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Property Insurance Woes Stifle Mississippi Rebuilding Effort Five Years After Katrina


Posted on 31 Aug 2010

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Five years after Hurricane Katrina changed the south Mississippi landscape forever, the cost and availability of property insurance continue to have a stranglehold on the economy.

And the end is nowhere in sight, insurance reform proponents said, as the consumer-friendly legislation they write and advocate gets delayed or outright shot down.

"The exorbitant cost of insurance pervades all aspects of our economy, in an obviously negative way," said George Freeland, executive director of the Jackson County Economic Development Foundation.

Some real estate agents said they've seen deals fall through because of insurance. When someone wants to buy or build a business or house, they said, one of the first things agents do now is get insurance quotes.

"We clearly know that it has been an impediment to rebuilding," Jack Norris, president of the Gulf Coast Business Council, said.

"You just have to drive up and down Highway 90 to see that."

The storm caused a record $41.1 billion in insured losses across six states, according to the Insurance Information Institute.

Not counting payments to NFIP policyholders, State Farm said it paid out more than $3.8 million related to about 400,000 claims, and ended up pulling back drastically on the coast after Katrina and other destructive storms of 2004-05.

State Farm stopped writing property policies in parts of coastal Mississippi in 2008, and that same year rate increases of 33 percent to 48.5 percent on the coast were approved from a 2006 filing. An increase of 19.5 percent was filed and approved last year.

Another hike is pending.

State Insurance Commissioner Mike Chaney said he would not allow any new increases to take effect during hurricane season.

Mark Cumbest, broker/owner of Cumbest Realty, who was appointed by Gov. Haley Barbour to serve on the Mississippi Insurance Underwriting Association's Wind Pool Advisory Council, said the situation has been a major roadblock to both residential and commercial recovery.

Cumbest said that when his company works with potential buyers, he and his agents make sure they understand the costs associated with the purchase, including insurance. He said his company has been fortunate enough to avoid sales falling through because of unexpected insurance costs, but others have not been as lucky.

Matt Parker of Parker & Rankin Real Estate in Pascagoula said he's had several homebuyers back out when they found insurance costs exceeded mortgage payments.

Mississippi legislators' efforts to pass legislation that would ease the situation have thus far failed.

Barbour in May vetoed an additional $20 million legislators appropriated for fiscal year 2011 for reinsurance for the state wind pool, the insurer of last resort, but Chaney said the department anticipated there would be a budget shortfall and had reserved $18 million for that purpose. "His veto has had no effect whatsoever on the wind pool at the present time," Chaney said.

The U.S. Chamber of Commerce is the most recent entity to come out against adding wind to the NFIP, a measure championed by U.S. Rep. Gene Taylor, D-Bay St. Louis.

In a letter responding to the chamber's position, Taylor said lack of a functioning, competitive insurance market leaves property owners out in the cold.

"Millions of homeowners and business owners are required by their mortgages or lenders to buy windstorm coverage, but private insurance companies are not required to sell it to them," Taylor said in the letter. "Since Hurricane Katrina, insurance companies have abandoned coastal communities, creating an urgent insurance crisis along the Gulf Coast and Atlantic Coast."

Taylor has cited statistics from the Hancock County chamber that show rates that have increased exponentially for small businesses -- up to several hundred percent in some cases. Jackson County leaders said the situation is similar here and across the coast.

Despite all the gloom, there have been some encouraging signs over the past few months, said Rep. Brandon Jones, D-Pascagoula.

More private companies have entered the market, Jones said, and more competition means lower prices.

Chaney, who has repeatedly stressed the importance of encouraging competition between private insurers, enforcing strong building codes and limiting the number of people using the state' wind pool, said the state has signed up 105 new companies that write property and casualty policies since the storm. He has cautioned against relying on state subsidies to bring down coastal premiums.

Legislators are continuing to try to do things to make Mississippi more appealing to insurance companies, such as implementing and enforcing better building codes and flood mitigation programs, Jones said.

"It's a multi-headed monster we're dealing with here, and finding a solution is not easy," Jones said.

Taylor's proposal to add wind to the national program has little support in the Senate, but Sen. Roger Wicker, R-Tupelo, introduced a compromise bill in late June. Under the proposal, the policyholder would immediately receive 50 percent of the payout from the insurer and 50 percent from the program, should the two sides be unable to agree on a claim.

The claim would then go to an arbitration panel to settle the differences.

Jones said he most favors a multistate pool that could potentially stretch "all the way up to Maine.

"We could combat the wind problem by getting a lot of states to join together," Jones said. "We talk about it pretty regularly, but it's hard to get a single state to agree to a plan, much less several states."