Hurricane Season Looms Large
For Insurance Companies

Nearly 70 years ago, a violent hurricane ripped across the south shore of Long Island, then largely farmland. The storm, locally dubbed the Long Island Express, sent 30- to 50-foot waves surging ashore, killing 50 people and 750,000 chickens in the Long Island counties of Nassau and Suffolk.

Tomorrow, a new hurricane season is set to begin, with the ever-present threat that a mammoth storm could deviate from recent patterns making landfall in the Southeast and follow a path similar to that of the Long Island Express. But where chickens scratched in 1938 now sit some of the most expensive homes in the U.S. As a result, the insurance market here is showing glimmers of the kind of fragility that has plagued places like Florida.

In Long Island and New York City, Allstate Corp. has been dropping customers. MetLife Auto & Home, a division of MetLife Inc., is restricting new policies in the Northeast and other hurricane-prone areas. Premiums are going up as much as 20% to 30%, and hurricane deductibles may follow.

A look at Long Beach, a city of 35,000 located on a barrier island off Long Island's south shore, shows how the insurance industry has intensified efforts to limit its exposure in the Northeast.

In Long Beach, part of Nassau County, finding any hurricane coverage at all is getting harder and more expensive. "There are very few insurance companies that are willing to write homeowners' policies right now," says Denis Miller, a Long Beach insurance agent. He says he recently placed one customer with another major insurer, but for an extra $350 annually, almost a third of the prior premium.

In the underground bunker of Nassau County's emergency-management office, a map shows a Category 3 hurricane could propel a storm surge up to 22 feet high into downtown Long Beach.

William Gray, a prominent storm predictor at Colorado State University, and his colleague Phil Klotzbach, put the odds of an intense hurricane hitting the stretch of coast between New York City and Cape Cod at about 1 in 11. That stretch includes the shorelines of Long Island's two counties.

The 1938 Long Island Express was a Category 3 hurricane, as was Hurricane Donna in 1960 -- the last hurricane of such power to strike New York. After Donna hit, Michael Charles, a longtime Long Beach resident, recalls seeing people rowing boats down a street near his boyhood home.

Mr. Charles, now 55 years old, already feels the impact of living in a storm-prone area. For a single-story house with three bedrooms and an attic but no basement, he pays $2,350 for homeowners' insurance, including hurricane coverage. He also has flood insurance through the federal government. But federal flood-insurance figures suggest many Long Islanders aren't prepared for the worst. In Long Beach, only about 40% of households are covered by the federally backed flood-insurance program. That's a much lower percentage than in much of New Orleans at the time of Hurricane Katrina; in many parishes in the metropolitan area, more than 60% of households had federal flood insurance when the storm hit.

And in some parts of Long Island, the percentage of households with flood insurance falls lower than Long Beach. In Freeport, a village northeast of Long Beach, it's just over 20%. To the west, in the rich precincts of Southampton, the figure is barely 16%.

Allstate, which recorded a $1.55 billion hurricane-related loss in last year's third quarter, says it is dropping thousands of customers in Long Island's two counties and six other nearby counties because it became too exposed there. It has 26% of the homeowners' market in the eight counties where it pulled back, compared with 17% statewide. North of Florida, there is no region along the Atlantic Coast where Allstate has as large a market share as in those eight counties, says Ron Stouffer, the company's vice president for catastrophe strategy. "We can't continue to grow in those areas," says Mr. Stouffer.

MetLife Auto & Home has imposed strict guidelines on what types of new policies it will write in hurricane-prone areas, says Bill Mullaney, president of MetLife Auto & Home. The company is increasingly looking to restrict coverage to homes with protective features such as hurricane shutters or storm-proof windows.

In New York and neighboring states, MetLife wants to leave more risk with consumers, by seeking to raise hurricane deductibles. That deductible for Long Island policies is 2%, and the company wants to make it 5% within a mile of the coast there and 3% inland. "Our expectation clearly is that we're going to be writing less business" in hurricane-prone areas, Mr. Mullaney says.

Both insurers say the hurricane of 1938 has factored into their thinking. Back then, few people understood what was coming. While still out at sea, the hurricane at one point was traveling at 70 miles an hour, which remains the record for the fastest moving storm, according to a history compiled by Scott Mandia, a meteorology professor at Suffolk County Community College. At the time, however, most forecasters believed the storm would veer out to sea.

Instead, it plowed into Long Island, but the damage was limited because so much of the island was farmland. A repeat now could be deadlier, and almost certainly costlier. Then, Long Island was home to 600,000 people. Now it has more than 2.8 million. Median home values have risen 30% since 2003 to $475,000, among the highest values in the nation.

"If that were to hit today in the same area, it would rival Hurricane Andrew, if not more so, as far as damage done," says Mike Wiley, meteorologist in charge of the National Weather Service's forecasting office on Long Island. If the most forceful winds hit closer to New York City, he added, "It would surpass the damage that we just saw with Hurricane Katrina." And he adds that "statistically, we're overdue."

Email your comments to rjeditor@dowjones.com.