Hurricanes give reason to look at insurance

PERSONAL FINANCE

April 30, 2006|By EILEEN AMBROSE | EILEEN AMBROSE,SUN COLUMNIST

We are still living with the repercussions of Hurricane Katrina, and yet it's time to gear up for a new hurricane season starting in a month.

For homeowners, this means: Assess your insurance needs. Insurers last year received record catastrophe-related claims of about $58 billion, with two-thirds of that due to Katrina. The outlook for this season isn't better. Weather forecasters say we're in for another rough hurricane season.

As you look at whether you're adequately protected, know that insurers are doing the same. Companies nationwide are attempting to cut their risks and losses. Some are no longer writing new homeowner policies in areas prone to hurricanes.

Homeowners renewing policies also may be in store for higher premiums or changes in deductibles that would make them pay more out of pocket for hurricane-related claims.

Start your insurance checkup by studying your exposure to flooding. Plug in your address at the government Web site, www.floodsmart.gov, to see the likelihood of your home being under water some day.

Those in high-risk areas are usually required by their mortgage company to buy federal flood insurance. Homeowners in areas less susceptible to flooding often don't bother to buy a policy. But the Federal Emergency Management Agency, which oversees the federal flood insurance program, reports that one-quarter of flood claims come from residents in areas with low to moderate chance of flooding.

"If you live where trees used to be and now there is a parking lot, you probably need it. There is no ground absorbing the water," said Carolyn Gorman, a spokeswoman with the Insurance Information Institute.

Of course, visions of Katrina spurred the sale of flood policies, which grew by 215,000 to 4.89 million in the first six months after the hurricane. Still, insurance experts say sales aren't as brisk as they should be.

Insurance agents in the Baltimore area say they get more questions about flood insurance these days, but there isn't a deluge of takers. With higher gas prices and other financial pressures, homeowners figure they'll take their chances a flood won't strike, agents said.

While premiums are steep in areas at high risk of flooding, the cost is significantly lower in other areas, even those bordering flood-prone neighborhoods, agents said. You can buy a federal flood policy through an insurance agent. It takes 30 days for a policy to kick in, so buying now means your protection will be in place near the start of the hurricane season.

The most coverage you can buy under the federal program is $250,000 for a house and $100,000 for its contents.

Premiums depend on a variety of factors, including proximity to water, previous losses or any measures taken to reduce flooding, said Butch Kinerney, a FEMA spokesman.

Maximum coverage in a high-risk area can run about $1,820 for the "Cadillac of policies," Kinerney said. Similar coverage for a house in a low-risk area with no prior flood claims is $352, he said. The cost is even lower for those buying less coverage.

Most homeowners will buy their flood insurance from the government, but some private insurers catering to high-end clients also offer limited coverage.

AIG Private Client Group, for example, includes flood coverage in homeowner policies in a handful of states. Maryland isn't one of them. But the insurer sells excess flood insurance in all states. This insurance picks up where a customer's federal policy leaves off.

The Chubb Group of Insurance Cos. this month introduced flood insurance that covers homeowners from the first dollar of damage up to $15 million. So far, the policies are sold in the inland states of Arizona, Colorado and Illinois. More states will be added this year.

With homeowner policies, many consumers can expect other changes at renewal time. It might be harder to find an insurer or terms might change. Recently, for example, Allstate said it would no longer write new policies in parts of New York and in 14 counties along the coast in Texas.

As always, you should read the details of your policy, but paying extra attention this year might avoid ugly surprises later if your house is damaged.

"Maryland is very lucky. We haven't had carriers pulling out," said Randi Johnson, an associate commissioner with the Maryland Insurance Administration. But some insurers are writing fewer policies in Maryland's coastal communities and adopting stricter underwriting standards, she said.

Allstate, for example, took those steps here after Tropical Storm Isabel in 2003, Johnson said.

Nationwide Mutual Insurance Co. this year also is writing fewer new policies along Maryland's coast because of higher construction costs, rapid home appreciation and the forecast of more severe storms ahead, said spokesman Joe Case.

"That's why people have to shop around," Johnson said.

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