MIAMI — The insurance industry has a message for the millions of homeowners in hurricane-prone areas such as Florida: You’re still not paying enough in premiums to cover the risks that insurers face with storms that cause billions of dollars in damage.
Insurance bills are likely to rise even more, and in Florida that would come on top of the rate increase requests already made after four hurricanes hit the U.S. last year. Although the monster storms also plague states such as Texas and Louisiana, half of the insured hurricane losses in the 20th century were in Florida.
Consumer advocates and homeowners say insurance companies are getting greedy. They contend that steep rate increases since 1992’s Hurricane Andrew, the most expensive natural disaster in U.S. history, and other changes since then are more than enough.
“You said that would do it; now you’re coming back for another bite of the apple. Why?” asked Bob Hunter, the director of insurance for the Consumer Federation of America.
The tensions between homeowners and insurers were aggravated by last year’s record hurricane season, which caused $22 billion in insured wind damage alone in the U.S., more than Hurricane Andrew when adjusted for inflation.
Florida Gov. Jeb Bush and state lawmakers stepped in to give some relief to both sides this year, such as allowing only one deductible per hurricane season for homeowners and ensuring that policies against wind damage do not also have to pay for damage caused by flooding. But problems remain.
Insurers have asked for statewide rate increases averaging from 5 percent to nearly 30 percent since last hurricane season, although state officials still must approve some of them. Another 6.8 percent increase is expected this summer to pay for the deficit of the state-backed insurer of last resort.
“It’s unlikely that increases in 2005 are going to be sufficient,” said Bob Hartwig, chief economist of the Insurance Information Institute, an industry group.
Although other states also may need higher homeowners-insurance rates, none will see increases on a par with Florida’s, he said.
“Florida is the most at-risk state for hurricanes. Homeowners insurance is going to be expensive there. It’s inescapable,” he said. Florida is “a constant drag on earnings. It needs to become more self-sufficient.”
Forecasters have been warning for years that hurricane activity is going to be higher, perhaps for decades. Less than two full months into this season, there have been a record seven named storms, including two major hurricanes — Dennis and Emily. Dennis hit the Florida Panhandle and Alabama and caused between $1 billion and $4 billion in insured wind damage, according to preliminary estimates, while Emily dealt a glancing blow to Texas.
While many homeowners bemoan higher rates, some grudgingly understand that their insurance bills will increase because of Florida’s risk. But they complain that insurance companies try to skimp when it comes to paying out claims.
Diane Thompson’s premiums were $5,616 this year, up from $4,519 last year, but she still is suing her insurance company to get more than $500,000 in damage claims from Hurricane Ivan in September. The Pensacola resident says insurers are too focused on making profits and not enough on helping their customers.
“I don’t mind paying the money, but it’s the game they play with you. You question: ‘Why did I bother to get insurance?’” she said.
Industry officials defend their performance. They say rate increases are needed to make sure that insurers will be able to pay for damage when it occurs.
“The thing for customers to remember and our primary point is protecting customers is our No. 1 priority,” Allstate Corp. spokesman Mike Siemienas said. “We need to make sure we have adequate capacity to cover customers.”
Mr. Hartwig said the insurance industry overall is well-prepared financially. Only one insurer went bankrupt after last year’s four storms, compared with 11 after Andrew.
But Fitch Ratings said another serious storm could make more insurers insolvent.
“Severe back-to-back storm seasons could also be the catalyst needed to raise premium rates to adequate levels and attract better capitalized insurers to the state,” the credit-rating agency said last week.
Major insurers such as Allstate are dropping some homeowners because they live in areas where the risk of hurricane damage is too high. Those residents then have to try to find others willing to insure them. If they cannot find a willing company, Floridians can sign up with Citizens Property Insurance Corp., the state-backed insurer of last resort that gives coverage to those who can’t get it from private companies.
But Citizens charges higher rates than other companies to deal with the increased risk. The company’s average annual premiums for single-family homes are now $1,858, up $202, or about 12 percent, from last year.
“That is the price of living in paradise,” Mr. Hartwig said.