Families Need to Shop to Find Good Home Coverage

May 30, 2008

Since Hurricane Katrina blew ashore nearly three years ago and caused massive damage along the Gulf Coast, families in many coastal states have found it difficult and costly to get comprehensive homeowners insurance.

People generally are paying more to get less coverage, experts say. That means that as this year’s hurricane season begins, it is especially important for homeowners to shop around for the best policies, be aware of what is covered and what isn’t, and consider purchasing federal flood insurance.

Government forecasters expect the 2008 hurricane season to be slightly heavier than average, with an estimated six to nine hurricanes forming. The National Oceanic and Atmospheric Administration also said at least two of the storms could reach major status, with winds of more than 110 miles per hour.

If creating an emergency evacuation plan is a family’s No. 1 priority, then getting good property insurance should be No. 2.

Tom Crowley, a regional director with the Independent Insurance Agents & Brokers of New York, said that after Katrina, a number of major insurance companies such as Allstate and State Farm refused to renew some homeowners’ policies to reduce their exposure in coastal areas, even if the homes were a half-mile or more from the water.

Companies that continue to write policies for houses along the coasts have sharply increased premiums, he added.

“Three or four years ago, insurance for a $300,000 home cost about $1,000 a year,” Crowley said. “In the past year, it’s gone to $1,800 to $2,000.”

Richard Attanasio, vice president for property/casualty ratings at A.M. Best Co., a credit rating agency based in Oldwick, N.J., said consumers needed to shop around to try to hold down costs.

“It might require more work than it did in the past,” he said. “There are risks where people are living, and companies have to price for those risks.”

Consumers need to pay close attention to what’s included and what’s excluded from coverage, Attanasio added.

Agreeing to a “hurricane deductible,” for example, can hold down the premium price but expose the consumer to higher out-of-pocket costs if there’s storm damage. he said.

The hurricane deductible clauses in policies for homes near the coast often require the homeowner to pay some of the repair costs, typically 5 percent. So if a house insured for $200,000 is seriously damaged in a hurricane, the homeowner would have to pay $10,000 toward repairs before the insurance kicks in.

The homeowner might have a more-traditional deductible of, say, $1,000 for other events, such as a fire.

Besides excluding flood damage, many companies in recent years also have dropped coverage for mold or set limits on payouts, Attanasio added. But insurers may give a break on premiums for homeowners who have built or upgraded their properties to withstand hurricane-force winds and other storms, he said.

J. Robert Hunter, a former Texas insurance commissioner who is director of insurance for the nonprofit Consumer Federation of America in Washington, D.C., is especially critical that the latest premium hikes have come as property-casualty insurers are enjoying record profits.

And the higher premiums have been accompanied by less generous coverage, Hunter pointed out.

In addition to hurricane deductibles, most policies also have capped replacement costs. That means, for example, that if a family has purchased insurance to rebuild a $200,000 home it will get just that amount after a storm, even if the cost of materials and labor are inflated sharply by post-storm shortages.

Hunter’s advice: “Raise your deductible, buy the minimum limits and don’t buy any frills.”

New York insurance agent Crowley, who led a coastal insurance task force in his home area of Suffolk County, said he is concerned that some families are dropping coverage. “As with the health insurance crisis, some people are choosing not to carry insurance … which is kind of rolling the dice,” he said.

As many homeowners learned after Katrina, almost all standard policies cover damage from wind and rain but exclude flood damage. Families who want flood protection can ask their agents to get them coverage under the National Flood Insurance Program.

The NFIP provides residential coverage of up to $250,000 for a home and $100,000 for its contents. The NFIP, which maintains the Web site www.floodsmart.gov with details about the policies, says premiums average about $500 a year.

“You can buy it easily, and that’s a good thing,” Crowley said.

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