Homeowners insurance: Don't go bare

Given that last year the company's models showed industry losses of $60 billion for a Gulf storm, roughly the estimated cost of hurricanes Katrina, Wilma and Rita, insurance companies are taking the projection seriously.

"The modeling that's been done by a lot of the actuarial work is showing a large Category 4 hurricane or natural disaster that will wreak havoc here," says Richard McGrath, president of McGrath Insurance Group in Sturbridge, Mass.

"We haven't lost any of our clients," McGrath says, "but there's a lot of frustration in the marketplace because the pricing has gone up dramatically and the number of carriers willing to supply has diminished."

Yates' customers also are hanging in there, but he says many of them are "taking huge deductibles, saying, 'I'll self-insure the first $50,000 to $100,000 of the loss.'"

Overreaction or business as usual?

Because of the population density in the Northeast, Yates says that "one good blowup here, it doesn't have to be a Category 4 or 5," could do substantial damage. But the insurance industry's reaction to that possibility, he says, might be a bit of an overreaction.

"You know that Florida and the Gulf Coast are going to be hit, but there's been no major blowup here since the early '70s," says Yates. "So you're looking at an insurance industry that has generated huge amounts of profits over the last 35 years.

"Should that go into their calculations? Morally, it probably should. But if I was running a company, answering to shareholders, that might not be a major factor."

National catastrophes

Another reason that insurers are dropping clients and raising the rates of those they do keep is that natural disasters aren't limited to coastal areas.

Earthquake insurance poses as big a problem for Californians as hurricane policies do for Floridians. But, once again, that catastrophe knows no bounds.

Beginning in August, Allstate will not write new quake policies for homeowners living along the New Madrid Fault that runs through the central United States.


"A huge number of people in just the St. Louis area will be affected," says Yates. Then you have tornado alley, and general hail and windstorm policies across the rest of the country that are increasing in cost, too.

Wait it out

If there's any bit of good news for consumers, it's that this, too, shall pass.

"Part of our client base is large commercial consumers of insurance," says Perr. "They come to us, and we help them quantify the costs of risks.

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