Coastal dwellers pay high price for paradise

WASHINGTON – Sept. 24, 2007 – Love Florida’s weather? Remember a hurricane may be over the horizon.

Buying a house? Keep in mind the cost of insurance.

Need some relief? Don’t expect the government or other states to subsidize your lifestyle, the Bush administration and insurance leaders are saying to the people of Florida.

In the eyes of the insurance industry, people who settle on a peninsula that juts into a sea of potential hazards should be prepared to pay a price to match the risk. Industry leaders, backed by the administration, are using this argument to try to fend off legislation in Congress to create a national insurance pool to keep rates affordable.

For many current residents, the cold realities of a sudden jump in their cost of living and resistance to their pleas for help have come as a shock.

“What am I supposed to do? I live here,” said Carl Moon, 59, an exasperated homeowner in Sunrise who moved to Florida as a child. “I have a home here I cannot sell. Where am I going to move? It’s not my fault that hurricanes hit Florida. There are plenty of people who literally cannot afford to live here.”

To Moon and other cash-strapped residents, the industry has an answer: Get out the storm shutters. Secure your house to reduce potential costs. And if you can’t afford insurance, look to the government for housing assistance, just as you’d seek Food Stamps if you were hungry and couldn’t afford food.

“People are perfectly welcome to live and build in those areas, but they should not expect a subsidy from the rest of the country to do so,” said Robert Hartwig, senior vice president and chief economist for the Insurance Information Institute, a New-York based industry research group. “The risk is well known. Yet the population grows by almost a thousand a day. They tend to cluster in coastal areas. That suggests the risk of hurricanes is something people do not consider when building, buying and locating.

“If costs rise above expectation, you accept these costs or makes changes to lower them, like living somewhere else or upgrading your home to make it more resistant.”

South Florida Congressmen Tim Mahoney and Ron Klein have taken another approach, proposing a bill that would establish a national catastrophe fund. The idea is to pool resources from states and the federal government, spread the risk and limit the liability faced by insurance companies so they can charge lower premiums.

These freshmen Democrats say they are not seeking a bailout for Florida or an incentive to take risks. Their bill would require participating states to enforce building codes to encourage storm-resistant structures and other measures to reduce the potential cost of disaster. The level of risk still would determine premiums, but the fund would lessen the total liability faced by the insurance companies.

“Because of a higher risk of where we are living, Florida will take on a higher responsibility,” Klein said. “We in Florida will pay more than people in Indiana and Illinois.”

He and Mahoney represent homeowners shocked by sudden hikes in premiums after major hurricanes in 2004 and 2005. Many came during the 1970s and ‘80s, when Florida was spared from major storms and premiums were relatively low. They basked in a sunny environment of low taxes and cheap real estate.

That day is done, leaving some residents feeling that they can’t afford to stay and can’t afford to move. Some say they are pressed to find insurance at any price as companies withdraw from Florida.

The state’s major insurers – State Farm, Allstate and Nationwide – have all dropped policies to reduce their liability along the coast of Florida.

“Why aren’t these companies required to give policies throughout the country? Not everyone can live in remote areas that don’t have home losses,” said Michael Guest, a retired insurance adjuster and homeowner in Boca Raton. “I’m willing to pay higher insurance, provided we can get it.”

He and other consumers accuse insurance companies of resisting government intervention so they can charge unlimited rates to fatten their profit margins. Property insurers made a profit of $63.7 billion last year.

A few insurance leaders see a need for government involvement to stabilize the market.

“The market alone can’t address the problem,” said Joseph Annotti, senior vice president of the Property Casualty Insurers Association of America, an industry group that supports the concept behind the Klein/Mahoney bill. “There’s too many peaks and valleys. In years when there are no storms, we are accused of making obscene profits. When you get a big storm or multiple storms you couldn’t charge enough.”

“We recognize the need for some kind of federal backstop for natural disaster risks.”

But most insurers remain wary of government intervention for fear it would encourage other states to form pools similar to Florida’s Citizens Property Insurance Corp. and crowd out the private market. Florida created a state-run insurance pool for homeowners who couldn’t get private insurance after Hurricane Andrew in 1982. Insurers say the pool accelerated the departure of private insurance companies.

While trying to fend off government intervention, insurers say higher premiums are just part of the cost of living, much like tax rates and real estate prices.

“There is a cost associated with living in paradise,” said Eric M. Goldberg, associate general counsel of the Washington-based American Insurance Association. “You may like the ocean view, but you have to realize it’s more risky and more expensive. If you can afford it, that’s fine.”

For residents like Carl and Madelyn Moon who can’t afford it, the high price of insurance has darkened the dream of living in South Florida.

“It’s a struggle. I work every day. My car is a ‘96. For people like me, the lower middle class, we do need help,” said Madelyn Moon, 54. “I’ve lived here since I was 16. At least here, I have my friends and my temple. Where am I going to go?”

Among states vulnerable to hurricanes, the following have the highest insured coastal exposure (in billions of dollars).

Florida: 1,937.3
New York: 1,901.6
Texas: 740.0
Massachusetts: 662.4
New Jersey: 505.8
Connecticut: 404.9
Louisiana: 209.3
South Carolina: 148.8
Virginia: 129.7
Maine: 117.2
SOURCE: Insurance Information Institute, AIR Worldwide, 2004

© 2007 South Florida Sun-Sentinel. Distributed by McClatchy-Tribune News Service.