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Published: Thursday, 4/13/2006

'What? I'm not covered?'

IN WHAT can only be regarded as a troubling sign of convoluted economic times, the property casualty insurance industry made record profits in the United States last year, despite huge damage from 27 storms, 15 of them full-fledged hurricanes. This year, with milder weather expected, at least one company intends to cancel homeowner policies by the tens of thousands in Florida.

At the same time, the industry is looking to shift more of the risk and expense due to calamities from itself to homeowners and the government.

The bottom line for the average American: Homeowner premiums are up 60 percent in little more than a decade, according to industry statistics, while coverage has been cut. After the 2004 hurricanes in Florida, insurance covered less than 50 percent of all losses. For Katrina, which ravaged the Gulf Coast, coverage was only about 30 percent.

These seemingly incongruous events indicate that it is time to explore changes in regulation of home and auto insurers - now handled on a state by state basis - so that affordable coverage is available to those who need it, regardless of region.

According to a survey by the Los Angeles Times, the industry collectively earned $44.8 billion in 2005, an increase in profit of 18.7 percent over 2004. At the same time, the industry boosted its required surplus by 7 percent, to $427 billion. All this despite $56.8 billion in disaster claims.

Nonetheless, individual insurers are reported to be considering more premium increases, withdrawing coverage on a large scale, and seeking help from state and federal governments to insure against the largest disasters.

A pullback already is under way in Florida, where the Poe Financial Group announced that its insurance subsidiaries will drop at least 140,000 homeowner policies this summer because of "ongoing loss activity and the uncertainty of future losses."

Industry sources also told the Times that last year's huge profit margin was essentially a fluke, the result of high profits in other lines of insurance and peak returns on investments. In any case, they say, looking at the industry's collective profit is misleading.

Critics, however, place the blame on a significant change in the way the property casualty industry has come to view long-term risk. Instead of looking at the probability of disasters over a 100-year span, the view is being narrowed to as little as five years.

Such a short-term approach to risk assumption is a fundamental alteration of the historic concept of insurance coverage, in which companies have accepted high claims in a few years in exchange for long-term average profitability. It also virtually guarantees higher premiums and cuts in coverage for policyholders.

Tapping the already strained budgets of the state and federal governments as insurers of last resort would only encourage the industry to further abandon its traditional risk-pooling strategy, and would mean higher taxes on top of higher premiums.

The course is not clear, but some way must be found so that homeowners in all regions of the country have access to insurance that is both affordable and actually pays off when trouble strikes. It's a concept that is fading fast.

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