Reaping the Whirlwind

More than 18 months after Hurricane Katrina devastated the Gulf Coast, the state of Mississippi finds itself in a legal battle over homeowners' insurance that may take longer to clean up than the hurricane debris. Thousands of Mississippians have seen their houses reduced to concrete slabs and want somebody to pay. Both government-subsidized and private insurance programs have failed to adequately fund rebuilding. Legislative proposals and lawsuits have poured out, and the state Democratic party has begun running television commercials blaming Republican governor Haley Barbour for the scores of Mississippians "still living in trailers."

In this uncertain environment, the state's largest insurer, State Farm, has stopped issuing new homeowners' policies, and its second largest, Allstate, has cut back. All others have stopped writing new wind insurance policies along the Gulf Coast. Because they expose a key inconsistency in America's mixed private-government insurance system for coastal areas, these events herald a stark choice for the whole country: Either homeowners will take responsibility for their own homes or taxpayers will become the nation's major source of homeowners' insurance.

Mississippi's Democratic attorney general, Jim Hood, a bête noire to much of the insurance industry, told me that he sees a simple bottom line: "The current system is a giant conflict of interest. It can't last. In the long term, I believe that the market should be able to solve the problem and that we should do away with the federal flood [insurance] program altogether."

Throughout the country, conventional homeowners' policies don't cover flooding. Along the Gulf Coast, private coverage for wind damage often proves unaffordable. In addition to private homeowners' policies, most people in hurricane zones can therefore avail themselves of both federally-backed flood insurance and state-sponsored wind insurance.