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Who Will Pay for the Next Hurricane?

Source:  Copyright 2007, New York Times
Date:  August 25, 2007
Byline:  Howard Kunreuther
Original URL: Status ONLINE


AS the second anniversary of Katrina approaches, residents in hurricane-prone areas are still concerned that they cannot obtain insurance to cover damage to their homes from future disasters. Specifically, the decision by State Farm, Mississippi’s largest insurer, to discontinue selling new policies on homes and small businesses there has sent shock waves beyond the state. Banks that normally require homeowner’s insurance as a condition for obtaining a mortgage are also not sure what impact this will have on their clients’ ability to buy such coverage.

The insurer’s motivation is economic. Rates are regulated by the states, so insurers are often restricted in the premiums they can charge. In addition, State Farm faced a lawsuit contending it was liable for flood losses from Hurricane Katrina. Homeowners’ policies cover only losses caused by wind in such storms; flood coverage is provided by a separate policy as part of the National Flood ...

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