For more than 50 years, Stan Virden had relied on the same insurance carrier to protect his homes, including his current three-bedroom home on Alabama’s Gulf Coast. Though he had never filed a claim, three years ago Virden’s insurer refused to renew the policy.
The 76-year-old retired naval officer scrambled to find an insurer willing to write a homeowner’s policy in a region at high risk for hurricanes and floods. He found one, but it’s no bargain. Virden is paying $6,000 a year for a policy with a deductible of $18,500 for hurricane damage.
“This is decimating my savings,” says Virden, who lives on a fixed income with his wife, Beth, 64.
He can thank Hurricane Katrina for his insurance woes. After America’s costliest hurricane devastated much of New Orleans and parts of neighboring states in 2005, insurers paid out more than $40 billion and national companies retreated from the region.
Five years later, policies are slowly becoming more available for the millions of Americans living along the Atlantic and Gulf Coast, but the costs are astronomical.
Since Katrina, the average insurance rate has jumped 25 percent statewide and a whopping 100 percent in and around New Orleans, according to Louisiana Insurance Commissioner James J. Donelon.
Besides paying higher premiums, homeowners are finding they must pay more out of their pockets before coverage kicks in.
In the Gulf Coast states of Alabama, Mississippi, Louisiana, Texas and Florida, as well as 13 other states and D.C., policies are allowed to include a hurricane deductible as high as 5 percent of the property’s value, or $12,500 on a $250,000 home. What’s more, some insurers won’t even offer coverage for damage from high winds, storm surges or flooding.
Gambling on no coverage
As a result, a growing number of coastal property owners who have paid off their mortgages, and therefore aren’t required by a lender to carry insurance, are rolling the dice and going without coverage.
In two coastal counties in Alabama, researchers found that up to 50 percent of homeowners without a mortgage have dropped expensive coverage for wind damage. John Wells, a spokesman for the Mississippi insurance commissioner, says more older people in his state are doing the same.
“Insurance seems indispensable when you are in a crisis,” says Bob Hunter, director of insurance for the Consumer Federation of America, but “people will take a chance when they feel they have no options.”
With private companies bowing out, government is stepping in.
State-sponsored high-risk insurance pools from Texas to North Carolina have taken on more than $345 billion in hurricane damage exposure, says Rep. Gene Taylor, D-Miss. He sponsored a bill that would expand the National Flood Insurance Program to include coverage for windstorms.
“There is no functioning, competitive market for property insurance in coastal areas. Millions of homeowners and business owners are required by their mortgages or lenders to buy windstorm coverage, but private insurance companies are not required to sell it to them. Since Hurricane Katrina, insurance companies have abandoned coastal communities, creating an urgent insurance crisis along the Gulf Coast and the Atlantic Coast,” Taylor said in a statement.
At age 70, retiree Judy Goodman says she wouldn’t be able to pay for a replacement residence if Mother Nature destroyed her modest $170,000 home near Gulf Shores, Ala. Yet she gave up on finding affordable insurance after her policy was canceled about three years ago.
Emptying the piggy bank
But to go without insurance, Goodman first had to pay off her mortgage. And she drained her retirement savings to do it. “You may imagine the anguish this has caused me. I’m saying my prayers real hard when a hurricane is on the way,” she says.
Annie Carrell Legget, 67, opted to keep fire and theft insurance this year on her 2,000-square foot home near Mobile Bay, Ala., but didn’t buy coverage for storm damage. She understands the risk but says, “It couldn’t be any worse than being fleeced by the insurance company.”
Louisiana Insurance Commissioner Donelon says high insurance costs are just part of life for homeowners in coastal communities. Donelon himself pays $7,200 in annual premiums for his suburban New Orleans home, and would have to fork over $9,000 before storm coverage would kick in.
South Carolina began offering insurers incentives about three years ago, says Ann Roberson, executive assistant to the insurance commissioner, and a dozen new carriers are writing policies as a result. The state also created Catastrophe Savings Accounts, which let homeowners set money aside tax-free for storm-related expenses.
In Florida, the state-run pool for insurance coverage was meant to be the option of last resort. But it has become the No. 1 insurer in the state, with more than 1 million policies.
Even the rates offered by Florida’s insurance pool are too high for residents like Seymour Fleck, 84, of Delray Beach. He says he let his condominium policy lapse this year because premiums were simply unaffordable. Now he keeps his fingers crossed and hopes that this year’s hurricane season will end quietly.
Bob Calandra is a freelance writer living near Philadelphia.