Collateral damage

NEW YORK (Money Magazine) -- Among the many obstacles homeowners in New Orleans face as they rebuild is the challenge of finding affordable homeowners insurance - by some estimates, premiums have doubled since the storm.

But even people who live nowhere near the Gulf Coast are facing new ground rules for getting coverage as insurers cut back in dozens of areas they consider vulnerable to natural disasters, especially in coastal regions.

If you live in one of those places, you may have a tough time finding homeowners insurance at a price you can handle.

Here's why, and what you can do about it.

The insurance industry is betting that Katrina was no fluke. The main reason: climate change.

Catastrophe modeling firm RMS of Newark, Calif. projects that annual insurance payouts due to Gulf and East Coast hurricanes over the next five years will be 25 percent to 40 percent higher than average.

In response, major insurers, including Allstate, State Farm and Nationwide, are paring back by refusing to write new coverage, not renewing policies, boosting deductibles and narrowing coverage (excluding storm damage, say).

Meanwhile, premiums have doubled or tripled over the past few years. These changes have mainly been along the Gulf Coast and eastern seaboard. But in May, Allstate said it would no longer offer new homeowners policies in what the company referred to as "castastrophe-prone" California, where everything from earthquakes to wildfires wreaks havoc.

Government officials are searching for ways to make homeowners insurance more affordable. In July, Louisiana governor Kathleen Blanco signed legislation giving insurers financial incentives to write more policies in the state and also requiring them to offer discounts to homeowners who reduce their potential storm damage.

Florida has taken a more radical approach with reforms that let insurers cut costs by buying backup insurance at discounted rates from a state fund and pass along the savings.

However, though premiums were projected to drop by 24 percent on average, initial rate filings have come in for about half that amount.

"I would call what we've done a Band-Aid," says Robert Milligan, Florida's insurance consumer advocate. "It's a far cry from a long-term answer to getting a viable insurance industry in the state of Florida."

Given all this, you have to be a smart shopper. To do that:

Think like an insurer. You can't force an insurer to take you on. But in general the less damage your home is likely to sustain, the greater the chance a company will insure it.

So consider installing features such as storm shutters, wind-resistant shingles or hurricane roof straps, which may even qualify you for discounts.

This year South Carolina began offering tax credits of up to $1,000 for making a home more stormproof.

For tips on protecting your property, go to the Institute for Business and Home Safety site at ibhs.org.

Be persistent. Even if you turn your house into a fortress, you may still have trouble finding coverage. But a little digging can help.

Smaller insurers sometimes come into high-risk areas to cherry-pick - that is, insure homes with the least potential for damage. Independent insurance agents - those who work with a variety of insurers - should be able to tell you if any new insurers are writing policies where you live.

If you can't find a private policy or if it's prohibitively expensive, check out your state's "residual" insurer, essentially a state-run company that takes on higher risks. Or combine coverage from two sources - say, buy a homeowners policy that covers fire, theft and such from a private insurer and go to your state's insurer for wind or hurricane coverage.

To learn about local options, contact your state insurance department (find it at naic.org).

Plug gaps. Homeowners policies exclude both floods and earthquakes. You can get flood insurance through the federal government's National Flood Insurance Program.

To find out your risk of flooding and get premium estimates, go to floodsmart.gov.

To assess the probability of an earthquake near you, check out Natural Hazards at usgs.gov. If you live in California, find coverage info at earthquakeauthority.com.

Otherwise, check with your state insurance department.