Coastal insurance crisis: windstorm policies are pricey and hard to find; new construction suffers.(In the News)

An ocean view--or even a faint whiff of salt air several miles inland--carries a high premium along the Atlantic and Gulf coasts this year.

In the wake of catastrophic insured losses that totaled $61.2 billion in 2005--of which $40 billion was from Hurricane Katrina alone--property-insurance companies have been raising rates and deductibles for coastal windstorm policies. In some high-risk locations, insurers are pulling out completely.

Despite their use of sophisticated disaster models, insurers simply didn't anticipate that 2004 and 2005 would be so costly--seven of the 10 most expensive hurricanes in U.S. history made landfall during those two years. So even as insurers paid out claims last winter, they were busy updating their failed risk models--and they were careful this time to take into account predictions of higher-than-average tropical-storm activity for the next 15 to 20 years.

Insurers are also now factoring in a higher cost for "demand surge," which is the industry's term for the post-disaster rise in home-repair costs. Past models estimated that importing supplies and housing nonresident labor--the most significant contributors to demand surge--added 26 percent to the cost of repairing a house. After examining data from recent hurricanes, risk modelers raised that number to 40 percent.

Because of these and other adjustments, catastrophic reinsurance costs for coastal properties have gone up between 100 percent and 300 percent this year, says the Insurance Services Office, a risk-modeling firm based in Jersey City, N.J.

Insurance companies regularly buy reinsurance to cover their losses, and--not surprisingly--they're passing the higher costs along to policyholders.

For example, Louisiana homeowners are looking at double-digit increases for windstorm policies, reports the Insurance Journal. In Florida, state regulators approved a request by State Farm Florida Insurance Co. to raise rates an average of 52.7 percent statewide. And in mid-Atlantic states like Maryland and Virginia, reports the Washington Times, Allstate Insurance Co. and Nationwide Mutual Insurance Co. have increased their minimum windstorm deductible from 2 percent of a claim to 5 percent, a difference that can ...