Homeowners Struggle with Rising Insurance Costs

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When Stan Virden moved into his 2,400-square-foot house overlooking a rock-lined canal in 1996, he paid less than $1,000 a year for homeowners insurance. Now, as he seeks to move to Atlanta to be near family, Virden says potential buyers for the house are being scared off by the annual premium, which has skyrocketed to $5,000.

“We feel like we’re prisoners here now because the market is so screwed up because of this,” the 80-year-old retired Navy captain said.

From Cape Cod to the southern tip of Texas, rates for homeowner coverage have risen sharply since 2003, pinching homeowners financially, forcing them to take greater risk by accepting higher deductibles and sparking outrage as insurance companies report profits higher in many coastal states than inland.

Nationwide, the cost of homeowners insurance rose 36 percent from 2003 to 2010 – almost double the rate of inflation. Of the 15 states where rates increased by the largest percentages in that time, 14 border the Gulf of Mexico or the Atlantic Ocean, according to an analysis of National Association of Insurance Commissioners figures by The Associated Press. All those states saw rates go up at least 44 percent. Rates in Florida rose 91 percent, most in the nation, while rates in Rhode Island went up 62 percent.

Insurers say the increases are necessary to offset the risk they take in insuring millions of homes in harm’s way, but their increasingly angry customers question how they calculate rates and whether state regulators are being too favorable toward the companies.

“It’s hard to see how the insurance companies can justify the kind of premiums we have to pay down here,” Virden said.

Rate increases have leveled off in recent years, and some homeowners have even found cheaper policies. But it’s clear prices aren’t going back to where they were before the expensive hurricane seasons of 2004 and 2005.

Overall, coastal homeowners in 18 states along the Gulf and Atlantic pay about $4 billion more than inland residents for insurance against hurricane winds, according to AP calculations using comparisons of coastal and inland rates in states where they’re available.

Also premiums for the federally run National Flood Insurance Program – whose policies many coastal homeowners also must buy – are scheduled to shoot up Oct. 1.

Some real estate agents in coastal areas say they are concerned about what effect higher insurance prices will have on a still-recovering housing market.

Starke Irvine, an agent in Daphne, Ala., said the cost of insurance is driving down the value of homes there.

Some critics also say insurers are inflating the insured value of houses, saying they would cost more to rebuild, thus raising the total bill each year without raising rates.

“We’ve had insurers applying a 10 percent to 12 percent inflation factor every year to dwelling value,” said Willo Kelly, a real estate lobbyist on North Carolina’s Outer Banks. “Every increase that company applies to dwelling value is an increase in the premium, an increase in the deductible and an increase in the agent’s commission.”

Industry advocates say the increases were inevitable. Robert Hartwig, president of the industry-backed Insurance Information Institute, said insurers may have sold policies cheaply to attract customers to more profitable auto and life insurance, and regulators may have been unfairly holding prices down in some states.

He also said claims from severe weather have gone up. The Insurance Research Council found hurricanes and other weather catastrophes caused 39 percent of nationwide homeowners insurance claims payments from 2004-2011, compared to 25 percent from 1997-2003.

“You have to first accept the fact you live in harm’s way,” Hartwig said.

In south Florida, Nancy Loft-Powers is paying $7,300 a year to insure a 1,700-square-foot house in Deerfield Beach, Fla. “They’re just jacking me and jacking me and jacking me,” she said. “Really, it’s horrific.”

Loft-Powers said she bought additional houses in her neighborhood in 2000 and 2001 as investments. She said she lost the houses in short sales because the insurance payments became too high. “I had to sell them off,” she said.

Virden said his premium fell by about $400 when he found a new policy that offered less coverage. But he said it helped only marginally. “That increase to $5,000 a year really put the kibosh on our standard of living.”

Virden is a member of the Homeowners’ Hurricane Insurance Initiative, a group trying to unite similar citizen-led efforts in Florida, South Carolina, North Carolina, Massachusetts and elsewhere.