Homeowners in more than a dozen states have been left with fewer financial backups the next time a hurricane blows their houses down, an earthquake rattles them or a tornado carries away their roofs.
The average cost of homeowners’ insurance has risen 47 percent in the past 10 years, according to the Insurance Information Institute, an industry trade group.
Hurricane Katrina — the most-expensive natural disaster in U.S. history — was the death knell for access to insurance for many Gulf Coast residents. Even coastal residents in Mid-Atlantic and New England states are encountering a backlash from insurers because of the 2005 storm.
Then there’s terrorism risks — and jumping insurance premiums — for Washington and New York, earthquakes for California and floods for lower Mississippi River communities.
Several members of Congress last week proposed an insurance “backstop” for natural disasters.
The government would pay for catastrophic losses instead of forcing homeowners to pay through higher rates, similar to the backstop Congress gives insurers for terrorism losses.
“We believe that we have reached a similar point with regard to what happens with floods and hurricanes,” said Rep. Barney Frank, Massachusetts Democrat and House Financial Services Committee chairman, who is drafting the legislation.
Bob Hunter, insurance director for the Consumer Federation of America, said he met a Florida woman whose insurance premium on her home west of Palm Springs shot up from $500 a year to $6,000 a year after Katrina.
Rates for “multiple-peril” insurance, which covers hurricanes, tornadoes and other weather disasters, have increased at the fastest rate, an average of more than 6 percent per year in the past decade, the Insurance Information Institute says.
“I’d say the average American is going to pay 2 to 4 percent more for homeowners insurance in 2007,” said spokesman Michael Barry. “The numbers go up significantly, however, for those residing in coastal communities. In coastal communities, we’ve seen increases of 20 to 100 percent.”
The issue most likely to lead to higher homeowners insurance rates is “almost always hurricane risk,” said Robert P. Hartwig, the institute’s chief economist.
Insurers say they are trying to avoid catastrophic losses that could drive them out of business.
But the Consumer Federation of America, an advocacy group for consumers, is unconvinced.
“Clearly, a lot of this is being driven by greed,” Mr. Hunter said.
Congress is debating whether to renew the Terrorism Risk Insurance Act, a law Congress passed after the September 11, 2001, terrorist attacks. The law says the federal government will pay catastrophic losses for insurers if damage is severe after an attack. It is scheduled to expire at the end of the year.
Without the government backstop, building owners for New York’s condominium and co-op dwellers say insurance rates would skyrocket.
Lawmakers in Florida, which suffers about half the nation’s hurricane damage, have enacted a similar financial backstop for hurricane damage. Other states require insurers to cover catastrophic losses by contributing to insurance pools.
With its population growing by about 1,000 new residents a day, Florida is a sitting duck for hurricane damage, insurers say. The insured value of Florida’s coastal property is nearing $2 trillion, according to industry estimates.
Other areas experiencing what the insurers refer to as “market disruptions” are along the coasts of Texas, Louisiana, Mississippi, South Carolina, Maryland, Delaware, Rhode Island and Massachusetts. The greatest risk of losing insurance or incurring big rate increases are within one mile of the coast, according to the Insurance Information Institute.
Four of the five most-expensive states for homeowners insurance — Texas, Louisiana, Florida and Mississippi — are Gulf Coast states, the National Association of Insurance Commissioners reports. Oklahoma ranked as third most expensive with an average annual homeowners premium of $991 because of frequent tornadoes and high winds, according to the association’s data for 2004, the most recent year for which it has figures.
The District’s homeowners-insurance rates rose 10.9 percent from 2003 to 2004 to an average of $894, Maryland’s rose 11.6 percent to $652, and Virginia’s were up 10 percent to $616.
The nationwide average in 2004 was $729, up 9.1 percent from the previous year. Insurers expect the average to be $776 this year.
Maryland and Virginia have evaded dramatic rate increases in all but the coastal areas.
In Maryland, insurers Allstate, State Farm and Nationwide have notified state regulators that they intend to stop or limit new policies along the coast. Each of them charges hurricane deductibles that can run as high as 5 percent of the value of a policy.
However, 131 companies write insurance in Maryland, said Darlene Frank, Maryland Insurance Administration spokeswoman.
In Virginia, Allstate is no longer writing new homeowners policies in 19 coastal counties.
In the rest of Virginia, Allstate and State Farm — the state’s biggest homeowners insurers have kept rates the same or raised them by small amounts in recent years.
“We’re not seeing anything major,” said Katha Treanor, Virginia Bureau of Insurance spokeswoman. “Some of them have raised their mandatory hurricane wind deductibles. That’s what some of them are doing to stay in the coastal areas.”
Allstate has pulled out all homeowners coverage in Florida, Connecticut, Delaware and New Jersey because of a combination of disaster risks and regulatory obstacles.
Insurers also are concerned about earthquakes in California.
In 1996, the state organized a state-sponsored insurance company, called the California Earthquake Authority, that pools the financial resources of 15 insurers to minimize the risk any one of them would face individually. The authority is supposed to provide affordable insurance to residents who otherwise could not afford it.
But only 13 percent of homeowners buy earthquake coverage, said Joseph Annotti, spokesman for the Property Casualty Insurers Association of America, an insurance industry trade group. “This is a disaster, and a huge federal government bailout, just waiting to happen.”
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