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A Dream Blown Away

Wind and flood seem to be playing by new rules.

Batten down the hatches.

Fear of Buying

When insurance companies refuse your trade, it's nothing personal. It's just business.

You can tell by the marvelously emotion-free language the industry uses: "Cat coverage," for example, is about catastrophe. "Wind" means hurricane. "Insufficient capacity" and "the market won't clear" refer to climate risks so difficult to calculate that traditional commercial providers won't sell you new insurance or renew your old insurance at any price.

At any price.

This spring, "astonishingly, the capital markets were full up on Florida wind," says Peter Nakada, managing director of RMS Consulting -- short for Risk Management Solutions, one of the industry's foremost risk modeling firms. "That capacity shut down in the frenzy prior to this wind season. People were scrambling to get coverage. That was brand-new. We saw the market saturate.

"People couldn't renew."

Some of those people facing insurance crises have a hard time understanding why.

"I feel sorry for Katrina victims -- it was a terrible thing," Peg Buchanan says. "But I don't see why the rest of the world should be punished because we like oceanfront."

Bill Hogan, with Twiddy & Co. Realtors in the Outer Banks, explains: "What's happened is that there is a stretch of land north of Corolla with no federally subsidized flood insurance. It's called, locally, the Four Wheel Drive Area. No hard-surface roads. It includes Swan Beach, North Swan Beach and Carova Beach. There are houses up there -- 14-bedroom oceanfronts -- for about $2 million," Hogan says. "Buy a lot for about a million. Build a house for about a million."

But then FEMA redrew the flood map. "All of a sudden, the lenders are requiring flood insurance where they did not in the past." The only source "for the kind of insurance the lender requires is somebody like Lloyd's of London. It might have a $50,000 deductible, and still be prohibitively expensive."

Hogan says he's now seeing "$100,000 lots plummeting in value. I don't know what they're worth. Nothing is selling. Buyers are afraid to buy. All kinds of rumors are flying around -- insurance companies are pulling out. The net effect is you bought property and it was in a good zone, and all of a sudden you sit there and it's deemed to be bad. Right now people are scrambling. Getting letters from banks -- 'We have no record of your flood insurance.' Just the kiss of death for the owner of the lot," Hogan says.


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