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Who Will Pay for the Next Hurricane?
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
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
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