Home Insurance Premiums
Increase Across the U.S.

(See Corrections & Amplifications item below.)

The hurricanes that ravaged the Gulf Coast last summer are beginning to wreak havoc with homeowners' insurance coverage in states far removed from where the storms hit.

Still reeling from an estimated $56 billion of hurricane-related losses, major insurers are dropping policies or not writing new ones in coastal areas from Texas to Florida and up the Eastern Seaboard as far north as Massachusetts. Insurers including Allstate Corp. and Nationwide Mutual Insurance Co. say they need to reduce the financial risk that could come with fresh storms as soon as this year. But the moves have left homeowners in a number of states scrambling to find new coverage, often at higher cost.

Some home insurers also are winning regulatory approval to raise premiums in states hit by hurricanes Katrina, Wilma and Rita. Now, rate increases are expected to spread far beyond those areas, as the industry comes under new pressures related to hurricanes. Reinsurance companies, whose business it is to insure the insurers, have begun charging sharply higher prices in anticipation that hurricanes will become more frequent and more intense, and some primary insurers say they will try to recoup these added costs from consumers.

Allstate, the nation's second biggest home insurer, after State Farm Insurance Cos., says it plans to seek premium increases in a "majority" of the 49 states in which it does business to help offset higher reinsurance costs. The company recently raised home-insurance premiums by 8.5% in New York state and says it plans soon to ask regulators in Connecticut and New Jersey to approve rate increases.

In Massachusetts some homeowners already are paying higher premiums as insurers abandon certain local markets. While the state hasn't experienced a devastating hurricane in more than 50 years, insurance companies, including Andover Cos. and Hingham Mutual Group, increasingly are refusing to write homeowners' policies on Cape Cod and on the islands of Nantucket and Martha's Vineyard, where many of the East Coast élite keep vacation homes. That has driven many homeowners into the state's insurer of last resort, the Massachusetts Property Insurance Underwriting Association, also known as the FAIR plan. But the plan's premiums often run much higher than the private insurance it replaces, and coverage is only available up to $1 million of insured value. Currently about 30% of homeowners in the state's coastal areas are enrolled in the plan, up from just 2% two years ago. The plan is seeking regulatory approval for a 25% increase in premiums along the coast, and a 13% increase in the rest of the state.

Wendy Northcross, president of the Cape Cod Chamber of Commerce, says she hunted for several months for new insurance for her modest, three-bedroom house when her long-time insurer withdrew from the Cape Cod market last year. "I was literally starting to panic, and I'm not prone to panic," she says. Ms. Northcross says she finally ended up in the state's FAIR plan, which boosted her premium to $1,200 a year from $800 under her previous policy.

Other states barely touched by last summer's hurricanes also are feeling the impact. In New York, Allstate, the largest insurer in the state, recently announced it would drop 28,000 policyholders in eight counties, including New York City, citing "overexposure" to potential weather related losses there. But other insurers, including State Farm and Liberty Mutual Group, have said they would continue writing business in the state.

In Rhode Island, insurers are beginning to alert homeowners in coastal areas that their policies won't be renewed, according to the state's association of independent insurance agents. Premiums on continuing policies in the state have risen from 10% to 15% in the past year, and more insurers are imposing higher deductibles for windstorm damage, the association says. And in Maine, regulators say they are bracing for what they expect will be efforts by insurers to boost premiums because of increased reinsurance costs.

Reshaping the Industry

The latest developments come more than 12 years after Hurricane Andrew, previously the most expensive U.S. storm, led to widespread losses among insurance companies and reshaped the home-insurance industry. Companies raised rates, states set up high-risk and catastrophic insurance pools, and the industry introduced such features as the separate windstorm deductible, which transfers much of the financial risk back to homeowners themselves.

Today the industry is in much better shape. Despite suffering the largest underwriting losses in its history from the 2004 and 2005 hurricane seasons, the U.S. insurance industry as a whole in those years posted underwriting profits, which exclude investment gains, for the first time since 1978, according to a report by Guy Carpenter & Co., a division of insurance-brokerage company Marsh & McLennan Cos. This is partly because of the industry's greater reliance on reinsurance, which picks up as much as half the cost of primary insurers' payouts, according to industry estimates.

Now, insurance and government officials are blaming reinsurers for many of the latest problems besetting homeowners. Following the 2004 and 2005 hurricanes, the reinsurance industry, including such global players as Swiss Reinsurance Co. and Munich Re AG, drew up new projections of potential losses from future storms. The projections, citing natural weather cycles as well as global warming resulting from human activity, point to more frequent and more intense tropical storms and hurricanes over wider areas of the U.S. for the next 10 to 20 years. The financial cost of the potential disasters also was ratcheted sharply higher. As a result, reinsurers, which don't need regulatory approval to boost rates, are jacking up the prices they charge primary insurers by 30% to 125% nationwide, and more in some storm-hit areas, according to Guy Carpenter & Co.

Problems are most acute in areas that suffered hurricane damage. In Florida, insurers including Allstate, Nationwide Mutual, a unit of Nationwide Financial Services Inc., and Poe Financial Group, southern Florida's second-largest insurer and a major condominium insurer, recently have said they would stop writing new business anywhere in the state. Those moves came after Nationwide Mutual last summer won Florida approval for a 21% rate increase.

Some home insurers in Mississippi, Louisiana and Texas also are refusing to write new policies, or are leaving vulnerable coastal communities. Aside from higher reinsurance prices, soaring construction costs are pushing up premiums. In Louisiana, state regulators recently approved a 49% rate increase for homeowner policies sold by Louisiana Farm Bureau Mutual Insurance Cos. and a 19% rate increase for Fireman's Fund, a unit of Allianz AG.

Meanwhile, insurers in Mississippi, Texas and Alabama are increasing deductibles for windstorm damage, which can add thousands of dollars in out-of-pocket costs to consumers when they actually file a claim. Some insurers also are refusing to provide any windstorm coverage, requiring homeowners to seek it from state catastrophe pools.

What to Do

As premiums rise and insurers look to cut risk exposure, industry experts advise consumers to keep a low profile. Self-insure as much as possible by carrying as high a deductible as you can afford to keep premiums low and remain attractive to insurers, they say. Also, avoid filing small or petty claims. Never file a claim for maintenance-related damages such as a chronic water leak; even one such claim could cause you to be dropped by your insurer.

When purchasing home insurance, buy from a company with a high financial rating from such ratings firms as A.M. Best Co. and Weiss Group Inc. to minimize the chance that your insurer will drop you because of its own financial problems or fail to pay a claim. Poe Financial, for example, cited its own financial difficulties from hurricane losses as a reason for pulling back its coverage in Florida.

Email your comments to rjeditor@dowjones.com.

Corrections & Amplifications:
Allstate Corp. recently applied to raise home-insurance rates in Connecticut but withdrew the request and said it would submit a new application, according to the Connecticut Insurance Department. In addition, Nationalwide Financial Services Inc. is a subsidiary of Nationwide Mutual Insurance Co. This article incorrectly attributed Allstate's plans to the company and incorrectly identified Nationwide Financial as the parent company of Nationwide Mutual.