HOW GLOBAL WARMING IS ERODING THE AVAILABILITYOF INSURANCE COVERAGE IN AMERICA’S COASTAL STATES

Blown Away

Blown Away

HOW GLOBAL WARMING IS ERODING THE AVAILABILITYOF INSURANCE COVERAGE IN AMERICA’S COASTAL STATES

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iii

Executive summary iv

Introduction 1

Chapter 1: U.S. catastrophic losses reach record levels 5

For insurers 5

For reinsurers 6

For state and federal governments 8

Chapter 2: Predicting the unpredictable: increased catastrophic weather 10

events in a warming world

Chapter 3: Premiums up, coverage down: the insurance industry reduces 12

exposure

Chapter 4: Impacts on insurance cost/availability in individual coastal states 15

Florida 15

Louisiana 18

Texas 19

Mississippi 20

Alabama 21

Georgia 22

North Carolina 23

South Carolina 23

Virginia 24

Conclusions 25

Notes 27

Contents

iv

Climate scientists are in almost uni-versal agreement that global warmingcaused by humans is a problem today,and will become a bigger problem inthe future without action to curtailgreenhouse gas emissions. The primarygreenhouse gas is carbon dioxide,emitted by coal-fired power plantsand vehicles like cars and trucks.

Many scientists believe a warmerworld will lead to more extremeweather events, including hurricanes,which draw their strength from warmocean waters. An influential 2005analysis by researchers at the Massa-chusetts Institute of Technology foundthat the duration and wind speed fromhurricanes had doubled in intensitysince the 1970s, and drew a strongcorrelation between this intensity andthe warming ocean waters. Anotherstudy that same year reported the fre-quency of Category 4 and 5 hurricaneshad also doubled as a result of warmeroceans.

Executive summary

The insurance industry has takennotice. Many are concerned that theyface increased exposure in a world whereextreme weather events become morecommon. The active hurricane seasonsof 2004 and 2005—which includedseven of the costliest hurricanes to everhit the United States—and especiallythe devastating property damage causedby Hurricane Katrina in 2005, rein-forced these concerns. Insurers havepaid out more than $55 billion in claimsfrom the storms of 2005, and costscontinue to rise as many areas struggleto rebuild.

The response of the insuranceindustry in the coastal states of theSoutheast and Gulf has been to raiseinsurance premiums for homeownersand business owners, and in many casesto stop offering coverage altogether.Most coastal states have created pro-grams to become insurers of last resort,the so-called FAIR plans (Fair Access toInsurance Requirements).

40

60

80

100

2000-20041995-19991990-19941985-19891980-19841975-19791970-1974

FIGURE 1

Category 4 and 5 hurricanes worldwide

Source: Georgia Institute of Technology

v

Portrait of the insurance crisis:

Florida

Florida homeowners and state legis-lators have been struggling with insur-ance issues since Hurricane Andrew in1992, which pushed 12 insurance com-panies into insolvency and caused othersto stop writing policies in the state.

Seventy-nine percent of insured prop-erty in Florida sits along the coast, andthe hurricanes of 2004 and 2005 causedmore than $35 billion in insured lossesin Florida. Homeowner premiums inFlorida have risen more than any otherstate, with the average homeowners’policy increasing by 77% between 2001

Hurricane displaces Florida couple for three years

Floridians Becky Withstandley and her husband Chris have been stranded from

their home since Labor Day weekend, 2004. That’s when Hurricane Frances

struck, blowing the top off their seaside condo on South Hutchinson Island,

Florida. Three years later, they still haven’t been able to move back home.

After spending about a year with a friend, they bought a boat, and they and

their cat Cody have been calling it home ever since. Meanwhile, they’ve had to

shell out $105,000 for repairs to their condo not covered by insurance, and their

premiums have quadrupled.

“I felt very comfortable that our condo would be fine because it’s made with

concrete blocks and we had hurricane shutters,” says Withstandley. But it wasn’t

fine. “What happened is that the roof came loose and once that started peeling

away,” explains Withstandley, “the whole roof came off.” Water inundated all

three levels of the condo.

Despite such risks, the coast is an alluring place for millions of Americans.

More than half of the population lives within 50 miles of a coastline. Withstandley

says that while boat living has been an experience, she’s looking forward to a

more hurricane-proof condo and the long-awaited return home: “I wouldn’t want

to live anywhere else.”

Bill

ion

$

0

5

10

15

20

25

30

35

40

Katrina(2005)

Andrew(1992)

Wilma(2005)

Charley(2004)

Ivan(2004)

Hugo(1989)

Rita(2005)

Frances(2004)

Jeanne(2004)

Georges(1998)

$38.1

$21.2

$8.4$7.8$7.3$6.6$5.0$4.8$3.8$3.5

FIGURE 2

Top ten most costly hurricanes of all time

Source: ISO/PCS; Insurance Information Institute.

vi

and 2006. In Miami Beach, home-owners report cumulative increases of500% between 2002 and 2006.

State Farm has limited new policiesin five counties, three in the Miami-Ft.Lauderdale area, and two aroundTampa-St. Petersburg. Allstate, whichhas dropped approximately 320,000policies since 2004 in Florida, is nolonger writing new coverage anywherein the state.

Louisiana: The fallout from

Katrina

Insurance companies in Louisiana paidout more than $25 billion in claims afterKatrina—three times as much as in anyother state. Overall, home insurancepremiums rose 65.2% between 2001 and2006, ranking the state fifth in thenation for rising homeowner costs. Nodoubt Louisiana will be feeling the painof Katrina and Rita for many years tocome.

Private insurers have responded byraising rates and dropping coverage. InJuly 2006, Allstate announced its plansto drop wind and hail coverage in 18parishes in Louisiana. The state insur-ance commissioner called the planillegal, and threatened to fight it incourt, prompting the company tothreaten to leave the state all together.

Allstate, which paid out $2 billion inclaims to Louisianans following Katrinaand Rita, eventually agreed not to leavethe state completely. But in the 18parishes, for homeowners who have heldAllstate policies less than three years,wind and hail coverage will no longer beoffered.

Private insurers weren’t the only onesto feel the sting from Katrina and Rita.

Louisiana Citizens Property InsuranceCorporation, created in 2003 to bringthe state’s two insurers of last resort—the FAIR plan and the Coastal Plan—under a single, more financially soundumbrella, took a $1.2 billion hit fromthe combined storms of 2005, wipingout all of the entity’s reserves.

Many coastal states feel the pinch

Between 2001 and 2006, homeownerinsurance premiums in South Carolinaclimbed an average of 56.4%. SinceAugust 2006, insurers have droppedmore than 20,000 coastal policies, andfor many property owners insurancepremiums have increased more than100%.

State Farm, for example, raised ratesin coastal zones 25%. In the 2001–2006period, South Carolina Farm Bureaualso raised rates 25% in coastal counties,and an average 7% statewide. In May2007, Allstate raised homeowners’ ratesstatewide by 11.3%, but in coastal areashomeowners will see increases of up to90% over last year. Most insurers havealso been dropping wind coverage inrecent months, pushing huge numbersof policyholders into the state-run windpool. Only one major company, StateFarm, continues to carry wind coverage.

Other coastal states of the Southeast,including North Carolina, Georgia,Mississippi and Texas, also reportedsteeply rising premiums and insurancecompanies no longer willing to writepolicies. If indeed global warming isleading to an era of increased hurricaneintensity and possibly more frequenthurricanes, the insurance crisis in thesestates will only get worse as we moveforward.

1

When it comes to insurance, there are afew basic rules that cannot be ignored.One is that risk must be spread out overa large and diverse group so that ifdisaster strikes, the insurer doesn’t haveto pay everyone off at once. Another isthat the more you understand the past,the better your chances of accuratelypredicting the future. If a catastrophicflood, forest fire or hurricane strikesroughly once every ten years, actuaries atinsurance companies can figure out howto price annual premiums to cover thateventuality.

Until climate change came along,those rules worked pretty well. Butglobal warming has begun to wreakhavoc with one of the major tenets ofinsurance pricing. No longer can in-surers look to the past for an accurateread on what might happen in the future.In fact, as the planet warms, scientistswarn that catastrophic weather eventswill become more predictable in onlyone sense: They will become a lot moresevere, and quite possibly more frequent.But how, how severe they are and howoften they will strike remains to be seen.

These changes are already occurring.Scientists have linked climate change toan increase in extreme heat waves simi-lar to the record heat waves of 2003 inEurope; increases in droughts and tor-rential downpours; an increase indestructive forest fires in the UnitedStates; and warming ocean temperaturesthat many believe are the fuel behindthe brutal hurricanes that plaguedAmerica’s Gulf coast in 2005. Thesetypes of catastrophic weather events—which have cost the insurance industrybillions of dollars in recent years—willincrease in severity and perhaps frequencyas the build-up of greenhouse gases(such as carbon dioxide) continues to

Introduction

push average global temperatureshigher, researchers warn.

The insurance industry responds

to global warming

Faced with record losses and the un-settling trend of payouts far outstrippingpremiums in recent years—coupled withthe uncertainty of how to predict futurelosses—the insurance industry isresponding, in part, by moving out ofAmerica’s coastal states. Across theboard, the nation’s largest carriers havedeclared their intentions to reduceexposure in high-risk areas by raisingrates, hiking deductibles, limiting cover-age and in many cases, pulling out ofrisky markets altogether. The relativelycalm hurricane season of 2006 offerslittle solace to an industry still smartingfrom the previous two years of suc-cessive record payouts and predictionsthat—last year’s inactivity notwith-standing—we may well have entered anindefinite period of more intense stormsunless something is done to slow andstop global warming.

Forest fires and extreme storm surgesare also expected to increase as theplanet warms. Rising sea levels, causedby thermal expansion of seawater andmore-rapidly melting glaciers, threatenAmerica’s densely developed coastalareas in the decades to come. Whilefederal flood insurance programs absorbsome of these risks, private insuranceand reinsurance companies are thebackbone of the economic structure thatenables people to build—and rebuild—the communities in which they live.

Hurricanes and tropical storms easilymake up the largest weather-relatedthreat to economic stability along theU.S. coast, and the sheer destructiveness

Hurricanes and

tropical storms

represent

the largest

weather-related

threat to eco-

nomic stability

along the U.S.

coast.

2

of these storms in recent years has madeinsurance companies reluctant to dobusiness where they are prone to strike.In states such as Florida, Texas andLouisiana, insurance companies findthemselves ensnarled in court cases andunder political pressure to stay put, evenas climate scientists warn that things arelikely to get worse.

We now know from ocean measure-ments that sea surface temperatureshave been heating up for at least the last50 years or so because of global warm-ing. Warm ocean waters are a hurri-cane’s engine. In fact, for a hurricane toform, ocean temperatures must be aminimum of 80 degrees F. That’s whyhurricane season occurs during the

Econ

omic

loss

es $

bill

ions

, 204

val

ues)

Insured loss percentage

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1995-20051990-19991980-19891970-19791960-19691950-19590%

10%

20%

30%

40%

50%

60%

Economic losses

Insured %

FIGURE 3

Rising U.S. economic and insured losses from tropical storms and hurricanes

Source: American Re (2005)

Bill

ion

$

0

5

10

15

20

25

30

35

40

Katrina(2005)

Andrew(1992)

Wilma(2005)

Charley(2004)

Ivan(2004)

Hugo(1989)

Rita(2005)

Frances(2004)

Jeanne(2004)

Georges(1998)

$38.1

$21.2

$8.4$7.8$7.3$6.6$5.0$4.8$3.8$3.5

FIGURE 4

Top ten most costly hurricanes of all time

Source: ISO/PCS; Insurance Information Institute.

3

warmest months of the year ( June toNovember). While some scientists arehesitant to link the disastrous 2005hurricane season to global warmingdirectly, scientists are virtually unanimousin agreeing that warmer oceans increasethe risk for more brutal hurricanes.

Numerous recent studies indicate thatthe effects of global warming on hurri-canes may already be happening.Meteorologist Kerry Emanuel of theMassachusetts Institute of Technologystudied tropical storm and ocean tempera-ture data and discovered that the destruc-tive potential of tropical storms in theNorth Atlantic and Pacific has doubledover the past 30 years, and the increasecorrelated closely with sea surfacetemperatures. At the Georgia Instituteof Technology, researcher Peter Websterand colleagues found a sharp increase inthe number of Category 4 and 5 hurri-canes globally over the past 35 years.Emanuel and Webster’s findings, andthose of others, reinforce each other andsuggest a strong link between globalwarming and more intense hurricanesduring recent decades.

The legacy of Hurricane Andrew

When Hurricane Andrew struckFlorida in 1992, causing an unprece-dented $26.5 billion in damages, itsingle-handedly pushed the insuranceindustry into redefining the way itmanaged catastrophic risk in thiscountry. Andrew forced the industry torecognize the potential for multi-billiondollar mega-catastrophes of record-breaking proportions.

In Andrew’s wake, homeowners andcommercial property rates climbed;steeper, percentage-based deductiblestook the place of fixed, shared costs fordamages; and many insurance com-panies simply left the South Floridamarket. Florida responded by creating a

government-mandated insurance poolto pick up the slack and by tighteningbuilding codes to make homes morehurricane-resistant, in hopes of reducingfuture losses.

In the years following Andrew, arelative lack of destructive storms helpedrestore confidence in the market. At thesame time, Americans strengthened alove affair with coastal living, movingcloser to the Atlantic and Gulf Coastbeaches and building high-end vacationhomes that climbed even higher in valuewith the real-estate boom ushered inwith the new millennium.

By 2004, insured properties along theU.S. Gulf and Atlantic coastlines hadreached nearly $7 trillion in value.1 Itwas against this backdrop thatHurricanes Charley, Ivan, Frances andJeanne struck, whipping throughFlorida, Alabama, Georgia, theCarolinas, and parts of the Northeast,together leaving more than $40 billionin damages in their wake.

Faced with multiple catastrophicevents in a single year, the insuranceindustry responded by again raisingrates; reducing coverage; buying greateramounts of insurance for themselves,known as reinsurance; and pulling outof some of the most hurricane-proneareas. The number of people insured bystate-mandated insurers of last resortswelled as traditional insurers avoidedhigh-risk policies. But even as the finalbill was being tallied for 2004’s losses,Hurricane Katrina—the nation’smost expensive hurricane on record—slammed into the Gulf Coast, onlyto be followed in rapid succession byHurricanes Rita and Wilma.

With many scientists declaring thisthe beginning of a lasting phase of morefrequent and destructive storms causedby global warming, many homeownersand businesses fear they will no longerbe able to afford insurance, if they can

Insured prop-

erties along the

U.S. Gulf and

Atlantic coasts

are worth $7

trillion.

4

find it at all. (The National Oceanic andAtmospheric Administration predicteda 75% chance of an above-normalhurricane season for 2007, although sofar the season has been quiet.)2

“We’re in a whole new world,” saidRobert Klein, director of the Center forRisk Management and Insurance Re-search at Georgia State University inAtlanta, and former chief economist forthe National Association of InsuranceCommissioners. “This newest develop-ment, where we are seeing multiplestorms in one year and several causingsignificant economic damage, is a wholenew level of risk that is very disconcert-ing to the insurers.”3

It’s fairly unsettling to consumers,as well.

At its most extreme, the insurancecrisis is beginning to push businessesand homeowners out of some areas ofFlorida, where rates are so high they’remaking it difficult for local communitiesto rebuild. As residential and commer-cial rates reach double, triple or morethan what they cost just two or threeyears ago, many are finding they justcan’t afford to pay. Without adequateinsurance, businesses can’t borrowmoney to keep their doors open andthose on fixed incomes can’t afford tostay in the homes in which they plannedto retire.

5

For insurers

If Hurricane Andrew redefined the wayinsurers approached weather-relatedcatastrophic risk, the hurricane season of2004 left the industry speechless (and ina few cases, penniless).

“2004 showed us it wasn’t necessarilya single event that insurers needed toworry about,” said Allstate spokesmanMike Trevino, “but indeed multipleevents in a single year.”4

One after another, HurricanesCharley, Frances, Ivan and Jeannemauled the U.S. coastline, causingrecord-breaking damages and $22.5billion in insured losses alone.

Then, remarkably, the 2005 hurricaneseason doubled those losses, creating arecord of its own. Insurers have thus farpaid out more than $55 billion in claimsfrom the storms of 2005, and costscontinue to rise as many areas struggleto rebuild.

For Allstate alone, the spike incatastrophic losses was significant.

CHAPTER 1

U.S. catastrophic losses reach record levels

Claims from the 2004 hurricane seasontotaled about $2.5 billion, up from $1.5billion in claims resulting from naturaldisasters the year before. But in 2005,the figure more than doubled, hitting$5.7 billion. Of that, a full $5 billioncame from Katrina, Rita and Wilma,with the remainder stemming fromsmaller storms, including tornadoes andhailstorms.5

Although the bulk of hurricane-related claims occur in homeowner andcommercial property lines, the sting ofseveral mega-catastrophes hitting inrapid succession can be felt across alllines of the insurance business. Thehurricanes of 2004 also caused half abillion dollars in crop losses, forexample.6 And Hurricane Katrinacaused “the biggest automobilecatastrophe-related loss” in State Farm’shistory, according to companyspokesman Dick Luedke.7

A 2002 study by researchers atNASA, using computer climate and

Bill

ion

$

0

10

20

30

40

50

60

20052004200320022001200019991998199719961995199419931992199119901989

2005 was by far the worst year ever for insured catastrophe lossesin the U.S. at more than twice 2004’s record. Includes $50.3 billion per ISO/PCS

plus $5 billion offshore energy losses from Hurricanes Katrina and Rita

$7.5

$2.7$4.7

$22.9

$5.5

$16.9

$8.3 $7.4

$2.6

$10.1$8.3

$4.6

$26.5

$5.9

$12.9

$27.5

$55.3

FIGURE 4

U.S. insured catastrophic losses

Source: American Re (2005). Note: 2001 figure includes $20.3 billion for 9/11 losses reported through 12/31/01. Includes only business and personalproperty claims, business interruption and auto claims. Non-prop/BI losses = $12.2 billion.

6

crop model simulations, predicts thatU.S. agricultural production losses dueto excess rainfall as a result of globalwarming could double in the next30 years, resulting in an estimated$3 billion per year in damages.8

Catastrophic storms also causedamage to personal watercraft; disruptoil, gas and electric utilities; causeinterruptions to numerous commercialbusinesses; increase liability claims; and,as was the case with Katrina, can affectlife and health insurance claims as well.9

For reinsurers

Insured losses for the 2005 hurricaneseason will hit about $70 billion whenall is said and done, said Frank Nutter,president of the Reinsurance Associa-tion of America. What most peopledon’t realize, however, is that about halfof that is picked up by the reinsuranceindustry, the companies that insure theinsurance companies.10

Insurance for insurance companies,although not a new idea, has never beenemployed so widely as a strategy forreducing risk as it is today. For example,of the roughly $20 billion in insuredlosses resulting from the 2004 hurricaneseason, just one-third was covered byreinsurance, compared to one-half ofKatrina’s losses in 2005.

A $35 billion payout in a single yearstruck a major blow to the relatively smallreinsurance industry, said Nutter, whichglobally includes only 30 companies ofsubstantial size. Compared to the $400billion in premiums collected by insurancecompanies in the U.S., reinsurers collectjust $165 billion worldwide.11

Unlike insurance companies, how-ever, reinsurance companies don’t haveto submit their rates to state regulatorsand can—and do—charge whateverthey determine is appropriate to the riskthey face.

Robert Hartwig, chief economist forthe Insurance Information Institute,said that although reinsurance rates hadstabilized by the end of 2006, in the twoyears since Katrina reinsurance rateshave risen by 100% to 300% in some ofthe most at-risk areas. Andcompounding the economic impacts onprimary insurers, not only are companiespaying higher rates, they also feel theneed to purchase greater amounts ofreinsurance to more accurately reflecttheir risks.12

Nutter of the Reinsurance Associa-tion said several factors converged lastyear to contribute to rising rates forinsurance and reinsurance companies.First, the catastrophe modeling com-panies that help insurers to set theirrates reported that they had under-assessed projected losses for 2005 andrevised their models for 2006. Thenewer models took into account suchfactors as the impact of “surge demand”on the price of raw materials. In otherwords, when multiple natural disastersstrike an area, or a single mega-catastrophe, it drives the price of lumberand other materials higher becausesupplies are limited.13

In addition, the companies that rateinsurers, such as A.M. Best, beganrequiring companies to provide higheramounts of capital reserves or riskhaving their ratings lowered.14

Many insurers and businesses havecomplained that they can’t get enoughreinsurance—at any price—to protectthemselves against the greater risk frommultiple storms. Nutter said there ismore reinsurance capacity now than everbefore, but the demand is so great thatneeds still far outstrip the limits of whatthe market can bear.15

Surveys done for the National Asso-ciation of Insurance Commissionersshowed a “woefully inadequate” $55 bil-lion of reinsurance capacity in the U.S.

Insurers have

paid out more

than $55 billion

from the storms

of 2005, and

costs continue

to rise.

7

last year for natural disasters, FloridaInsurance Commissioner KevinMcCarty told members of a HouseSubcommittee on Housing and Com-munity Opportunity in June 2006.16

“Reports of rate increases over 300%or more are not uncommon; so arereports of significant restrictions in theamount [of reinsurance] available to anyone company as well as reports of theinability of some insurers to obtainreinsurance coverage at any price,”McCarty testified.17

In 2005, U.S.-based insurers bought$37.5 billion in catastrophe reinsurancecoverage. They expected to purchaseabout $47.5 billion worth last year, a27% increase, according to Paul Karon,the chief executive of Benfield Inc., areinsurance broker quoted in the WallStreet Journal.18 The company reportedits June renewal rates for reinsurancelast year were twice what they were theyear before. This year, reinsurancecompanies reported record profits, inresponse to increased premiums in U.S.

catastrophe zones and the inactive 2006hurricane season. Nonetheless, thethreat remains real, and according to theWall Street Journal, U.S. naturalcatastrophe reinsurance coverage in the2007 renewal season was up more than25% from a year earlier.19

Insurance companies say they can’toperate along the coast without it, inamounts far greater than ever before.

For example, Allstate bought $1 bil-lion worth of catastrophe reinsurancefor New York alone, and another$400 million to cover hurricane losses inNew Jersey. The company also bought$500 million to cover Texas and asoutheastern policy in the same amountto cover Georgia, Alabama, Mississippiand Virginia. (Florida is the only statenot covered in this policy, spokesmanMike Trevino explained, because it isthe only state that offers its ownreinsurance program.) On top of all ofthose policies, Allstate purchased anumbrella reinsurance agreement thatpays out $2 billion in protection after

Reinsurance

rate increases

of over 300%

are not

uncommon.

Hurricane aftermath

PH

OT

OD

ISK

8

the company incurs its first $2 billion innatural disaster-related losses.20

The premiums for those policies costAllstate $800 million last year, fourtimes what it spent for reinsurance in2004. Part of the increased cost comesfrom significantly higher reinsurancerates this year, but part comes from thegreatly expanded coverage, said Trevino.“We’ve bought more protection, but it’scoverage we think we need.”21

Those costs ultimately drive the costof insurance premiums for homeownersand businesses.

“The reinsurance market has a sig-nificant impact on what our costs aregoing to be,”

Trevino said. “We are passing on thatcost.”22

Some insurers literally can’t getenough reinsurance, and have had toshrink their coverage in high-riskmarkets as a result. For example, anAtlanta-based insurance group that ispart of Alleghany Insurance HoldingsLLC, said it would stop writing newbusiness in most of the coastal areasfrom North Carolina to Texas because itcouldn’t obtain all the reinsurance it feltit needed.23

For state and federal

governments

When natural disasters strike, privateinsurance covers only part of the tab forthose pushed out of their homes andforced to repair or rebuild. Taxpayersshare the burden when the federalgovernment steps in with disaster relieffunds and other assistance. Since 2005,the federal government has issued asmany as 140 declarations of majordisasters in more than 40 states.24

Following Hurricane Katrina, thefederal government granted $100 billionin relief administered through HUDand FEMA, on top of what was covered

by insurance companies. And thatdoesn’t include claims paid out throughthe National Flood Insurance Program(NFIP).25 For both Hurricanes Katrinaand Rita, the Flood Insurance Programpaid approximately $16.2 billion inclaims, with average payments of over$95,000 and $47,000, respectively.26 TheFlood Insurance Program is now morethan $17.5 billion in the hole, entirelythe result of damages caused by Katrinaand Rita in 2005.27 The GeneralAccounting Office (now called theGovernment Accountability Office)declared the NFIP actuarially unsoundas far back as 2003.28

Because homeowner policies typicallydon’t provide flood coverage, it must bepurchased separately through the NFIPor through private companies known assurplus insurers, whose rates can besubstantially higher because they are notregulated. The more than $16 billion hitto the NFIP from Katrina and Ritareflected only a small percentage ofpeople whose homes were covered byfloodwaters, as most people affected bythese hurricanes had no flood insurancepolicies at all.29

“Were it a private insurer, the NFIPwould be bankrupt,” the InsuranceInformation Institute’s Hartwig testifiedbefore members of the U.S. SenateCommittee on Banking, Housing andUrban Affairs in October, 2005.30

Not only the federal government butstate governments also get stuck withthe bill when disaster strikes. Mostcoastal states provide programs thatserve as “insurers of last resort,” (knownas FAIR plans, Fair Access to InsuranceRequirements) to cover homes, andsometimes businesses that can’t findinsurance in the private market. Oftenthey pick up only the highest-riskportions of policies, such as windstormcoverage, when private companies excludethose risks from their policies. In other

“Were it a

private insurer,

the National

Flood Insurance

Program would

be bankrupt,”

Robert Hartwig,

Senior Vice

President and

Chief Economist,

Insurance

Information

Institute.

9

cases, they write full coverage for homesthat couldn’t be built without it. FAIRplans charge as much as 50% more thanprivate insurers, but even that isn’t enoughto adequately cover multiple catastrophes.When they don’t have enough money tocover claims, taxpayers and other policy-holders pick up the tab.

“Among 27 state-run high riskproperty insurers in 2003, 15 posted anoperating loss, a year with relativelylight catastrophe activity,” Hartwig toldthe Senate committee. 31 More recently,Hartwig has noted that for 2005, at least9 of 27 plans for which data areavailable posted operating losses.32

Since then, the 2004 and 2005 hurri-cane seasons have placed significantlygreater strain on state-run plans in

several states, among them Florida,Mississippi and Louisiana. The quie-scent 2006 season offered some respitefrom the previous seasons.

Although some say the state-runplans play a critical role, Hartwig warnssuch state and federal programscompound problems in the long run, byenabling people to build in areas wherethey otherwise couldn’t, since mortgagelenders require that homes be properlyinsured. Forcing others to share the riskof building too close to the ocean isn’tright, he said.33

“These deficits are paid off throughassessments levied on virtually everyproperty owner in the state, includingthose who live hundreds of miles fromthe coast,” said Hartwig.34

Government

insurance

programs

compound

problems by

enabling people

to build in areas

where they

otherwise

couldn’t.

10

The UN Environment Program’s(UNEP) Finance Initiative reportprojects that climate change drivennatural disasters will cost the world’sfinancial centers as much as $150 billionper year within the next 10 years. Otherpredictions warn a rise in average globaltemperature of just 1.8 degrees Fahren-heit could have an economic impact ofup to $2 trillion worldwide by 2050.35

If no action is taken to limit green-house gas emissions, sea levels could riseas much as two feet by the end of thecentury, according to the IPCC estimate,which the IPCC acknowledges is con-servative. Over the next several hundredyears, melting ice sheets and the expansionof seawater from higher temperaturescould bring a rise in sea level of up tonearly 40 feet, which would essentiallyinundate many American coastal cities.Increased winter precipitation in the

CHAPTER 2

Predicting the unpredictable: increased catastrophic

weather events in a warming world

form of rain, rather than snow, and morerapid melting of snow pack are alreadycontributing to earlier and higher springfloods. And forest fires—spurred byhigher temperatures and drier condi-tions—are driving up insurance claimsin the western United States.36

Although quiet in the U.S. so far, the2007 hurricane season still might yieldhurricane activity, according to expertsat the National Oceanic and AtmosphericAdministration (NOAA). (Category 5Hurricanes Dean and Felix did enormousdamage to Mexico’s Yucatan Peninsulaand Central America.)The agency pre-dicted up to 13–17 named storms thisseason (which peaks from August toOctober), with seven to ten of those in-tensifying to hurricane status and threeto five becoming major hurricanes.37

Although the weather-related im-pacts of global warming are many and

For the first

time, insurance

companies are

taking seriously

the possibility

that the strength

of recent hurri-

canes may be

due to global

climate change.

Palm trees on beach

being blown by

Hurricane Andrew.

PH

OT

OD

ISK

11

diverse, it’s the prospect of a prolongedperiod of more intense hurricanes thathas the insurance and reinsuranceindustries seriously rethinking how andwhere they do business in the coastalUnited States.

For the first time, companies are takingseriously the possibility that the strengthof recent hurricanes may be due to globalclimate change, a prospect that bodespoorly for any reductions in intense stormactivity in the near future. Climatologistshave long held that the buildup of green-house gases in the atmosphere wouldlead to warmer ocean temperatures andincreased tropical storm intensity. Al-though some dispute the recent volatilityhas anything to do with climate change,several new studies point to increasingevidence that supports this idea.

A 2005 analysis by researchers at theMassachusetts Institute of Technologyfound that the duration and wind speedfrom hurricanes had doubled in intensitysince the 1970s, and found a strong corre-lation between this intensity and thewarming ocean waters.38 Another studythat same year reported the frequency ofCategory 4 and 5 hurricanes had alsodoubled as a result of warmer oceans.39

The insurance industry assesses

the risk

In July 2005, Lloyds of London releaseda report aptly titled, “Climate Change:Adapt or Bust,” in which it declaredthat insurance companies must accountfor climate change when pricing risk.40

Even more telling, perhaps, was theinclusion of climate change predictionsfor the first time in the actuarial modelsproduced by Risk Management Services(RMS), a company that helps insurancecompanies determine how to set rates.41

The Association of British Insurerswent even further in 2005, in a reportthat examined the financial implica-tions of climate change’s effects onextreme storms. The report concludedthat, if carbon dioxide levels doubleas expected, hurricane wind speedsin the Atlantic could increase by 6%(potentially the difference between aCategory 4 and Category 5 storm),causing wind-related losses in theU.S. to hit the $100-$150 billionmark annually.42

Insurance giant AIG, which is alsothe largest buyer of reinsurance, makesclear in a company policy statementthat it “recognizes the scientific con-sensus that climate change is a realityand is likely in large part the result ofhuman activities that have led to in-creasing concentrations of greenhousegases in the earth’s atmosphere.” Thecompany asserts that it will “continuallyfactor in changes in climate and weatherpatterns as an integral part of its under-writing process.”43

AIG is a member of the U.S. ClimateAction Partnership (USCAP), alongwith General Electric, DuPont, GeneralMotors, and many other major com-panies. USCAP is calling for a reductionof U.S. greenhouse gas emissions of60 to 80% from current levels by 2050.

Climate change

driven natural

disasters could

cost as much as

$150 billion per

year within the

next 10 years.

12

Faced with the potential for decades ofmultiple catastrophic storms eachseason, insurance companies say theymust rethink the way they do businessin the coastal United States. To meetthe increased risk to coastal areas causedby global warming, one response hasbeen to raise premiums.

Homeowners’ insurance rates haveclimbed between 20-100% sinceKatrina, said the Insurance InformationInstitute’s Robert Hartwig, withincreases on the lower end in relativelylow-risk coastal areas like coastal NewHampshire, and the highest increases inhigh-risk areas like coastal Mississippi,Florida and Louisiana. Even state-mandated insurers of last resort areasking for rate increases in the tripledigits. Commercial insurance rates areup 20–100% along the coast, along withdeductibles that now reach as much as5% of a structure’s insured value. In theenergy sector, which was hit hard byKatrina, rates have soared even higher,sometimes tripling their pre-Katrinalevels.

Between 2001 and 2006, insurancepremiums rose an average 46% nation-wide, reflecting higher real estate valuesas well as increased risks from naturaldisasters. Four of the five states with thehighest average premium increases liealong the coast, a likely reflection of “theeffects of the increased risk of hurri-canes and tropical storms,” wroteGeorgia State’s Klein, in an analysis ofinsurance trends.44

Florida led the way with the highestaverage premium increases, at 77% since2001. Maryland, at 76%, came next,followed by Virginia (67%), Minnesota(66%) and Louisiana (65%).45

CHAPTER 3

Premiums up, coverage down: the insurance industry

reduces exposure

Even so, U.S. insured losses haverisen faster than premiums, on average,since the early 1990s, according to a2005 report published in the journalScience.46 More recently, a report by theCERES coalition found that insuredlosses for 2005 were seven times as highas the $10 billion in premiums taken inthat year.47 One modeling firm predictsthis trend will result in a $120 billiongap in the industry’s ability to cover itslosses.

To close that gap, insurers are tryingto shed their exposure, a trend that hasled to shrinking coverage even in statesthat haven’t seen a devastating storm for50 years, such as Massachusetts.48 Lex-ington Insurance Company, a surpluslines insurer and subsidiary of AIG,reported to investors in March 2006that it was reducing its exposure incatastrophe-exposed areas by 20–25%;writing fewer policies; not renewingpolicies in certain high-risk areas; in-creasing deductibles; reducing maximumclaim payments; and increasing thenumber of exclusions. Since then,Lexington has also raised rates for allcatastrophe-exposed markets, rangingfrom 30% to in some cases as much as200%.49

Lexington is also increasing its rein-surance in catastrophe-exposed areas,which include Florida, Texas, California(earthquakes), Hawaii and Louisiana.Lexington has already reduced its ex-posure in parts of Florida and Texas andhas targeted New Orleans and Hawaiifor further reductions this year. In theGulf States, it is raising deductibles forflood and wind coverage, as policies arerenewed, to as much as 5% of a home’stotal insured value (i.e. $5,000 on a$100,000 home).50

Homeowners’

insurance rates

have climbed

between

20–100%

since Katrina.

13

Allstate spokesman Mike Trevinosaid insurance companies have to con-sider other natural disasters as wellwhen deciding how to manage risk inthis new climate. “What happens if youhave Katrina one day and Northridge[earthquake in California] the next day?That led us to the realization that weneeded to get smaller in terms of ourexposure to damage to homeowners. Wedecided to not write new business insome places, we decided to shed policiesin other places.”51

Those decisions were part of whatTrevino referred to as Allstate’s “prop-erty catastrophe management strategy,”which it implemented in the wake of2005’s Katrina-Rita-Wilma triple-header. The strategy calls for reducingrisk by increasing reinsurance coverage;raising rates; and shrinking exposure,that is, reducing the number of homesand businesses they insure in coastalareas, raising deductibles and in somecases eliminating specific coverages,such as wind damage. Allstate is oneof the most heavily exposed insurancecompanies in the hurricane-prone states.52

Specifically, Allstate no longeroffers coverage to as many as 40,000coastal homeowners in New York,where it is the largest homeowners’insurer in the state. In Florida, thecompany is no longer writing any newpolicies statewide, after shedding about320,000 policies over the past threeyears.53 It has also stopped writingcoverage in some coastal counties inTexas; stopped covering wind damagein other parts of Texas; and stoppedwriting policies in coastal areas inLouisiana and Mississippi.54

Nationwide Mutual Insurance Com-pany has stopped writing new home-owners’ policies in Long Island andlast year cancelled 35,000 policies inFlorida.55 The company has also beencutting back on policies along the coastof Maryland and Virginia.56

State Farm Insurance Companies,the largest homeowners’ insurer in thecountry, has reduced its exposure bywriting fewer policies all along thecoastal United States and stoppingcoverage altogether in five counties inFlorida. “In no area are we writing

“In some cases,

you can’t collect

what you

believe is an

adequate rate,

and that’s when

you start

choosing not to

write a policy,”

State Farm

spokesperson

Dick Luedke.

Hurricane Katrina

NO

AA

14

absolutely everything we could write,”said spokesman Dick Luedke.57

State Farm, which is fighting a legalbattle in Texas over how much it cancharge homeowners, has backed awayfrom some markets because of what itconsiders overly stringent state

regulations that prevent the companyfrom charging premiums commensuratewith current risks. “In some cases, youcan’t collect what you believe is anadequate rate, and that’s when you startchoosing not to write a policy,” saidLuedke.58

Allstate is no

longer writing

any new policies

in Florida.

15

The impact of increasingly higher ratesfor less coverage has been devastatingfor some, difficult for others and, insome cases, has forced people andbusinesses to relocate.

Retirees whose homes were alreadypaid for are finding they can’t afford tostay in those homes because of sky-rocketing insurance rates. Businesses aremoving inland or into less hurricane-prone states or in some cases cancelingprojects all together. Others are simplygoing without insurance, deciding thehigher premiums and deductibles aren’tworth it.

Faced with substantially higherpremiums, Wal-Mart Stores Inc.announced in May 2006 it was droppingits windstorm coverage and wouldsimply pay for any potential damages onits own.59

In Alabama, a 35-unit beachfrontcondominium building saw its annualpremium spike more than ten-fold lastyear, from $35,000 to $424,000.60 And aretired couple in Miami Beach, wherepremiums jumped 500% between 2002and 2006, put their house on the marketafter watching the cost of windstormcoverage more than double, from $8,000to $17,000.61 Overall in Dade County,between 2002 and 2007, premiums forcommercial and residential propertyowners rose almost 150%.62

The lack of affordable insurance isslowing commercial sales in the Gulfarea and rippling through the bankingindustry. Business owners can’t borrowmoney if they don’t have insurance, andescalating premiums and deductibles arebecoming deal-breakers.

For example, a Greenwich, Connecti-cut, based firm recently killed a deal topurchase an oil and gas platform in the

CHAPTER 4

Impacts on insurance cost/availability in individual coastal

states

Gulf of Mexico, after learning insurancefor the project would cost $25 million,not the $2 million they had expected.63

Florida

Perhaps no state has suffered the effectsof the new cycle of destructive stormsmore than Florida, which has felt theimpact of all eight major hurricanes ofthe past three years.

With 79% of insured property in thisstate sitting along the coast (more thanhalf the state’s 67 counties are coastal),any storm that hits Florida can dosignificant damage. Cumulatively, the2004 and 2005 seasons—which in-cluded seven of the costliest hurricanesto ever hit the United States—wroughtmore than $35 billion in insured lossesin Florida alone.64

Florida homeowners, businesses andstate legislators have been strugglingwith insurance woes since HurricaneAndrew wreaked its massive destructionin 1992, pushing 12 insurance com-panies into insolvency and causingothers to flee the state.65

That single storm led to “a virtualcollapse of the private insurance marketin some segments of the homeowners’market in Florida,” according to testi-mony by the state’s insurance com-missioner, Kevin McCarty, to a Housesubcommittee studying the impact ofnatural disasters on America’s housingmarket.66

State-run insurance struggles to fill

the void

Florida lawmakers stepped in to fill thevoid by creating a state-run homeowners’insurance program in 1992. The hopewas that this would act as a temporary

The lack of

affordable

insurance is

slowing com-

mercial sales in

the Gulf area.

16

fix until private insurers regained confi-dence in the market.67

Although many did return during theensuing years, the state-run program—today in the form of Citizens PropertyInsurance Corporation—has had tocontinue to act as an insurer of lastresort and has seen so much growth inrecent years it is now the largest prop-erty insurer in Florida, with 1.3 millionpolicyholders.68 Florida also offers itsown reinsurance program, known as theFlorida Hurricane Catastrophe Fund(CAT Fund), created in 1995 to provideless costly reinsurance through aprivate-public partnership.69

Most recently, former Governor JebBush further expanded Citizens’ role toinclude commercial property coverage,following a July 2006 survey that found42% of responding Florida businesseshad been cancelled or not renewed bytheir private carriers over the past sixmonths; only 32% were able to get newcoverage, which came at substantiallyhigher rates. Current Governor CharlieCrist has made global warming a toppriority for the state. On July 13, Cristsigned several Executive Orders toestablish a multi-pronged strategy toreduce the state’s greenhouse gasemissions.70

When they can’t find insuranceelsewhere, some turn to “surplus lines”of insurance, a growing market thatoperates outside state regulations.Companies offering surplus lines tohomeowners and businesses chargeconsiderably higher rates and aren’trequired to keep minimum capitalreserves, so not only do consumers paymore for the insurance, they have fewerguarantees the company won’t fold ifforced to pay out an excessive number ofclaims. Nonetheless, this industry grew65% from 2002 to 2005, when itcollected roughly $35 billion inpremiums in the U.S.71

But even surplus lines are cuttingback coastal exposure. At least threestopped writing in Florida when theycouldn’t get enough reinsurance to covertheir risk.72

Like private insurance companiesoperating in Florida, Citizens has takena beating over the past three years. Itsuffered a $516 million shortfall fromexcessive claims in 2004, passed on to allproperty owners in the state—includingthose not insured by Citizens—througha 7% fee tacked onto their homeowners’policies. The 2005 hurricane seasonresulted in an even greater deficit of$1.7 billion. Former Gov. Bush usedmore than $700 million in tax revenuesto help offset the plan’s debts.73

“Insurers were able to earn profitsfrom the mid 1990s through 2003, andhad almost wiped out the deficit causedby Hurricane Andrew. However, thesevere storm losses of 2004–2005pushed them heavily back in the red,”said Georgia State University economistKlein. “There is no real prospect thatthey are going to get out of the red anytime soon, and in fact, if we haveanother bad storm season, they aregoing to get deeper in the hole. Ulti-mately, insurers cannot continue tocommit capital to such a losing proposi-tion without significant changes thatwill enable them to economically sustaintheir operations over the long term.”74

“What’s happened is, when the stateinsurer goes bankrupt, which it did in‘04, ‘05 and will again, it basically askseveryone else to pick up its mess,” saidthe Insurance Information Institute’sHartwig. “Unfortunately, that has theeffect of not doing anything to stop thedevelopment control that got them intothis mess in the first place.”75

Hartwig and others criticize state-created plans like Citizens for coveringhomes in areas such as south Floridathat are so risky no other company

Some Florida

residents are

moving because

they can no

longer afford

insurance.

“They’re moving

to North Caro-

lina. They’re

moving to

Georgia. They’re

getting out of

Dodge,” Florida

State Senator

Steven Geller.

17

would insure them, a practice that leadsto unfettered coastal development withoften-costly consequences.

State programs and insurance regula-tions can also serve to keep rates lowerthan the true risk often calls for, those inthe industry say, masking the problem ofcoastal development and leading tosticker shock when rates are adjusted toreflect costs.

“The problem in Florida, as I see it,is that for too many years we’ve sup-pressed the rates while the real estatevalues have soared for all of us,” saidBruce Douglas, Chairman of Citizens’Board of Governors and Chief Execu-

tive of Douglas Capital Management,an independent investment advisoryfirm. “Now we have a problem wherethe rates actuarially sound are almostunmanageable for many, many people,”he said, speaking at a roundtable oninsurance issues sponsored by the MiamiHerald. “We’re never going back to low-cost homeowner insurance,” saidDouglas.76

Indeed, homeowner premiums inFlorida have risen more than any otherstate in the nation, according to datafrom Georgia State’s Klein. The averagehomeowners’ policy increased by awhopping 77% between 2001 and 2006,compared to a 46% increase nationwide.And those rates are continuing to climb,while coverage is shrinking.77

In some parts of the state, propertyrates have been increasing 30-40% everyyear for the past several years. In MiamiBeach, homeowners report cumulativeincreases of 500% between 2002 and2006.78

Premiums in the Citizens plan—already higher than those offered pri-vately—are doubling in some areas.79

In May 2007, the Florida legislatureresponded to the growing crisis in risingpremiums by freezing Citizens’ rate in-creases until 2009. State Farm requesteda 71% rate increase (the state approveda 52.7% hike) in 2006, and has limitednew policies in five counties, three inthe Miami/Ft. Lauderdale area, and twoaround Tampa/St. Petersburg.80 In March2007, State Farm requested a rate decreaseof 7%, because the company was allowedto purchase additional reinsurance fromthat state, and in October 2007 wasgranted a 9% decrease.81

Allstate, which has dropped approxi-mately 320,000 policies since 2004 inFlorida, is no longer writing new cov-erage anywhere in the state.82 Nation-wide dropped 35,000 policies in August2005, and requested a 71% increase in P

HO

TO

DIS

K

In Florida, 70%

of insured

property sits

along the coast.

Hurricane damage

18

homeowner rates in 2006. The rate in-crease request was denied, and in March2007 an arbitration panel grantedNationwide a 54% rate increase.83

The 2004 and 2005 seasons alsowiped out several small insurers, whichhad formed during the late 1990s totake advantage of a state “takeout”program that offered cash bonuses toprivate insurers willing to take policiesout of Citizens. The idea was to provideincentives for the larger companies towrite more business in Florida, butinstead it created a market of smallercompanies that didn’t have the samecapacity to handle multiple catastrophicevents. The program worked fairly welluntil back-to-back storms beganbattering the state in 2005.84

Meanwhile, Florida’s population hasgrown rapidly, with projections callingfor an additional 5 million people by2020. These new residents will requireat least 900,000 more homeowners’policies.85 The state’s population grew13.2% from 2000-2006, compared to6.4 % population growth nationwide.86

Now, some homeowners and busi-nesses say they may relocate becausethey can no longer afford insurance.

A Florida-based publishing companysaw its rates for hurricane and business-interruption coverage soar from $10,000in 2005 to $120,000 last year, causing itspresident to warn that the insuranceindustry was “going to drive commercialenterprises out of certain areas in thiscountry,” if rates continued to climb.87

In Key West, more than 1,400 homesrecently went up for sale, in an area thattypically carries 400 homes on themarket at any given time.88

“I think we can all agree we can’t keepgoing the way we are,” said Florida StateSen. Steven Geller, at the Miami Heraldroundtable. “We’ve been forcing peoplefrom their homes, we’re forcing them outof business.” “They’re moving to North

Carolina. They’re moving to Georgia.They’re getting out of Dodge,” he said.89

State insurance officials say they areworking “nonstop” to prevent that fromhappening. “We’re trying to find theseanswers,” said Ray Spudeck, SeniorResearch Economist, for the FloridaOffice of Insurance Regulation, lastsummer. “Florida’s had a remarkablyrobust economy over two years witheight major storms. Nobody wants tosee the wheels come off now.”90

Louisiana

When Hurricane Katrina made landfallon the Louisiana/Mississippi borderon August 29, 2005—as a Category 3storm with sustained 125 mph winds—it made history of the kind that will notsoon be forgotten.

Katrina smashed through offshore oilrigs, pushed the levees that separatedNew Orleans from its surrounding lakespast their limits, and left a swath ofunprecedented destruction in its wake.Days after the storm hit, New Orleanswas 80% under water and 650,000people had been driven from theirhomes. Disruptions to oil production inthe Gulf drove gasoline prices to recordhighs. Two years later, Louisiana standsa long way from being rebuilt.

The full cost of this storm—com-bined with the damage inflicted shortlythereafter by Hurricane Rita—has yet tobe tallied. On the first anniversary ofKatrina, FEMA reported that home-owners in Louisiana had filed $13.2 bil-lion in claims with the National FloodInsurance Program and received $3.6 bil-lion in federal housing assistance. Theyhad received an additional $1.5 billionin disaster-related needs assistancegrants from the federal government, and$312 million in disaster unemploymentassistance.91 All told, FEMA had spent$8,244 per capita on assistance to people

As of 2006,

FEMA had spent

$8,244 per

capita on

assistance to

people in

Louisiana—19

times the per

capita cost of

the 9-11

terrorist

attacks.

19

in Louisiana—19 times the per capitacost of the 9-11 terrorist attacks.92

According to the Louisiana RecoveryAuthority, Katrina destroyed 217,000homes in the state, damaged 875schools and obliterated 18,750 busi-nesses. It killed more than 1,000 peopleand forced another 240,000 into un-employment. Insurance companies inLouisiana paid out more than $25billion in claims—three times as muchas in any other state affected byKatrina.93

Insurance industry fallout from the2005 hurricane season was heavy. InJuly 2006, Allstate announced its plansto drop wind and hail coverage in 18parishes in Louisiana, affecting 30,000homeowners. State Insurance Com-missioner Jim Donelon called the planillegal, and threatened to fight it incourt, prompting the company tothreaten to leave the state altogether.94

Allstate, which paid out $2 billion inclaims to Louisianans following Katrinaand Rita, met with CommissionerDonelon and Gov. Kathleen BabineauxBlanco and agreed not to leave the statecompletely. But in the 18 parishes, forhomeowners who have held Allstatepolicies less than three years, wind andhail coverage will no longer be offered.95

Private insurers weren’t the only onesto feel the sting from Katrina and Rita.Louisiana Citizens Property InsuranceCorporation, created in 2003 to bringthe state’s two insurers of last resort—the FAIR plan and the Coastal Plan—under a single, more financially soundumbrella, took a $1.2 billion hit fromthe combined storms of 2005, wipingout all of the entity’s reserves.

To recoup those funds, the stateassessed all insurance companies doingbusiness in Louisiana a one-time fee of18% of their premiums, which they arepassing along to homeowners. Inaddition, the state sold $825 million in

bonds to help cover the cost of out-standing claims.96

Overall, home insurance premiums inLouisiana rose 65.2% between 2001 and2006, ranking it fifth in nation for risinghomeowner costs.97 No doubt Louisianawill be feeling the pain of Katrina andRita for many years to come.

Texas

Texas has long experienced some of thehighest homeowners’ insurance rates inthe country, largely because of wind andhail damage, another category ofextreme weather events that globalwarming is increasing. (An unusualnumber of costly mold-related claimsdrove rates up and some insurers out ofthe area several years ago. Eventually,insurers excluded mold from home-owner policies and now provide cover-age only under a separate policy.98)

In addition, roughly 95% of allhomeowner policies in Texas werecovered by Lloyds companies that wereexempt from state rate regulations. In2003, Texas passed a law removing thatexemption and ordered more than $500million in rate reductions.99

State Farm Lloyds was ordered toreduce its rates by 12%, but refused tocomply and is still fighting the state incourt. In May 2006, the company filednotice with the state of its intention toraise rates an average 21%, with hikes asmuch as 39% along the coast. It attributeda large part of the rate increase to thehigher cost of reinsurance due to recenthurricane activity in the Gulf. The staterejected the proposed increase, and StateFarm—now the largest home insurer inthe state—appealed.100 State Farm even-tually withdrew one of its proposed fil-ings for rate increases, but is still seekingto raise rates 9% statewide and approxi-mately 35% in some coastal areas. Thedispute went before an administrative

Statewide, the

average

premium in

Texas increased

more than 50%

since between

2001 and 2006,

from $806 to

$1,214.

20

law judge in May 2007, and on October7 the appeal was rejected, although arate increase of 3.6% was allowed.101

“From our perspective, we feel wedon’t have adequate rates in place in allareas of Texas,” said State Farm spokes-man Dick Luedke. “We feel that wehave to collect the premium that’s com-mensurate with the risk.”102

Other insurers, however, have beenallowed to raise rates.

From January 2006 to June 30, 2007,Texas Farm Bureau raised its rates from18 to 24% along the coast and a newcompany, Commercial Alliance, in-creased rates from 20 to 86% along thecoast, citing higher reinsurance costs.Republic Lloyds raised rates as muchas 22% for coastal areas.103

Allstate has recently filed for a 7% rateincrease in coastal areas, but it is not yetin effect and is under review by actuariesat the Texas Department of Insurance.A hearing is set for December 3.104

Statewide, the average premium inTexas increased more than 50% sincebetween 2001 and 2006, from $806 to$1,214.105

More people are also facing higherrates for wind coverage in coastal Texas,since Allstate recently dropped thisprotection from all of its coastal policies.Those who can’t find private coveragefor wind damage can purchase it throughthe Texas Windstorm Insurance Asso-ciation Pool. But to do so, they have toshow that their homes were built tostandards meant to resist hurricanedamage, a process that typically takesplace during construction.106

The steep losses resulting fromHurricanes Rita and Katrina alsocost Texas one of its major insurancewriters. In July 2006, Texas insuranceregulators shut down Texas SelectLloyds, the state’s sixth largest homeinsurer, which faced such dismalfinancial prospects it was downgraded

from “fair” to “marginal” by insurance-rating firm A.M. Best. The company,based in Alabama, had insured 154,000homeowners in Texas.107

Mississippi

Within days of Katrina making landfall,the Mississippi Farm Bureau MutualInsurance Company ran out of money andstopped writing all policies in Mississippi,said Lee Harrell, Mississippi’s deputycommissioner of insurance.108

Katrina caused $10.5 billion ininsured losses in Mississippi. The statereceived $8.6 billion in federal aid, aswell as temporary housing for 102,500people displaced by the storm.109

The Mississippi Windstorm Under-writing Association (known as theMississippi wind pool) paid out $750million in claims after Katrina, resultingin a $545 million assessment to allinsurance companies writing business inthe state to help cover the costs. Gov.Haley Barbour also allocated $50 mil-lion of the state’s federal disaster aid todefray the losses.

The pool then requested a nearly400% rate increase—not to cover lossesfrom Katrina, but to pay the $42 milliontab for $375 million worth of reinsuranceto guard against future losses. Reinsur-ance costs for the pool rose 500% inKatrina’s wake.110

Ultimately, the pool was granted anincrease of just 90%, effective October1, 2006, bringing the annual windpremium for a home valued at $100,000from $792 to $1,504. Had the nearly400% increase gone through, the annualpremium would have been $3,942—on top of any regular homeowners’ in-surance or flood insurance a personmight carry. There have been nopremium increases since 2006.111

“I regret that wind pool policyholders will have to pay any increase in

Average

homeowner

insurance

premiums

climbed 63.3%

in Mississippi

between 2001

and 2006.

21

premiums,” said Mississippi Com-missioner of Insurance George Dale, ina press release. “However, an increase isnecessary in order to maintain thestability of the program. Without thewind pool, many residents would beunable to get any wind coverage due to anumber of companies choosing not towrite the wind on the coast.”112

Deputy Insurance CommissionerHarrell pointed out that the assessmentfor insurance companies to cover windpool losses was more than twice as highas the amount of premiums thosecompanies collected in Mississippi. Bylaw, all companies writing insurance inMississippi must participate in the windpool.113

Average homeowner insurancepremiums have climbed 63.3% inMississippi between 2001 and 2006,ranking it 6th in the nation forincreases.114

Mississippi also has a ResidentialPlan that serves as an insurer of lastresort for homeowners, separate fromthe wind pool. Those rates have notgone up, but Harrell explained most ofthis exposure is nominal because thebulk of the claims from hurricanes stemfrom wind damage. It’s the windcoverage that’s pricey, he said. “It’sexpensive,” said Harrell. “It wasexpensive pre-Katrina.”115

Alabama

In Alabama, it was Hurricane Ivan thatmade state officials sit up and takenotice of how catastrophic weatherevents could disrupt the availability andaffordability of insurance coverage. Ivanmade landfall on the Alabama GulfCoast as a Category 3 storm onSeptember 16, 2004.

Although Alabama took the brunt ofthe initial hit, with 65 of the state’s 67counties declared federal disaster areas,

Ivan also left its mark in the FloridaPanhandle before pushing its way up theEast Coast through Georgia and theCarolinas. It eventually left themainland in New Jersey, only to make aU-turn and re-enter the United Statesthrough Central Florida, crossing intothe Gulf of Mexico and making landfallonce more in Louisiana.

Ivan caused more than $1 billion ininsurable losses in Alabama stemmingfrom more than 200,000 claims. Alltold, it caused $15 billion in lossesduring its path of destruction, making itone of the nation’s 10 most expensivestorms. When it was over, Alabamahomeowners found some insurersunwilling to renew their policies andothers unwilling to continue providingcoverage of wind damage.116

Ivan also gave rise to a HurricaneInsurance Issues Task Force, whichreleased its final report on August 4,2005—just a few short weeks beforeKatrina whipped through the GulfCoast, making Ivan pale in comparison.Alabama homeowners received nearly$600 million in federal disaster aidrelated to Katrina’s damage and filed$1.3 billion in insurance claims.117

Katrina damaged or destroyed 1,700homes in Alabama, affecting 794,000people in 11 counties.118

State lawmakers responded bycreating another commission to writestatewide building codes and by passinga law allowing companies and associa-tions to self-insure property. Nonethe-less, many beachfront properties faceastronomical increases in premiums. Forexample, one beachfront condominiumcomplex, fresh from months of costlyrepairs caused by Hurricane Ivan, sawits annual premium skyrocket from$40,000 to more than $1 million.119

Like many coastal states, Alabamacreated an insurer of last resort for thosewho could not get coverage through

One Alabama

beachfront

condominium

saw its annual

premium

skyrocket from

$40,000 to more

than $1 million.

22

private insurers. Its “Beach Pool” hasseen membership rise from roughly3,000 homes covered in 2004 to morethan 8,500 homes as of October 2007.Rates for this program, while higherthan those in the private market, haveremained stable from 2001 untilrecently, when pool operators setcoverage caps at $1 million for com-mercial properties and $500,000 forresidential.120

Overall, the average home insurancepremium rose 42.4% in Alabamabetween 2001 and 2006, slightly lessthan the national average.121 But alongthe coast, premiums in some cases rosemore than 10-fold.122

Georgia

It has been more than 100 years since amajor hurricane hit the coast ofGeorgia, which is perhaps why this statehasn’t experienced the dramatic changesin insurance rates and coverage thathave affected some of the other coastalstates. Georgia has not come throughthe past few years of severe stormscompletely unscathed, however.

Although its coastal areas have beenlargely spared, major hurricanes, such asIvan, often forge an inland path intoGeorgia, and those that make landfall inFlorida can cause storm surges, heavywinds and flooding hundreds of milesnorth. NOAA counts Georgia amongthe states affected by significant winddamage and/or flooding in five of theeight major hurricanes to hit the coastalUnited States in the past three years.

Requests for increases in homeownerinsurance for the major carriers inGeorgia have been limited over the pastfew years. Neither Allstate nor StateFarm has raised rates since the 2004hurricane season.123

Another major carrier, Georgia FarmBureau, has instituted relatively modest

hikes. In 2005, Georgia Farm BureauCasualty increased homeowner rates forhomes valued less than $150,000 by8.5%; those valued at more than$150,000 saw a steeper increase, of11.8%. The same year, Georgia FarmBureau Mutual increased rates 4.5% forhomes valued at less than $150,000 and7.6% for those with higher values.

Most of the damage caused byhurricanes that would be covered byinsurance stems from wind. But inGeorgia’s six coastal counties, someinsurance companies don’t cover winddamage, forcing property owners topurchase separate coverage through a“dwelling” policy with the state’s FairAccess to Insurance Requirements(FAIR) plan.

Growth in the FAIR plan, thoughsteady during the 1990s, has been slowerover the past few years. In 2003, therewere 6,381 policies in force, and by endof June 2007, that number had risen to8,425. State insurance officials say thatgrowth has been in keeping withpopulation growth along the coast.124

Average homeowner premium increasesfor Georgia between 2001 and 2006have kept slightly below the nationalaverage, at 44.7%.125

“The impact thus far has beenminimal,” said Greg Hawkins, who runsthe Property and Casualty departmentfor Georgia’s Office of Insurance andSafety Fire Commissioner, adding thatinsurance companies “may not have gotto us yet.”126

Nor has the FAIR plan raised itsrates much in the past few years.According the FAIR spokesperson JaneMatthews, every year the programevaluates rates and has not requested arate increase in “dwelling” insurance(which covers named perils such aswind) since 2000 or in commercialproperty since 2003. It did increase rates9.9% statewide in 2004 for homeowner

“We’re never

going back to

low-cost

homeowner

insurance,”

Bruce Douglas,

Douglas Capital

Management.

23

policies (which are available to owner-occupied dwellings and include theftand liability).

North Carolina

Although none of the eight major hurri-canes of the past three years made adirect hit on North Carolina’s coast, thestate did suffer flood and wind damagesrelated to four of the costliest storms in2004: Jeanne, Ivan, Frances and Charley.

In North Carolina, rate increases arerequested through the North CarolinaRate Bureau, an independent organizationthat represents all insurance companies inthe state. In 2005, the Bureau initiallyplanned to request a 70% increase, but wasdiscouraged from doing so and insteadfiled a request for a 50% hike for beachproperties.The state allowed a much lower15% increase for beach homes, with a 10%jump granted for coastal properties west ofthe Intercoastal Waterway. It was the firstincrease since 2002, when the state al-lowed a 30% rate hike for these territories.

For beach homes east of the Inter-coastal Waterway, the Bureau won a2006 increase of 25%, effective May 1,2007, according to spokesman RayEvans, with a slightly lower increase forhomes west of the Waterway.127

North Carolina hasn’t had troubleretaining insurance coverage, thoughState Farm did stop writing policiestemporarily in 2004, and most homesalong the beach are insured through astate-created “Beach Plan” that chargeshigher rates for those whose propertiesconstitute second homes.128

“It is tough to find traditional home-owners’ policies down on the beach,” saidNorth Carolina Department of Insurancespokesperson Chrissy Pearson. “Cer-tainly, if you own a vacation home inNorth Carolina, you’re going to feel it inyour pocketbook. It could certainly put abite in your monthly budget.”129

South Carolina

Like North Carolina, South Carolinasuffered significant flooding and winddamage from the major storms of 2004,even though those hurricanes madelandfall in Florida and Alabama.130

Between 2001 and 2006, homeownerinsurance premiums in South Carolinahave climbed an average of 56.4%statewide.131 Since August 2006, insurershave dropped more than 20,000 coastalpolicies, and for many property ownersinsurance premiums have increasedmore than 100%.132

State Farm, for example, raised ratesin coastal zones 25%, although itlowered them for homeowners in therest of the state by as much as 10%. In arate change effective March 27, 2006,overall rate increases statewide were flat,but in coastal zones the rates rosearound 20%.133 In the 2001–2006period, South Carolina Farm Bureaualso raised rates 25% in coastal counties,and an average 7% statewide. In May2007, Allstate raised homeowners’ ratesstatewide by 11.3%, but in coastal areashomeowners will see increases of up to90% over last year.134

Most insurers have also been drop-ping wind coverage in recent months,pushing huge numbers of policyholdersinto the state-run wind pool.

In-force policies, which topped$32 million in premium value in 2005,reached $66 million in value by the endof the enrollment year in October 2006.For this year as of the end of June, valuehad reached $80 million. At the end ofOctober 2005, there were 20,840 poli-cies in-force along the coast; by the endof October 2006, that number has risento 28,352. By the end of June 2007, thenumber had climbed to 33,882. Thewind pool provides wind and hail cover-age to just a small portion of five coastalcounties in the state where privateinsurers are reluctant to write.135

“It is tough to

find traditional

homeowners’

policies down

on the beach.

Certainly, if you

own a vacation

home in North

Carolina, you’re

going to feel it

in your pocket-

book,” Depart-

ment of

Insurance

spokesperson

Chrissy Pearson.

24

David Leadbitter, underwritingmanager for the South Carolina Windand Hail Underwriting Association, saidnot only traditional insurers but evensurplus companies are dropping windcoverage in South Carolina. Only onemajor company, State Farm, continuesto carry it.136

Virginia

Virginia ranks among the top five statesfor biggest premium increases sincebetween 2001 and 2006.137 Premiumsclimbed an average of 67.2% for thestate in that time period, compared to46.3% nationwide and an average 77.3%in Florida. As in many other coastalstates, some insurers, such as Nation-wide, have announced plans to reducetheir exposure in Virginia by writingfewer new policies.138

Virginia hasn’t seen increases inmembership in its FAIR plan, however,and that plan, which holds less than 1%of the market share, took a small ratedecrease last year and is projecting noincrease for this year.139

Virginia FAIR plan manager Lee Nyesaid even though they are an insurer oflast resort, their rates aren’t much higherthan what’s available in the private mar-ket. Most people are able to find coverageprivately and can even shop around.140

Major hurricanes have not made land-fall in Virginia in recent years, but oftenthe remnants of hurricanes pass over astropical depressions or cause torrentialrains and tornadoes. Perhaps most nota-

ble in Virginia was Hurricane Camille,which hit the Louisiana coast in 1969but caused torrential rains in the moun-tains of Virginia that resulted in deva-stating floods and $113 million indamages. Virginia has seen some torren-tial, non-seasonal rains hit the state inrecent years, causing a huge increase inflooding damages for the state—a non-hurricane extreme weather event exactlyof the type scientists predict we’ll seemore of due to global warming.

More recently, Ivan—which passedthrough central and northern Virginia—spawned 40 tornadoes in a single day—arecord in Virginia. And when Jeannepassed through as a tropical depressionit caused flooding in the Roanoke area.

What has resonated most withVirginia homeowners in recent yearswas a change in deductibles in the pri-vate market, from fixed to a percentageof the home’s insured value—a changethat took place just prior to HurricaneIsabel’s arrival in 2003. Isabel, a 600-mile-wide storm that first made landfallin North Carolina’s Outer Banks,pushed through Virginia as well, causing$625 million in damages and 36 deaths.141

Not all major insurers switched topercentage deductibles, however. Threeof the state’s top 10 insurers continue tooffer flat-rate deductibles, and althoughthese can reach as high as $5,000, thetypical fixed rate falls at $1,000.142

Unlike many coastal states, Virginia hasnot had need for a wind pool, said Nye.“Consumers have a lot of choices in thisstate,” he said.143

Between 2001

and 2006,

homeowner

insurance

premiums in

South Carolina

climbed an

average of

56.4%.

25

Clearly, insuring property in the coastalUnited States has never been morecostly or difficult. More than putting apinch in homeowners’ budgets, however,the current insurance crisis in somecases threatens to squeeze local andstatewide economies. Many climatolo-gists predict global warming will causeincreasingly devastating storms indef-initely, unless something is done tolower greenhouse gas emissions. Mean-while, too little has been done to reducethe carbon emissions that lead to warmerocean temperatures, which in turn breedincreasingly stronger storms and a hostof other weather events that affect somany sectors of the economy, from realestate to agriculture. Currently, the U.S.has imposed no limits on emissions ofgreenhouse gas pollution.

Some worry that global warming willhit home in the form of one of thesedestructive storms in another denselypopulated area, such as New York City.

With respect to hurricanes, “The$100 billion event is coming soonerrather than later,” Florida InsuranceCommissioner Kevin McCarty toldmembers of Congress in 2006.144

“Whether it is in the Gulf of Mexico,along the Carolinas, or in the Northeast,a mega-storm, or series of storms, couldrender parts of the private insurancemarket insolvent,” he said. “No potentialrate of return is going to be worth therisk of losing the entire company.”145

Others fear more mega-storms willdrive an even larger number of privateinsurers away from the coast.

“If we are in a period where we aregoing to stay in this kind of pattern, Iwould think you’ll see a reassessment bya lot of companies as to whether theyare going to write in these kind ofareas,” said the Reinsurance Associa-

Conclusions

tion’s Frank Nutter. “That’s happeningright now. If the losses continue tomount, we’ll have a more aggressivemove this way.”146

Nutter argues that higher insurancerates are a reality we’ll have to accept.“People ought to have to pay for the costof the insurance that they have,” he said,not force others to pick up the tab whendisaster strikes. “Nobody should have tosubsidize those premiums, but that’seffectively what happens when you don’tallow insurance companies to chargeadequate rates.”147

If states prevent rates from climbing,industry officials warn, insurers won’tstick around.

“The greater the risk, the greater theneed for increased premium. To theextent that you can’t get increasedpremium, insurers are less likely to writebusiness,” said State Farm’s Luedke.148

That wouldn’t surprise Georgia State’sRobert Klein, who says that insuringcatastrophic risk in some ways flies inthe face of sound economic judgment.“One line of thinking is that catastrophicrisks are basically uninsurable,” he said.“They have been writing the risks thatthe textbooks say are uninsurable. Andthe reason they’ve been able to do it inthe past at those rates was because theywere able to buy reinsurance to diversifythat risk and felt that with the amountof reinsurance they were able to buy,they were at a reasonably sustainablebusiness position.”149

But even reinsurance can’t adequatelycover the risk of multiple mega-stormshitting year after year along the coast.“That puts it into a whole new light,”Klein said.150

Are coastal homes and businessesinsurable in the current climate? Do weneed, as some believe, a federal backstop

Insurance

companies are

walking away

from coastal

areas or

dramatically

increasing their

premiums—a

trend that will

continue until

the federal

government

faces up to its

responsibility to

confront global

warming.

26

to cover major weather-related cata-strophic losses? Or would that do nothingmore than force the entire country tosubsidize damages to homes for thosewho choose to live in high-risk areas, ata time when scientists say global warm-ing will cause more intense hurricanes?

Hartwig makes a prediction of hisown. “Insurers either have to find a wayto adjust, either by charging a premiumthat’s appropriate to the risk, orreducing exposure to these problems.Whether they can participate in yearsahead depends upon the regulatoryenvironment. If they suppress rates,

because it’s politically unpopular, manystates will degenerate into quasi-socialistic states for insurance, all ofwhich will be dysfunctional, becausethey spread the losses over people notinvolved in the loss and over generationsnot yet born. Eventually, this will catchup with them.”151 In the meantime,insurance companies are walking awayfrom coastal areas in hurricane-pronestates, or are dramatically increasingtheir premiums—a trend that willcontinue until the federal governmentfaces up to its responsibility to confrontthe growing problem of global warming.

Insuring

property in the

coastal United

States has

never been

more costly or

difficult.

27

1 Insurance Information Institute,www.iii.org.

2 National Weather Service, www.cpc.ncep.noaa.gov/products/outlooks/hurricane.shtml.

3 Interview with Robert Klein, director,Center for RMI Research, Georgia StateUniversity, August 8, 2006.

4 Interview with Mike Trevino, AllstateInsurance Co., August 8, 2006.

5 Trevino interview, August 8, 2006.6 Evan Mils, “Availability and Affordability

of Insurance Under Climate Change,” U.S.Department of Energy Lawrence BerkeleyNational Laboratory, www.ceres.org/pub.

7 Interview with State Farm Spokesman DickLuedke, July 27, 2006.

8 C.E. Rosenzweig, F. Tubiello, R. Goldberg,E. Mills, and J. Bloomfield. “Increased CropDamage in the U.S. from Excess Precipita-tion under Climate Change,” Glob. Environ.Change, 12, 197-202 (2002).

9 Ibid.10 Interview with Frank Nutter, president,

Reinsurance Association of America,August 2, 2006.

11 Nutter interview, August 2, 2006.12 Interviews with Robert Hartwig, senior vice

president and chief economist, InsuranceInformation Association, July 27, 2006, andJuly 3, 2007.

13 Nutter interview, August 2, 2006.14 Ibid.15 Ibid.16 “Testimony of the National Association of

Insurance Commissioners Before the Sub-committee on Housing and CommunityOpportunity of the House Committee onFinancial Services,” by Kevin McCarty,Florida insurance commissioner and chair-man of the NAIC Catastrophe InsuranceWorking Group, Chairman of the NAICProperty & Casualty Insurance Committee,June 28, 2006.

17 Ibid.18 “As Hurricane Season Begins, Disaster

Insurance Runs Short,” Wall Street Journal,July 10, 2006.

19 David Gaffen, “Games of Risk,” Wall StreetJournal Online, January 16, 2007.

Notes

20 Trevino interview, August 8, 2006.21 Ibid.22 Ibid.23 “As Hurricane Season Begins, Disaster

Insurance Runs Short,” Wall Street Journal,July 10, 2006.

24 FEMA, http://www.fema.gov/25 “Testimony of the National Association of

Insurance Commissioners Before theSubcommittee on Housing and CommunityOpportunity of the House Committee onFinancial Services,” June 28, 2006.

26 Testimony of Orice M. Williams, director,Government Accountability Office, HouseCommittee on Financial Services, June 12,2007.

27 Testimony of David I. Maurstad, actingdirector and Federal Insurance Admin-istrator, Mitigation Division, Federal Emer-gency Management Agency, EmergencyPreparedness and Response Directorate,Department of Homeland Security, Beforethe United States Senate Committee onBanking, Housing and Urban Affairs,January 25, 2006.

28 “Flood Insurance, Challenges Facing theNational Flood Insurance Program,” UnitedStates General Accounting Office, Testi-mony Before the Subcommittee on Housingand Community Opportunity, Committeeon Financial Services, House of Representa-tives, April 1, 2003.

29 “The Future of the National Flood Insur-ance Program,” written testimony deliveredby Robert Hartwig, senior vice president andchief economist, Insurance InformationInstitute, to U.S. Senate Committee onBanking, Housing and Urban Affairs,October 18, 2005.

30 Ibid.31 Ibid.32 Email communication from Robert

Hartwig, July 12, 2007.33 Hartwig interview, July 27, 2006.34 Ibid.35 World Wildlife Fund report: “Climate

Change and Insurance: An Agenda forAction in the United States,” Allianz Groupand WWF, October 2006.

36 Ibid.

28

37 NOAA web site, www.cpc.ncep.noaa.gov/products/outlooks/hurricane.shtml.

38 K Emanuel, 2005 “IncreasingDestructiveness of Tropical Cyclones Overthe Past 30 Years,” Nature, 436:686-688.

39 Webster, PJ, GJ, Holland, JA Curry, and H-R Chang, 2005, “Changes in TropicalCyclone Number, Duration, and Intensityin a Warming Environment,” Science309:1884–1886.

40 “Eye On Storms: Chairman of Lloyds Saysthe Insurance Industry Must Adapt toIncreasing Disasters Linked to ClimateChange,” Denver Post, July 14, 2006.

41 “Climate Change: The Insurance Industryis Feeling the Heat of Global Warming,”Hartford Courant, July 9, 2006.

42 “Financial Risks of Climate Change,”Summary Report, Association of BritishInsurers, June 2005.

43 Ibid.44 Robert W. Klein, “Analysis of Average

Premium Trends for Homeowners’Insurance By State for 2001-2006,” Centerfor RMI Research, Georgia State University,August 11, 2006.

45 Ibid.46 PJ Webster, GJ, Holland, JA Curry, and

H-R Chang, 2005, “Changes in TropicalCyclone Number, Duration, and Intensity ina Warming Environment,” Science309:1884–1886.

47 Evan Mills, “Availability and Affordabilityof Insurance Under Climate Change,” U.S.Department of Energy Lawrence BerkeleyNational Laboratory, www.ceres.org/pub/.

48 “Home Insurers Embrace the Heartland,”New York Times, May 20, 2006.

49 “Domestic Brokerage Group InvestorMeeting,” presentation of March 28, 2006,American International Group, Inc. (AIG).

50 Ibid.51 Trevino interview, August 8, 2006.52 Ibid.53 Interview with Allstate spokesman Joe Case,

June 27, 200754 Trevino interview, August 8, 2006.55 “Climate Change Costing Everyone: Fuel,

Insurance, Product Prices Go Up,” Times-Picayune, July 9, 2006.

56 “Home Insurers Embrace the Heartland,”New York Times, May 20, 2006.

57 Ibid.58 Ibid.59 “As Hurricane Season Begins, Disaster

Insurance Runs Short,” Wall Street Journal,July 10, 2006.

60 “Nation’s Beach Condos Get Big Spike inInsurance Premiums,” Newhouse News,July 17, 2006.

61 “Transcript of the Miami Herald’s Round-table on the Insurance Crisis,” www.miamiherald.com, July 17, 2006.

62 Interview with Jonathan Kees, FloridaOffice of Insurance Regulation, June 25,2007.

63 “As Hurricane Season Begins, DisasterInsurance Runs Short,” Wall Street Journal,July 10, 2006.

64 “Testimony of the National Association ofInsurance Commissioners Before the Sub-committee on Housing and CommunityOpportunity of the House Committee onFinancial Services,” June 28, 2006.

65 “Transcript of the Miami Herald’s on theInsurance Crisis,” www.miamiherald.com,July 17, 2006.

66 “Testimony of the National Association ofInsurance Commissioners Before the Sub-committee on Housing and CommunityOpportunity of the House Committee onFinancial Services,” June 28, 2006.

67 “State-Run Citizens Property InsuranceNow a Troubled Giant,” South Florida Sun-Sentinel, August 7, 2006.

68 Ibid.69 “Testimony of the National Association of

Insurance Commissioners Before the Sub-committee on Housing and CommunityOpportunity of the House Committee onFinancial Services,” June 28, 2006.

70 Martin Merzer, “Crist signs orders forgreener Florida,” The Miami Herald, July 14,2007, A1.

71 “Availability and Affordability of InsuranceUnder Climate Change,” www.ceres.org/pub.

72 “Transcript of the Miami Herald’sRoundtable on the Insurance Crisis,”www.miamiherald.com, July 17, 2006.

73 Hartwig interview, July 27, 2006.74 Klein interview August 8, 2006.75 Hartwig interview, July 27, 2006.76 “Transcript of the Miami Herald’s

Roundtable on the Insurance Crisis,”www.miamiherald.com, July 17, 2006.

29

77 “Analysis of Average Premium Trends forHomeowners’ Insurance By State for2001–2006.”

78 “Transcript of the Miami Herald’sRoundtable on the Insurance Crisis,”www.miamiherald.com, July 17, 2006.

79 “State-Run Citizens Property InsuranceNow a Troubled Giant,” South Florida Sun-Sentinel, August 7, 2006.

80 Interview with State Farm spokesman ChrisNeal, May 25, 2007.

81 Interview with State Farm spokesman ChrisNeal, October 23, 2007.

82 Interview with Allstate spokesman MichaelShores, May 25, 2007.

83 “Climate Change Costing Everyone: Fuel,Insurance, Product Prices Go Up,” Times-Picayune, July 9, 2006. Interview with EricHardgrove, Nationwide spokesman, June 26,2007.

84 “State-Run Citizens Property InsuranceNow a Troubled Giant,” South Florida Sun-Sentinel, August 7, 2006.

85 “Testimony of the National Association ofInsurance Commissioners Before the Sub-committee on Housing and CommunityOpportunity of the House Committee onFinancial Services,” June 28, 2006.

86 U.S. Census data.87 “As Hurricane Season Begins, Disaster

Insurance Runs Short,” Wall Street Journal,July 10, 2006.

88 “Transcript of the Miami Herald’s Round-table on the Insurance Crisis,” July 17, 2006.www.miamiherald.com.

89 Ibid.90 Interview with Ray Spudeck, senior research

economist, Florida Office of InsuranceRegulation, July 27, 2006.

91 Interview with Manuel Roussard, FEMAspokesman, July 2007.

92 “Overview of Comparative Damage fromHurricanes Katrina and Rita,” LouisianaRecovery Authority, December 19, 2005.

93 “Ibid.94 “Allstate Seeks Options for South La. Home-

owners’ Policies,” Insurance Journal, August 2,2006. “Allstate, Louisiana Insurance Com-missioner and Governor Reach Agreement,”Allstate Press Release, July 31, 2006. “Done-lon Calls on Allstate CEO to Discuss Com-pany’s Plan to Shed Louisiana Coverage,”Louisiana Department of Insurance Press

Release, July 16, 2006. Interview with Allstatespokesman Mike Siemienas, June 26, 2007.

95 Ibid.96 Rep. Tim Burns, Louisiana House of

Representatives, www.timburns.us.97 Robert W. Klein, “Analysis of Average

Premium Trends for Homeowners’Insurance By State for 2001-2006,” Centerfor RMI Research, Georgia State University,August 11, 2006.

98 Interview with Ben Gonzalez, spokesman,Texas Department of Insurance, August 16,2006.

99 “Homeowners’ Insurance in Texas,” TexasDepartment of Insurance, www.tdi.state.tx.us/commish/talk.html#home.

100 “State Closing Texas Select; 154,000 to LoseHome Coverage,” Dallas Morning News,July 19, 2006.

101 Interview with State Farm spokesman RobKelly, June 28, 2007.

102 Interview with State Farm Spokesman DickLuedke, July 27, 2006.

103 Interview with Ben Gonzalez, spokesman,Texas Department of Insurance, August 16,2006. Also, email correspondence with JerryHagins, Texas Department of Insurance,July 18, 2007.

104 Ibid.105 “Analysis of Average Premium Trends for

Homeowners’ Insurance By State for2001–2006.”

106 Gonzalez interview, August 16, 2006.107 “State Closing Texas Select; 154,000 to Lose

Home Coverage,” Dallas Morning News,July 19, 2006.

108 Interview with Lee Harrell, Mississippideputy commissioner of insurance, July 27,2006.

109 Federal Emergency Management Agency,www.fema.gov

110 www.etv.state.ms.us/television/series/Beyond_Katrina/Transcripts/106/Windpool%20Insurance%20meeting.pdf

111 “Dale Slashes Wind Pool Rate IncreaseRequest by Over 300%, Move Saves CoastalResidents Over $2000 in Premium In-creases,” Press Release, State of Mississippi,Mississippi Insurance Department, July 28,2006.

112 Ibid.113 Harrell interview, July 27, 2006.

30

114 “Analysis of Average Premium Trends forHomeowners’ Insurance By State for2001–2006.”

115 Harrell interview, July 27, 2006.116 “Task Force on Long-Term Solutions for

Florida’s Hurricane Insurance Market,”Florida Office of Insurance Regulation,Report Adopted March 6, 2006.

117 “Overview of Comparative Damage fromHurricanes Katrina and Rita,” LouisianaRecovery Authority, December 19, 2005.

118 Ibid.119 “Nation’s Beach Condos Get Big Spike in

Insurance Premiums,” Newhouse News,July 17, 2006.

120 Ibid.121 “Analysis of Average Premium Trends for

Homeowners’ Insurance By State for2001–2006.”

122 “Nation’s Beach Condos Get Big Spike inInsurance Premiums,” Newhouse News,July 17, 2006.

123 Interviews with Rob Kelly of State Farmand Mike Siemienas of Allstate, July 2007.

124 Interviews with Jane Matthews,spokesperson for Georgia FAIR plan,August 14, 2006, July 3, 2007.

125 “Analysis of Average Premium Trends forHomeowners’ Insurance By State for2001–2006.”

126 Interview with Greg Hawkins, GeorgiaOffice of Insurance and Safety Fire Com-missioner, Property and Casualty Depart-ment, August 17, 2006; Georgia PIRG,2004 Annual Report.

127 Interview with North Carolina Rate Bureauspokesman Ray Evans, June 27, 2007.

128 Interview with Chrissy Pearson,spokesperson, North Carolina Departmentof Insurance, August 1, 2006.

129 Ibid.130 National Oceanic and Atmospheric Admin-

istration, www.noaa.com.131 “Analysis of Average Premium Trends for

Homeowners’ Insurance By State for2001–2006.”

132 “Insurance Chief: Competition Will EaseCoastal Rates,” Columbia State, March 1,2007.

133 Interview with State Farm spokesman RobKelly, June 28, 2007.

134 Interview with Mike Siemienas of Allstate,July 2007.

135 Interview with David Leadbitter, under-writing manager, South Carolina Wind andHail Underwriting Association, August 17,2006.

136 Ibid.137 “Analysis of Average Premium Trends for

Homeowners’ Insurance By State for2001–2006,” Robert W. Klein, Center forRMI Research, Georgia State University,August 11, 2006.

138 “Home Insurers Embrace the Heartland,”New York Times, May 20, 2006.

139 Interview with Lee Nye, general manager,Virginia Property Insurance Association(FAIR plan), July 2007.

140 Ibid.141 Virginia Department of Emergency

Management, http://www.vaemergency.com/newsroom/history/hurricane.cfm

142 “Hurricane and Windstorm Deductibles,”Insurance Information Institute Website:http://www.iii.org/media/hottopics/insurance/hurricanwindstorm/.

143 Interview with Lee Nye, August 17, 2006.144 Testimony of the National Association

of Insurance Commissioners Before theSubcommittee on Housing and Commu-nity Opportunity of the House Com-mittee on Financial Services,” June 28,2006.

145 “Ibid.146 Nutter interview, August 2, 2006.147 Ibid.148 Luedke interview, July 27, 2006.149 Klein interview, August 8, 2006.150 Ibid.151 Hartwig interview July 27, 2006.

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