Homeowners Gamble on Hurricane Insurance

June 1, 2006 — -- Call it the hurricane gamble, Florida's version of Russian roulette.

Lidia Schwartzbaum knows it all too well. Last year, she watched her home-insurance premiums double. She just got this year's bill, which is $14,000 -- another whopping increase, courtesy of eight hurricanes that battered the United States the last two years.

After $72 billion in claims, the home-insurance industry is running for cover -- in Florida. Twenty-five insurance companies have either pulled out of the state or limited new policies. Allstate, which dropped 95,000 policies last year, said it would not renew 120,000 policies when they come up later this year.

A Growing Problem

The problem isn't just in Florida. Allstate is not writing new policies in 14 Texas counties. "Insurance anxiety" has even spread to the Northeast. MetLife and Allstate say they will not write new policies in Long Island, N.Y., where there hasn't been a hurricane since Bob hit in 1991.

Even those who still can get insurance are facing big problems and big bills. In Florida, State Farm is asking regulators to approve premium increases of 59 percent for almost 1 million customers.

All of this has hit home for Schwartzbaum. She has weathered 29 hurricane seasons in her Miami Beach home. She is contemplating going without wind insurance for her 30th hurricane season. That would mean she could save almost $10,000.

Even if she paid her premium, Schwartzbaum realizes she'd still have a $10,000 deductible to meet before she could file a claim.

"I might not renew it," she said. "I might completely do without."

That is the hurricane gamble. Schwartzbaum can save money out-of-pocket, but she could be ruined if a hurricane does serious damage to her home. Given that forecasters are predicting another hyperactive hurricane season, it is a high-stakes game for homeowners.

"The cost of insuring rising values of property with more and more people living by the coast is not something that the country has faced before," said Gordon Stewart, president of the Insurance Information Institute. "And it has created a serious set of problems."

Potential Ruin for States and Homeowners

Tom Gallagher, Florida's chief financial officer, worries that this trend could have catastrophic consequences for states along the Atlantic and Gulf coasts if it continues.

"When you have no insurance available, you can't get a mortgage," Gallagher said. "You have no real estate market. And we have tremendous economic problems."

Schwartzbaum proudly displays the 20 hurricane shutters she put on every one of the windows of her home years ago. She never dreamed they might one day be her only line of defense between hurricanes and financial ruin.

For so many people like her, it is becoming a choice between hurricane gamble or giving up coastal living.