Waiting for the Big One

Insurers paid more than $50 billion in claims for hurricanes Katrina, Rita and Wilma in 2005, hammering the previous record of $27.3 billion in 2004. With the streak of storms predicted to continue, homeowners in the affected areas shouldn't be surprised to see their rates surge by 20% to 40% or more this year, predicts Robert Hartwig, chief economist for the Insurance Information Institute.

But it may come as a shock to residents of Westchester County, N.Y., just outside New York City and 1,300 miles north of New Orleans, that they also are paying the price for the heavy weather.

"We're very concerned that we could see a major hurricane in the Northeast sooner rather than later," says Ken Reeves, director of forecast operations at AccuWeather.com. "The storm could take a path like the 'Long Island Express' of 1938, which grazed North Carolina, went up the Eastern seaboard and caused tremendous damage on Long Island and in New England."

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Allstate, with nearly one-fourth of the market share in the densely populated and expensive New York area, is taking the threat seriously. It has stopped issuing new policies to residents of the leafy Westchester suburbs, as well as to residents of New York City's five boroughs and two counties on Long Island. It also plans to drop about 36,000 of the 450,000 New York-area customers whose policies come up for renewal this year.

Risk averse

Insurers can't raise rates in other parts of the country to subsidize their losses in the Southeast. But companies are looking more closely at their risk exposure and scaling back.

In addition to Allstate, regional insurers are abandoning the Massachusetts coast and dropping thousands of customers. Of those companies that remain, many are asking for rate increases of 25% to 50% this year. Allstate and MetLife also have talked with Connecticut's insurance department about raising rates and increasing hurricane deductibles.

In some states, homeowners may find that windstorm deductibles require them to pay 2% to 4% of their home's value before insurance kicks in. That could mean as much as $10,000 to $20,000 on a home insured for $500,000.

On the other hand, flood insurance is still relatively inexpensive; even residents of inland areas that aren't in a flood zone should consider buying it.

"I've been telling my customers that they need to think about flood insurance," says independent agent JoAnne Murray of Tarrytown, N.Y., in Westchester County. Much of that county still is considered a preferred-risk zone by the national flood insurance program. That means residents can purchase maximum coverage of $250,000 for just $350 per year (see www.floodsmart.gov).

To keep your premiums down -- and your coverage in place -- homeowners in general should also raise their deductible to at least $1,000 to avoid the temptation to file small claims. "People with a claims history are clearly a target for nonrenewal," says George Yates, an agent in East Hampton, N.Y. Learn more about how to maintain your coverage.

Storms' wake

Not surprisingly, the situation is even worse in Florida, where residents filed nearly three million hurricane claims in 2004 and 2005. Since December 2004, 13 insurers have stopped writing homeowners coverage in the state. Florida Citizens, the state's high-risk pool, is now its second-largest insurer. Nearly 100 companies have filed for rate hikes in the first four months of 2006. One of them, Florida Peninsula Insurance Co., asked for an average increase of 92%.

Even homeowners who didn't incur hurricane damage are feeling its effects. Judy Bennett's brick ranch house on a hilltop in Panama City, Fla., was insured by Safeco for 28 years, during which she never filed a claim. Bennett was careful to trim trees -- one of the most common causes of hurricane damage -- and make storm-resistant home improvements.

But when Safeco pulled out of Florida early this year, Bennett found herself without coverage. She sought help from independent agent Trey Hutt, whose staff searched for nearly a month before getting USFG to write a policy on Bennett's home (find an independent agent at www.iiaba.org).

The company required Bennett to install a new electrical panel and increase her windstorm deductible to 3%. She now pays $2,328 per year for $230,000 of coverage, three times her old premium and a hefty chunk of her retirement income. "That was kind of hard to take," says Bennett. "But I feel very relieved that I have the insurance."

Meanwhile, if you don't live along the Atlantic or Gulf coasts, consider yourself fortunate when it comes to insurance. Hartwig expects homeowners premiums to increase by just 2% to 4% in the rest of the country, primarily because of higher construction costs.