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.
Katrina dried up rental market
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This is a very sad story... but I dont think the insurance companies are committing fraud. Last time I check, most of the Lousiana Gulf coast was at or below sea level. Thirty foot storm surges will go a long way inland, especially with 150+ mile an hour winds.
Also, why is it not OK for the insurance companies to make profits... every other company has the right to insure themselves from loss... to hedge their bets.... to invest in the future of their companies and stakeholders... why should the insurance company be any different. It would be nice, if the media would report the whole story, especially some of the truths mentioned above when reporting on this issue.
Also, the federal politician should be upfront and honest... they most likely received money from their insurance companies because they could afford to have flood coverage. They didn't come away empty handed, they just were not given the full amount of their home value. They make the laws, they should know, the Federal gov't will not allow insurance companies to sell more than $250,000 in flood coverage. I am sure the Insurance companies would be more than happy to sell Mr. Lott & Taylor all the flood insurance they could afford. Mr. Lott & Mr. Taylor make the laws, they should not be above the law, and they have only themselves to blame for not working to either change the law, know law, or move their homes to safer areas.
I have lived in Florida all my life, and I have lost a home to Hurricane/Flood damage, fortunately, I had appropriate coverage to rebuild. I do feel for many of the people there who can not, but I have no sympathy for the Elected Officials playing the poor ol' soulful me routine. Mr. Lott & Mr. Taylor both have more than enough means to rebuild their homes, and certaintly did not walk away empty handed... so please NBC, don't portray that they did.
Common Sense, Miami, FL (Sent May 1, 2007 10:23:25 AM)
As a licensed commercial insurance broker/wholesaler in SC, I have experienced these wind insurance increases on a daily basis. Although states like Georgia and South Carolina have not even had a major hurricane since Hurricane Hugo (1989), commercial business owners and homeowners are seeing double and triple percentages increases in their premiums. The state of SC recently "extended" the SC wind pool geographically, but it was not much of an extension. There are still many, many businesses and homeowners who still cannot find coverage, or cannot afford what is offered. I live 25 miles away in a Tier 2 county, and my insurance company recently nonrenewed my homeowners policy because it was no longer offering wind capacity for properties 2 counties inland from the coast. I believe that there is a lack of reinsurance capacity which has created a low supply and a great demand for coastal wind insurance natiowide. Some insurance companies, I believe, may be overcharging right now during this windfall. However, I have not heard any lawmakers address the coastal building code issues. Frame condominiums are being built on the coast of SC on a daily basis. Why aren't these buildings required to be masonry noncombustible and meet hurricane codes? Where are the hurricane building codes in SC? Stricter building codes won't prevent a hurricane, but they certainly could lessen the catastrophic losses. In addition, a masonry noncombustible building pays much less for property and wind insurance, and it is easier to place.
N. Sleeper, Charleston, SC (Sent May 1, 2007 10:25:53 AM)
Sad, so Sad. But that's life!
Maurice, Los Angeles Ca (Sent May 1, 2007 10:33:24 AM)
It appears that the insurance industry is only willing to do business as long as it doesn't have to pay out. This is simply another indicator that most of the corporate world has one goal in mind and that is profits. It no longer serves the people, but itself. Shameful!
Helen Quinn, Clearwter, FL (Sent May 1, 2007 10:33:44 AM)
Logic points to higher ground. Why try to rebuild in an area under sea level and at risk. Give the land back to nature.
Bruce S, Long Beach, CA (Sent May 1, 2007 10:33:45 AM)
reading this story makes me dislike insurance companies a little more. what a sham. i dont understand insurance companies and gov't that force you to have insurance and then when it comes time and you need the insurance cuase of acts of god (acts of god is a term used by insurance companies so they dont have to pay ligitimate claims) and every thing can be an act of god = fire/wind/rain/earthquakes/floods/etc/etc lets put it this way if a human causes the damage your may be covered by your policy but only if a human causes the damage directly. now because katrina was a "act of god" you get nothing but a rate increase on your yearly premuim. as i said before insurance is sham i mean scam.
l hoff (Sent May 1, 2007 10:34:18 AM)
THE RESTRICTION YOU PLACE ON THE COMMENTS ARE PRESCISELY THE REASON PEOPLE ARE NOT SPEAKING OUT VOICING THEIR OUTRAGE RELATIVE TO THE INSURANCE INDUSTRY. ADDITIONALLY, PEOPLE SHOULD STOP EXPECTING THE U.S.GOVERNMENT TO SUPPLEMENT THEIR BUSINESS, THEIR INDIVIDUAL HOMES AND LIFESTYLE. IF YOU CAN AFFORD TO PLAY THEN YOU CAN AFFORD TO PAY, IF NOT GET OUT OF THE GAME. THE GOVERNMENT IS ACTUALLY YOU AND I AND ALL THE FUNDS FROM WHICH MONEY IS DOLED OUT, WASTED IN MANY RESPECTS, COME FROM TAX PAYERS AND WE AS INDIVIDUALS ARE PRESENTLY TAXED AT ALMOST ONE-HALF OF OUR GROSS INCOME(FED.,STATE,COUNTY & CITY TAXES). ENOUGH IS ENOUGH AND WASHINGTON D.C. SHOULD BE THE NEXT AREA PERGED OF CAREER POLITICIAN WHO HAVE ALL FORGOTTEN WHO SENT THEM THER FOR THE SOLE PURPOSE OF REPRESENTATING THE FOLKS BACK HOME. INSTEAD THEY HAVE BECOME GREEDY,SELF SERVING INDIVIDUALS WHO ARE THERE FOR THE MONEY ONLY.
JAMES W. RILEY (Sent May 1, 2007 10:36:07 AM)
The insurance industry is responsible for the majority of foreclosures occurring today. In the aftermath of Katrina, some idiot re-zoned so called "Flood areas", not based on fact and insurance companies immediately jumped for the profit margin increase. Additionally, property taxes have increased ridiculously. Is it time for Federal intervention, YES ! Americans are losing their homes for no good reason.
Harold Thornhill, Pearland, TX (Sent May 1, 2007 10:36:58 AM)
The insurance industry has got to be reigned in. They did NOT lose out from Katrina. They never lose out in any disaster. I don't see them going belly up. I do see hardworking men and women giving up their dreams and homes because of the greed of this industry. We must demand change and they are not the only industry that must be regulated. The oil industry is just as bad recording record profits quarter after quarter while we are ripped off at the pumps. Consumers must demand change. We have the power.
Christine San Antonio, Texas (Sent May 1, 2007 10:40:06 AM)
WE ARE NOT IN A FLOOD ZONE BY ANY STRETCH OF THE IMAGINATION. OUR FIRE/LIABILITY CARRIER DROPPED WIND ONLY AFTER SENDING US THE ANNUAL BILL. I THINK THIS IS CALLED "BAIT AND SWITCH" AND IT IS ILLEGAL. THEY DID ADD HOWEVER INTERNATIONAL TERRORISM. WE HAVE LOTS OF COVERAGE FOR THAT!
B HINDS, FAIRHOPE, ALABAMA (Sent May 1, 2007 10:40:44 AM)
Here in California the insurance companies pleading poverty since Katrina doubled Earthquake insurance on condos for 2006 and went up another 25% this year despite no quakes and mild hurricane season last year.
C.B. Kelly, Los Angeles, CA (Sent May 1, 2007 10:41:17 AM)
Iam so angry with these insurance companies. They
have so much nerve to talk about their wealth when we
are still trying to recover. I live in one of the hardest hit areas around and we still are trying to get everything together. We are still working our jobs and putting in most of the labor on our house by ourselves. I am so disappointed in the way this has
been handled. How all the rich insurance companies can sleep at night is beyond me.
T HURRICANE HIT AND STILL HURTING (Sent May 1, 2007 10:43:15 AM)
Katrina's effect on insurance in the coastal areas of Louisiana and Mississippi are not unique. Homeowners' rates in Florida have more than doubled as well in the last couple of years following the hurricanes that have struck there recently. In Florida, rates for people who aren't even in flood zone areas have more than doubled, making continued home ownership difficult for many people, and that doesn't even take into account the effects on businesses as mentioned in this article.
Jay Altman, Afton, Virginia (Sent May 1, 2007 10:43:26 AM)
Sometimes people forget that living in a costal area is a choice, with a price. I'm glad to see the insurance industry is looking at it that way too. I don't need my insurance rates going up, or another government bailout because people choose to live someplace that has a high probablity of flooding
jon, minneapolis, mn (Sent May 1, 2007 10:43:36 AM)
We have been saying this for years!but no one has been listening--we here in the north have the same kind of problems with insurance companies- they have enjoyed the federal antitrust exemption for far to long at the expense of us who have been bled dry--whether it be private resident,business-and same goes for medical insurance-this is a national disgrace-and problem--example-daughter and son-inlaw pays insurance for their home and the basement caves in due to excevive rain-[they do not live in flood zone]but they were covered-hah-insurance refused to cover!--another example -husband in accident-left a parcial paraplegic-insurance covers nearly nothing-yet they cover the quad runner by replacing it--go figure-and there are more horror stories out there--and rates keep going up and they cover less-yet the insurance companies are turing a profit--enough is enough !!!!! thank-you
danielle palisade mn (Sent May 1, 2007 10:45:17 AM)
The reality is that this is how our system ensures that building in dangerous places is discouraged. The insurance industry has come to a realization that these areas are at a much increased risk because of the high hurricane cycle we are in, and the likely increases over time from global warming. It is not their job to absorb the risk, but simply to spread it over many people.
If you look at projections of flooding at various amount of sea level increase, much of this area may eventually be under water. Between all of these risks, I wouldn't insure there either.
Gary Page, Arlington Heights, IL (Sent May 1, 2007 10:45:37 AM)
Why are we even rebuilding this city, do people not understand this could happen again? When the Missippi fludded in 1993 people were told that they could rebuild but there would be no federal aid if it fludded again, this same rule should definatly apply
John, Columbia MO (Sent May 1, 2007 10:48:15 AM)
You say people shouldn't live in disaster prone areas and deserve the higher premiums. Okay, remember that the next time you want to vacation in a beach area. If people can't afford to live in the area, then there will be no hotels, resturants, gift shops, art galleries, etc... for you to enjoy on your trip. You don't mind these people providing services for you on your vacation, but you have no patience for them when they complain about price gouging from the insurance industries. If they can't afford to live there, they can't serve you a margarita to your beach view table.
Kevin Lindale,Texas (Sent May 1, 2007 10:49:12 AM)
As harsh as it may sound, the high cost of insurance reflects the risk of doing business - and living - along the Gulf coast. Whether coverage is obtained through a publicly-subsidized, state-supported insurance pool or private company, in the end, we're all going to pay when the next big one hits (and it will).
Mark Chang, Asheville, NC (Sent May 1, 2007 10:49:21 AM)
And try buying a home! My house deal fell through when I could not get insurance for a site-built home located at least 50 miles from either coast at an affordable rate.
Facor that into the home sales slump.
Insurance companies such as USAA are deserting Florida like rats leaving a sinking ship, after collecting premiums for years.
donna, Ocala, Fl (Sent May 1, 2007 10:49:53 AM)
What is surprising is that anybody is still living on
the Gulf Coast. Here in New orleans, our home insuance
has doubleled, Entergy has raised utility bills to pay
for their losses, the city has raised taxes because of the reduced population for those of us who stay.
The whole system is designed to get us to leave.
The monies promised by federal and state government
has yet to make to us who want to rebuild after almost
two years. Katrina is still killing our economy and
our chance of making a living. Government will not only not help us, they have made sure that we will never recover.
Robert T. Bennett, New Orleans, La. (Sent May 1, 2007 10:50:45 AM)
For many, many years it has "been a given" that insurance companies are more interested in protecting Their bottom profit line.
What I don't understand is why, in an area that is generally at or below sea level, why anyone would want to build there-when sea levels are expected rise (without the additional stress of bad weather) between 2-23 feet in the next 15 to 20 years?
And, why would an insurance company want to insure that property?
As I understand it, insurance companies are already refusing to insure properties in south Florida, parts of California and somewhere (Massachusetts?) in New England.
G L Jones, Apple Valley, MN (Sent May 1, 2007 10:52:00 AM)
For homeowners on the Gulf Coast who were not devasted by Katrina are also receiving the wave of backlash from it. In Texas, those who are close to the Gulf Coast will no longer receive wind, storm and hail damage coverage from their insurance companies, but their agents will collect for the state provided wind, storm, and hail. The catch-coverage on a 2,000 square foot house will cost as much as the entire policy cost before and will be required to be paid in one lump sum. Homeowners will then be required to pay for the rest of their coverage through their local insurance providers. You also have to factor in flood insurance which really isnt an option to local homeowners who know that in the area we live in its a must for complete protection. We should have known the insurance companies would come up with something, but this took us completely by surprise.In a country where medical costs are skyrocketed, coupled with soaring gas, food, electric, middle class America can hardly survive. Democrat or Republican- neither party is in touch of the needs and welfare of the people. Both parties are sleeping with big business and the insurance companies (along with a lot of other major industries)have way too much power. I was born and raised in this area, raised my children here as well, but we will be saying goodbye this year to the Gulf Coast. These people in Washington are supposed to be working for us. Yet they provide for themselves and no one else. I am angry and tired of party politics that talk a lot of nothing and provide for even less.
AC ,Texas (Sent May 1, 2007 10:52:51 AM)
So let me see if I've got this straight. Small business owners are upset because can't afford insurance to live or do business in a high risk area prone to wind and flood damage. Furthermore, many are angry because many didn't receive enough compensation to allow them to rebuild after recent storms. The ultimate solution proposed is to have the Federal government subsidize the risk. Why should I (as taxpayer) subsidize their risky behavior? If it's not economically feasible to live and work in a high risk area, them move to a less risky one!
B. Stone, Vienna, VA (Sent May 1, 2007 10:53:55 AM)
The insurance industry and the credit card industry. Two of the nation's largest scavengers working hard to take as much from American's pockets with little to no regard for truth or fairness.
With a relative of mine has a condo on the coast in Florida. She is in a similar situation. One solution is quite simple. Don't get wind insurance but instead use that money to build a very, very strong building that will withstand the wind, water etc.
Metal storm shutters, concrete water breaks, 200 mph storm windows.
It might cost more in the first year or two but the insurance savings will pay for the cost many times over.
jay (Sent May 1, 2007 10:54:37 AM)
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