Despite relatively mild weather during 2006, many homeowners – particularly those in coastal areas – can expect to see property insurance rates rise again next year, the Florida Times-Union reported late last month (Nov. 22, 2006).

Three different factors are driving premiums higher. Increased demand is to blame in several states, where some insurers have stopped offering coverage. Additionally, insurance companies want to recover the huge cost of claims paid for damage from Hurricane Katrina and others in 2005, and they also are paying more for a way to reduce their risks, called reinsurance.

Changes in the jet stream over North America made the hurricane season bearable this year, experts say. El Nino, a warming of Pacific Ocean temperatures that occurs every two to seven years, caused the stream to shift and bring cooler, wetter weather with mild winds to the Eastern seaboard. University of Florida meteorologists say hurricanes either didn’t get the chance to form, or tore apart before they hit the coastline.

But insurance companies contend the 2006 hurricane season was a fluke. Computer-generated storm weather models on which they rely indicate hurricane activity will increase over the next 10 to 15 years, putting more homes at risk of damage.

Homeowners are already reeling from higher rates, some of which have more than doubled in the past three years. In part that’s due to the escalating costs of homes themselves, in what once was a hot market. Development in coastal areas is another reason; buyers who favor an ocean view are paying for the risk that accompanies the privilege.

Owners of commercial buildings feel the pinch too. Aaron Davis, director of national property practice for Chicago-based Aon Corp., the world’s largest insurance broker, told Bloomberg News in September that the amount of natural catastrophe insurance available to U.S. companies has declined 15 to 20 percent from a year ago. Commercial landlords reportedly are paying two-to-three times more for half the coverage, or less.

Just because Mother Nature took it easy this year is no reason for insurers to relax, says State Farm Insurance spokesman Justin Glover. “We look at hurricanes over many, many years,” he told the newspaper. “One mild season does not mean we are back into a cycle of no hurricanes.”

Many insurers view light-damage years like 2006 as a way to pay for hard-hitting years like 2005 … when billions of dollars were paid out in claims for Katrina, as well as Hurricanes Rita and Wilma. Last year’s record hurricane season caused $57.3 billion in insured damage, according to Bloomberg News.

A few carriers decided they couldn’t even wait for better times. In Florida alone during the past three years, 25 insurance companies either scaled back coverage or stopped writing new policies. With less competition among insurers, laws of supply and demand took over and premiums rose. 

Insurers still in their markets also faced greater costs of reinsurance, policies they buy for themselves to offset the cost of paying claims after a catastrophe. For some companies, reinsurance prices have doubled or tripled in only 12 months.

The world’s largest retailer thinks it knows how to beat climbing insurance costs. Wal-Mart Stores Inc. in May said insurance policies it was offered this year were “substantially more limited and higher priced.” As an alternative, the company said it would insure itself against hurricanes.

Few other property owners have those kinds of resources available. Their best option, says Sunshine State Insurance Co. CEO John Rogan, is to “pray for another good year. Two good years, back-to-back,” he told the Times-Union, may enable insurance companies to take another look at their prices.