BAY ST. LOUIS, Miss. – John Brennan and Daye Moynan have had enough. After struggling for 20 months to rebuild their business and their lives in the aftermath of Hurricane Katrina, the owners of a chic Old Town art mall are selling out and leaving the state.
While they were able to withstand the terrible damage the hurricane inflicted on their beloved Maggie May’s gallery and their home in neighboring Waveland, Brennan and Moynan can’t rise above its effect on their bottom line: a $10,000-a-year jump in the cost of insuring their business. They are not alone.
“A lot of folks still have that ‘we are staying’ energy,” Brennan says, “but a lot of us are losing it.” By this time next year, he and Moynan hope to have a new life – and a new Maggie May’s – in Nashville, Tenn.
Brennan and Moynan are among thousands of business owners in the flood zone who have been stunned to learn, long after the storm, how soaring rates for commercial wind coverage translate into fine print on their own policies.
It’s the latest reason that everyone in the flood zone loves to hate the insurance industry, which first earned the enmity of Gulf Coast residents by immediately declaring most damage from Katrina to be uncovered flood losses and refusing to pay. While the insurance industry continues to report record profits after the storm -- $64 billion in 2006 -- the non-payment issue remains the subject of a huge, tangled legal battle.
For most business owners, who are insured through a state pool, wind insurance rates are now about 2½ times what they paid before Katrina. With commercial rates already much higher than residential rates for similar structures (because there are four times as many homes insured by the pool as businesses, thus spreading the risk), the recovery of business districts all along the coast has been thrown into doubt.
In Old Town Bay St. Louis, for instance, while a number of businesses -- from attorneys to the local newspaper to a café and antique store -- have reopened, the vast majority have not. Several have opted for new digs miles away on Highway 90.
'Downtown' currently a single bar and grill
In Waveland, a lone bar and grill is the only business to reopen so far in a permanent building in the old downtown core on Coleman Avenue.
The situation had Bay St. Louis Mayor Eddie Favre shaking his head at a recent town council meeting as he noted how “very little” commercial construction has been started since the storm. “It all goes back to the insurance,” he said. “They can’t afford the increases.”
But local insurance agent David Treutel, a member of the state’s newly reorganized wind insurance pool, says things have actually gotten better recently for business owners, thanks to a reduction in wind rates. The state pool underwrites both residential and commercial policies for wind damage along the coast because so few commercial insurance companies will write new policies. After Hurricane Camille in 1969, the state allowed insurers to exclude wind to keep them covering other risks.
In addition to wind coverage, building and business owners must still carry standard insurance coverage for fire, vandalism, liability and other risks as required by their lenders. If their property is in a flood zone, they must also carry federal flood coverage.
The wind pool rates, which are the same in all coastal counties, took their first huge leap in October 2006, more than a year after the storm, going from $1,340 per $100,000 of coverage for a wood-frame commercial building to $4,935. Then last month, the state acted with federal help to reduce the commercial rate to $3,243 per $100,000, Treutel explained.
Post-Katrina wind rates for residences have been held at a 92 percent increase, to $1,353 per $100,000, thanks to government subsidies, he said.
Small comfort for gallery owners
That is small comfort for Mark Currier, who with his wife, Jenise McCardell, runs Clay Creations in Old Town and owns a gallery there that is leased by an artists’ cooperative
Mark Currier and Jenise McCardell (David Friedman / MSNBC.com)
“Come on,” he says of the commercial rate increase. “The big thing is we’re all excited that they did drop it down from being tripled, but it’s still more than doubled.”
Currier, who plans to remain in his current location, saw the annual insurance bill for his Main Street holdings -- which include his shop, the gallery, a photographer’s studio and a couple of residences -- go from $7,000 to $25,000 before coming back down to $17,000. “It’s a freaking mess,” he says.
And more of a mess than Renee and Drew Boxx, Currier’s new neighbors in Old Town, could take.
When Katrina struck, the couple and their four children lived in Cedar Point, an upscale neighborhood north of town. “We came home to a slab,” Renee Boxx said. In need of a new place to live, as well as space from which to operate Drew’s cabinet business and Renee’s Funky Rose dress and gift shop, they bought a large home with commercial zoning next to Currier’s place.
“We bought this house to open our businesses and live in it, thinking it was the wisest way to go financially,” Renee Boxx said. “And then we received our insurance bill. It was $27,000. For a year.” The wind coverage portion of that was about $18,000, including some contents coverage, Drew Boxx said. The couple shut down business operations in January from the new address and insured the building as living space only, dropping their premium for wind coverage to $3,500.
Saving big bucks by renting
Late last month, the Boxxes reopened both their businesses in a small strip mall on Highway 90. Despite the fact that they’re paying rent for the new space and the wind pool rates that they would have been paying on the Old Town property have been reduced in the meantime, “We are $10,000 ahead by doing this,” Renee Boxx said.
Another former downtown businessman, Jay MacAniff, owner of A OK home furnishings boutique, also chose to reopen on Highway 90, partly because rental space was available and partly because of insurance issues. Having received “almost nothing” from his policies for Katrina damage, MacAniff remains very bitter about an industry that he says “spent most of their money and time pointing fingers” after the hurricane instead of paying claims.
Treutel acknowledged that the insurance hit has been especially tough on small-business owners, speaking from personal experience. His own home and business were hit hard. With many of his clients not needing to insure their now bare lots, his revenue remains down. “It’s real slow and it’s rough,” he said.
But he is encouraged by other features in the legislation that authorized the wind pool subsidies, which believes will spur insurance companies to return to the Gulf Coast, fostering competition that will force rates down. “I have no doubt, no doubt, that you’re going to see this area boom and grow.”
That better happen soon, says the departing Brennan. “We’re still kind of a ghost town now, but wait until next year. You’re going to see a lot more small businesses shuttered. … As far as all that empty land out there on Beach Boulevard, you can believe it’s from insurance – either not receiving any money or not being able to afford to insure what they can rebuild.”
Long term, Treutel says, “A final decision on properly insuring this country against catastrophic disasters is going to have to come on the federal level.”
Hancock County’s representatives in Congress, Sen. Trent Lott and Rep. Gene Taylor, agree. They’re pushing legislation to end the federal antitrust exemption enjoyed by the insurance industry. Both lawmakers lost their homes to Katrina – Taylor was the Boxxes’ neighbor in Cedar Point -- and joined legal action against their insurer.
Taylor, who has accused insurers of outright fraud in denying Katrina claims, summed up his anger toward the industry recently when a reporter asked him what he’d like to get from the Easter Bunny: “State Farm’s head on a platter,” he replied.
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