Coastal Living Just Got More Expensive: Think Hurricane

If you live along the coast in the United States, your insurance dollars might not go as far as they have in the past. After the hurricane season of 2004, when insurers paid out billions of dollars in claims, and with forecasters predicting that the 2007 hurricane season may be even worse, insurers are passing on their risk to homeowners.

So, which parts of the US coast does this affect? Nearly all of it – from Maine to Texas. That’s right; insurers are adding additional deductibles – up to five percent – onto homeowner policies for any damage done by hurricanes and/or strong winds. So, if you have a $100,000 policy, you’ll pay the first $5,000 before receiving funds. If your policy is $1,000,000, which is not uncommon in highly desired coastal areas, you’ll pay the first $50,000. It sounds incredible, and many homeowners are wondering if it’s worth having insurance if most of the damage isn’t covered.

Before you get angry…

Before you get angry about having to pay the additional five percent deductible, you may want to count your blessings for having insurance at all. According to the Property Casualty Insurers Association of America, hurricane losses were $30 billion in 2004 and $50 billion in 2005 – much more than in years past. While some insurers are adding the five percent deductible to spread their risk, many others are canceling or simply not renewing homeowner policies. In Massachusetts and New York insurers canceled nearly 80,000 policies after some of the recent hurricane payouts. Louisiana and Florida homeowners fared even worse – over 600,000 homeowner policies were either canceled or not renewed.

Political intervention

The issues of higher deductibles, rising premiums in some cases and the cancellation of record numbers of policies have prompted political intervention. Congress is currently holding meetings to explore what may be wrong with the federal flood insurance program (currently $20 billion in debt) and examining claim practices and unfair policy increases in the private insurance industry relating to wind and water claims and coverage. (Despite the losses in 2004 and 2005, insurers reported record profits in 2006.) This inquiry comes after several governmental bodies, including the Department of Homeland Security, the Inspector General, and the Government Accountability Office, submitted reports on the issues.

Unfortunately, many experts don’t think anything will come out of the investigations – at least not before the 2007 hurricane season ends. For now, homeowners have little choice in the matter and should make sure that they’re covered in the best way possible. One strategy might be to contact your state’s insurance department to see which insurers continue to offer coverage in your area.