Recovering Miss. Businesses Face Hefty Commercial Insurance Hikes

November 28, 2006

Hurricane Katrina’s 100-plus mph winds only damaged the eaves of Morris Strickland’s shopping center a few miles from the Ocean Springs, Mississippi beach.

The damage cost less than $2,000, and stores leasing space in Eagle Plaza quickly reopened.

Yet even a relatively small claim didn’t stop Strickland’s $8,000 annual insurance premium from catapulting to $31,000 this fall.

“I was just staggered,” he said. “As more small businesses are struggling to get open and they get their insurance increases, they are going to say, ‘I can’t open.”’

A 268 percent hike in commercial insurance rates from the state’s high-risk insurance pool is one of the hurdles slowing recovery for small businesses on the Mississippi Gulf Coast.

Gov. Haley Barbour has asked the U.S. Department of Housing and Urban Development for more aid to offset the massive rate hike. He said he doesn’t know how much the state could receive or when approval might come. But he’s encouraged relief will arrive.

In the summer, the state received $50 million to lower a homeowners insurance hike in the same pool from 397 percent to 90 percent.

Higher insurance rates are an obstacle not only for small businesses but also for landlords, he said. Higher insurance can translate into higher rents.

“The insurance rates can be $300 a unit a month,” he said. “You add that to the rent and all of the sudden they become where there are not enough people who can afford to rent them.”

Keeping insurance rates reasonable in the Mississippi Windstorm Underwriters Association _ known as the wind pool _ will be a challenge for Barbour and state legislators. Any tweaks to the pool that covers wind and hail damage in high-risk areas could reverberate statewide.

The wind pool insures businesses and houses that the private market refuses.

More people have been forced to buy insurance from the pool because private firms will not write contracts on the coast.

So far, both State Farm and Allstate have said they will limit how many policies are issued within a few miles of the water’s edge.

A larger pool worries insurers who write policies in central or north Mississippi. When damages paid by the pool exceed premiums collected, the private market chips in through an assessment based on its customer base.

After Katrina, private firms paid more than $500 million for damages to the pool.

“A company in Tupelo might limit its writings because the more policies it has, the bigger the assessment,” Insurance Commissioner George Dale said.

His office is working with groups such as the Gulf Coast Business Council to explore ways to stabilize the wind pool. Lawmakers would need to make changes in 2007.

“We’ve got to find a solution to having affordable insurance for people who live on the Gulf Coast,” he said.

The business council has recommended offering tax incentives for companies to cover wind and hail damage in high-risk areas. This would cut the number of people in the pool and lower rates.

“We’ve got to solve this problem,” said Ronald Peresich, a Biloxi attorney and co-founder of the Gulf Coast Business Council. “Right now, it’s holding back our ability to fully recover after the storm.”

Some people must pay the 268 percent hike on their business and the 90 percent increase on their home insurance.

“They catch it on both ends,” Peresich said.

Another suggestion is to allow insurance companies to cover losses from all of the customers over a period of years. Utility companies are allowed to recoup damages this way.

The council also wants lawmakers to throw a chunk of money annually into the program.

Rep. Diane Peranich, D-Pass Christian, has suggested sending a portion of sales or gaming tax from coastal counties into the pool.

Also, the council proposed adding certain types of unregulated insurers to the list of firms required to participate in the pool.

Companies that offer surplus lines operate in the state without oversight from Dale’s office.

“They come in and write when no market is available,” Dale said. “They don’t surface until the market becomes very hard. There’s no protection if they go broke.”

Barbour’s request and legislative repairs need to make insurance affordable for small businesses, said Strickland, president and CEO of Eagle Enterprises.

Large companies with operations out of state can better absorb the cost, he said. However, small Mississippi-owned businesses fuel the coast economy.

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