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Insurance costs contribute to slow residential growth on Gulf Coast

A drive along coastal U.S. 90 reveals many vacant lots where homes and businesses sat before Hurricane Katrina in 2005. Eight years after the devastating storm, rebuilding is scarce along the beach and on nearby streets. While reasons vary, the high cost of insurance is heard more than any other reason. For full coverage, property owners near the water need three types of insurance to cover fire and hazard, wind and hail, and flood. An often-heard lament by homeowners is that the cost of insurance and taxes is equal to or more than the amount of their mortgage.

Hurricane Katrina destroyed most of the homes along the Mississippi Gulf Coast, and many lots remain empty, partly because of the high coast to insure homes. (Photo by Vincent Creel)

Hurricane Katrina destroyed most of the homes along the Mississippi Gulf Coast, and many lots remain empty, partly because of the high coast to insure homes. (Photo by Vincent Creel)

According to State Insurance Commissioner Mike Chaney, depending on where property is located, rates in the coastal counties have increased from 20 to 65 percent since Hurricane Katrina. “Some specific companies have gone up more than 150 percent, but their market share has decreased by 50 percent,” he said. “The Mississippi Insurance Department encourages consumers to shop around and know what their coverage is.”

Pascagoula State Farm Insurance agent Brenda Simkins says it’s not just hurricanes that have driven up insurance costs on the Coast. “The cost of homeowners insurance began to rise significantly in response to the multitude of hurricanes that made landfall in 2004 and 2005. Second, the housing crisis hit, reducing property values and stagnating the real estate market, bringing building almost to a halt,” she said.

“Both of these actions in combination were devastating to the residents of the Mississippi Gulf Coast. Not only were rates unaffordable for some, they could not sell or refinance to alleviate the burden. Building new homes or businesses close to the Gulf is nearly non existent at this point unless it is higher-end homes or buildings that rely upon proximity to the Gulf such as restaurants and hotels.”

Veteran realtor/broker Cynthia Joachim of Biloxi adds the BP oil spill to Katrina and the recession as foes of rebuilding. “We’ve had such tremendous hits to the Coast. Most communities couldn’t take one, and we’ve had three,” she said. “These things have affected our ability to recover, rebuild and move forward. Job growth drives the housing market, and that’s complicated with economic issues in an economically challenged state.”

An active member of the National Association of Realtors, Joachim recently completed a term as vice president of region five, the largest of the association’s regions. She has joined other realtors in pushing for an all-perils insurance bill in the U.S. Congress. Such a program would be similar to the National Flood Insurance Program and would cover all natural disasters. So far, they have not been successful.

Many coastal residents — including all who received Mississippi Development Authority grants after Hurricane Katrina — are required to carry flood insurance. Commissioner Chaney says as of late 2012 there are approximately 75,000 flood insurance policies in force in Mississippi. “The Mississippi Insurance Department does not have any authority over the NFIP,” he said. “We do not approve rates or changes and have no authority over any aspect of the program.”

With a recent move in Congress to raise NFIP rates, Chaney’s office, insurance agents, realtors and bankers are watching developments closely. “Now Congress is demanding the NFIP be actuarially sound,” Joachim said. “No other federal programs are sound. Why pick on one program that benefits everyone, regardless of where they live? We have heard numbers that are staggering; for instance a policy may go from $400 to $6,000 annually.”

These increases would be in addition to already-high rates for wind and hail coverage. “If this happens, it will destroy the fragile housing recovery,” Joachim said. “We’re worried about a spate of new foreclosures, and the banking association is concerned too.”

The word from Washington as of last week was that Congress is holding off on increases to the NFIP for another year. “They’re taking a second look at it now to forestall these rate increases,” Joachim said.

Even before any increases to flood insurance, she has had a lot of real estate deals fall through when perspective buyers are given insurance costs and taxes. “Sometimes the sellers drop the price of the property so the deal can go through,” she added.

Simkins says the pain associated with an individual on a fixed income or in a difficult financial spot coming into her office to discuss how they are going to pay their bill is palpable. “It takes time for a working family to absorb many of these increases, but many individuals on fixed incomes simply can’t pay $4000 for insurance on a $32,000 income.”

However, Chaney says all is not gloom and doom. “There are more companies writing homeowner insurance on the Coast than we have ever had,” he said. “This has increased competition.”

 

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