Home Insurance Hell: Why your rates are out of control
By: Carole Fleck Source: AARP Bulletin Today Date Posted: July 2007
The black mold growing under Barbara and Harold Polsky's water-soaked carpet, creeping up the wall and giving off an odor, was disturbing enough. But what pushed the couple over the edge was when their property insurance carrier refused to pay to clean up the mess—or the rest of the estimated $55,000 in wind and water damage to their Florida home following a pair of hurricanes in 2004.
Their insurer blamed flooding and said it wasn't covered. The Polskys said there was no flood—only seeping water from the storms. It took the couple two years and $7,000 in legal fees to settle their case for $25,000—less than half the cost of the damage. To add insult to injury, their annual premium rose to more than $5,000—nearly twice what it had been.
So last year the Polskys sold their suburban Tampa home, still bearing hurricane damage, for under market value and moved to Bedford, Va. Their annual property insurance bill: $800.
The problem is not limited to Florida. More than half the nation's population—55 percent—lives in coastal areas; by next year, some 160 million Americans will live and work along America's coastlines.
Since the record storms of 2004 and 2005 ravaged the Gulf Coast and caused billions of dollars in damage, several of the nation's largest insurers, including Allstate, State Farm and Nationwide, have stopped renewing policies in some of the areas considered risky for future hurricanes and floods—from southern states like Florida, Louisiana, Texas and Mississippi to the lesser-prone stretches of New York, Connecticut and Massachusetts.
Now, with this year's hurricane season under way—and forecasters predict it will be an active one—property owners from Texas to Maine are paying double- and triple-digit rate increases for less coverage. Others are having difficulty obtaining coverage altogether, and some who own their homes outright are going without coverage.
The lack of available and affordable insurance has set off public outrage in small towns and large cities, prompting thousands of homeowners and some public officials to band together to demand government intervention.
"The insurance industry can jack up rates in heartland country and not even cover coastal areas, and make billions of dollars," says Mississippi Attorney General Jim Hood, D, who sued State Farm and several other insurers for failing to pay thousands of Mississippi policyholders for property damage in the wake of Hurricane Katrina in 2005. The cases are ongoing.
"With an industry this big, and companies like State Farm that operate like the robber barons of the 1800s, we need the federal government to have regulatory authority concurrent with the states so companies can't just pull out of a state," Hood told the AARP Bulletin.
But Carolyn Gorman, a spokeswoman for the Insurance Information Institute, a trade group in New York, says that insurance companies are retreating from some of the nation's coastal states and raising rates and deductibles along the Eastern Seaboard because they can't charge enough for a policy to make a profit if a severe storm causes massive damage.
"Insurance companies are in business to sell insurance, so when you see companies no longer willing to sell their product, that's not a good sign," she says. "Insurers are sure they will not make a profit" in states like Florida and Mississippi.
She also called the Massachusetts coastline "one great big target for a massive hurricane," adding that astronomically high real estate values there make it expensive to insure.
"If you want to live where the waves are thrashing, you've got to pay for it," Gorman says. "Simple as that."
But is it? The Consumer Federation of America (CFA), in a study released in January, reported that the insurance industry has sustained record-setting profits in recent years in part by overcharging consumers. It claimed that the industry has imposed large hurricane deductibles (in many cases, homeowners must pay the first $15,000 to $20,000 to fix storm damage), capped home replacement and rebuilding costs and set unjustifiable restrictions on claims.
J. Robert Hunter, director of insurance for the CFA, also denounced the trend by insurers to exclude wind damage from policies, which means homeowners must buy costly wind coverage separately for thousands of dollars more.
"In Florida, Mississippi and Louisiana, this is a crisis," says Joanne Doroshow, executive director of the New York-based Center for Justice and Democracy, a consumer advocacy group. "In New York State, it's becoming a crisis because companies have pulled out of New York City and Long Island on the basis that they're hurricane risks, which seems absurd."
State-run insurance programs are filling the void for coastal homeowners who can't get insurance from the private market. Florida's Citizens Property Insurance, once considered the insurer of last resort, is now one of the largest carriers in the state, with 25 percent of the market. But if a disaster hits and the state program falls short, Floridians could get socked with higher taxes and insurance premiums.
As it stands, "it's not unusual" for homeowners in South Florida's Dade County to pay about $12,000 to $13,000 annually for policies covering fire, theft, contents and wind damage for a home worth $150,000, says Rocky Scott, a spokesman for Citizens Property. He also says insurance rates for condominiums in some locations rose by 300 to 400 percent over the last two years.
Because of spiraling premiums, Robert Frank, a project manager at an engineering firm in Tampa, says he can no longer afford health insurance for his wife and children; he receives employer-sponsored coverage for himself only. To pay his $4,600 homeowner's bill with Citizens Property this year, Frank borrowed from the equity in his home.
"Our quality of life has been ruined by these insurance expenses," he says.
In Mississippi, since Katrina hit and large insurers retreated, the state-run plan has imposed hikes up to 90 percent.
In South Carolina, association insurance costs have gone up sevenfold for some condominium owners. What's more, many of those condo owners are older adults on fixed incomes, Walter Bell, president of the National Association of Insurance Commissioners, recently told a Senate committee hearing on the coastal insurance crisis.
In New York, scores of property owners have turned to nonstandard carriers that take on unusual risk, such as Lloyd's of London, but premiums are much more expensive for less coverage, says Melanie Costantakos, an insurance agent in Long Beach, where homeowners are also facing sky-high rates after several major insurers pulled out of the region.
Moreover, such carriers are not regulated by the states in which they operate. "If Nationwide goes under, you get guaranteed funds from the state. But with these offshore companies, if they don't like your claim or if they go broke, you're out of luck and get nothing," says Hunter of the CFA.
The housing market has also taken a hit in areas where major insurers ceased providing coverage, particularly in Mississippi, Florida and Louisiana.
"Even when you can get insurance, it's so expensive that it makes purchasing a home almost impossible," says Thelma Robichaux, a real estate agent in Houma, La. "I've lost sales because the insurance would have been $600 to $1,500 a month on top of the [mortgage] note."
Dave Bruns, a communications manager with AARP in Florida, which has urged state lawmakers to rein in premiums, says property insurance, soaring property taxes and the lack of affordable housing have contributed to Florida's slowdown in population growth.
During a campaign stop in Florida in late May, Democratic presidential candidate Sen. Hillary Clinton told supporters the government should do more to prepare for disasters, such as creating a national "backup insurance system" for homeowners and business owners.
But her call for a national catastrophe insurance fund is nothing new. In fact, since Katrina pummeled the Gulf Coast, Florida Gov. Charlie Crist (R), Mississippi Attorney General Hood and others have urged federal officials to consider implementing a national catastrophe fund.
Chris Kowalczyk, 46, who lives on a fixed income, practically has one foot out the door of his Hudson, Fla., home. "I borrowed against my credit card to pay my insurance bills this year and last year," says Kowalczyk, who is legally blind. "I'll be putting my house up for sale and moving out of state if we get hit with another storm and rates skyrocket again."
In Eastham, Mass., semiretired real estate broker Paula Aschettino formed a citizens group after residents from Nantucket, Martha's Vineyard and nearby towns received nonrenewal notices from insurers. Citizens for Homeowners Insurance Reform, now 4,000 members strong, pressures lawmakers to tighten regulation of the insurance industry.
"I beg citizens across the country to call state legislators in their hometown," says Aschettino. "Voices make a difference."
Homeowners from Texas to Maine are hoping she's right.
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