LEE HOCHBERG: The state's top insurance regulator, Jim Donelon, says he can't do much about the availability and affordability issues. He notes a few insurers are underwriting niche markets, like homes valued at $500,000 or more.
And some 75,000 Louisiana residents have turned to the state-sponsored Louisiana Citizens Plan, a policy that offers insurance for those who can't find it elsewhere. That policy by law is more expensive than the marketplace average and Donelon says, really, a choice of last resort.
JIM DONELON: It's not a pretty picture; it's not a cheap or inexpensive route, but it's there by law for anyone who needs it.
LEE HOCHBERG: He says prospective home buyers may just have to wait one to four years for new players to enter the insurance market.
JIM DONELON: I truly do believe that this crisis is going to create opportunities for new entrepreneurs, for companies that we're not aware of here today, that are going to come to Louisiana and make money writing homeowners in those abandoned markets by the big guys. But if we have bad hurricanes again, that will scare the Dickens out of them again, no doubt.
LEE HOCHBERG: And then your one- to four-year....
JIM DONELON: Goes longer. Goes longer.
LEE HOCHBERG: Ruiz says New Orleans can't wait that long.
STEVEN RUIZ: When you have this type of situation, you need to have regulation to make insurance affordable and available to the people here.
LEE HOCHBERG: And it's not.
STEVEN RUIZ: And if you don't have it, they're going to leave; they're going to go where they can afford it. They're not going to come back to this area.