Four steps to fix insurance crisis

By CHRIS DODD Special to the Times
Published May 9, 2007

In the last few years, home and business owners on America's coasts weathered the worst that nature can offer. And now, many of those who endured are being driven away - not by wind and rain, but by the unbearable cost of insurance.

That's what happened to Harold and Barbara Polsky. In 2002, they moved to Florida and bought a home in Port Richey. "The house wasn't perfect, " Harold said, "but it was ours." At the start, insurance to protect it against flood, wind and other damage came to a manageable $1, 800 in annual premiums. But in 2004, Hurricane Frances hit Florida - and, three weeks later, Hurricane Jeanne.

The Polskys made it through the storms with their home damaged but still standing. But the impact on their insurance premiums was irreparable: By late 2005, the Polskys were paying nearly $3, 000 per year. With future increases in sight, and higher mortgage payments, it was too much to afford; they sold their home at a loss and moved to Virginia.

Small business owners are suffering just as badly. David Guidry, for instance, owns a machine works shop on the Louisiana coast. After Hurricanes Katrina and Rita, the premiums on his factory shot up by 55 percent, and his deductible exploded from $2, 500 to $20, 000. Under those conditions, Guidry isn't sure he'll be able to stay in business much longer. And he sees the same long odds for his neighbors: "Most small businesses in our region are struggling, " he said. "Struggling to rebuild, struggling to operate, struggling to obtain affordable insurance."

That struggle is being played out up and down America's coasts, from Texas, along the gulf, and up the Atlantic seaboard. Families facing devastation from natural disasters like floods and hurricanes need insurance to rebuild their homes, their businesses and their lives. But as the Polskys and David Guidry found, insurance on the coasts is becoming increasingly difficult to secure and afford. Insurers are pulling out of high-risk areas. Some are dropping certain coverages, like windstorm protection. Others are drastically raising rates and deductibles.

And as a result, far too many Americans are forced to consider moving or closing up shop. Others feel they have no choice but to drop insurance coverage altogether, leaving them unprotected should disaster strike again.

Finding affordable property insurance is a national problem that requires national leadership to develop effective solutions.

I believe our nation should take four steps to meet this challenge.

First, we should give homeowners some much-needed short-term relief from skyrocketing premiums. Where premiums have been significantly rising, we can offer tax deductions for homeowners insurance. Those deductions can help keep families in their homes while we seek longer-term solutions.

Second, we should make houses and businesses safer from natural disasters. If we help working men and women strengthen and protect their houses, offices and shops, they will be shielded from some of the worst effects of disasters - and they'll find their property easier to insure. Right now, FEMA is spending $100-million a year on predisaster improvements of these physical safeguards. We should add another $100-million in grants and low-interests loans to help finance further needed enhancements.

Third, we need to make sure Americans can rely on their flood insurance. The National Flood Insurance Program is essentially the only insurer of flood risks in our country, but it is now over $20-billion in debt. Clearly, it was not designed to handle catastrophes of the magnitude of Katrina. In order to provide flood insurance to every American who needs it, we should strengthen the flood insurance program and put it on sound footing for the future.

Fourth and finally, we should consider efforts to make insurance more affordable and available in the long run. A variety of constructive ideas have been put forward. But there is a lack of consensus about which of them have the most potential to help home and business owners. That's why I believe we should establish a commission of experts in insurance and preparedness, and other leaders, to work toward long-term solutions to keep the families and businesses on our coasts secure.

There is no time to lose. Recent projections show that the 2007 hurricane season is set to be unusually active, with a possibility of 17 named storms and nine hurricanes. When the next storm hits our shores, homes and livelihoods may be wiped out in an instant, and each will be its own tragedy.

But let's save a thought for families like the Polskys. Their houses may remain standing - but skyrocketing insurance costs can drive them away just as surely as the worst storm. If we care about making our nation safer from disasters, we'll look out for those families, and we'll do our best to help them afford the insurance they need.

Sen. Chris Dodd, D-Conn., chairs the Senate Committee on Banking, Housing, Urban Affairs and is running for the Democratic nomination for president in 2008.