Casino Towns Consider Lessons from Biloxi
RENEE MONTAGNE, host:
Hurricane Katrina, of course, did not only devastate New Orleans. The storm wrecked a large area of the Gulf Coast, crippling the region's economy and costing state and local governments millions in lost revenues. It also destroyed all 10 casinos in Biloxi, Mississippi. Such a loss, coupled with the enormous cost of hurricane cleanup and recovery, could have pushed Biloxi to the brink of bankruptcy. But shortly before Katrina hit, the city insured itself against such a catastrophe. NPR's David Schaper reports.
DAVID SCHAPER reporting:
In late June, two months before Hurricane Katrina struck, Mayor A.J. Holloway went to the Biloxi City Council with a proposal that now makes him look as wise and accurate as the best of soothsayers.
Mayor A.J. HOLLOWAY (Biloxi, Mississippi): We took insurance--a business interruption policy.
SCHAPER: Business interruption insurance is actually quite common among some bigger companies along the Gulf Coast. Many of the casinos, for example, buy it to protect their cash flow in case a tropical storm or hurricane forces them to shut down for a few days, weeks or months. And since Biloxi is so dependent on casino taxes, funding 35 percent of the city's operating budget, Holloway thought, `Why don't we get the same coverage for city government?'
Mayor HOLLOWAY: Nobody, and myself, or anybody else, would ever dream we would see a Katrina to this magnitude, though we knew that we was going to see a bad hurricane; not if, but when. So we decided to protect ourself for six months' worth of revenue.
SCHAPER: That $10 million policy cost the city $92,000. Holloway says the insurance company has already cut the city a check for $7 1/2 million, and that the rest will be coming soon.
Mayor HOLLOWAY: Well, $10 million, it's a real blessing. But, you know, it costs the city of Biloxi about $4 million a month to operate.
(Soundbite of phone ringing)
Mayor HOLLOWAY: So that's two and a half months of operating expenses.
SCHAPER: Holloway and other Biloxi officials got the idea from a much smaller community up the coast, Orange Beach, Alabama, which city administrator Jeff Moon says has had a business interruption insurance policy since 1998.
Mr. JEFF MOON (City Administrator, Orange Beach, Alabama): To date we've received in revenues about $1.4 million from the insurance policy. We have another $500,000 that's pending.
SCHAPER: Moon says the policy replaced sales and lodging tax revenue lost in the wake of Hurricane Ivan, which hammered Orange Beach in 2004. And Moon says the policy is well worth the more than half a million dollars in total premiums the city has paid.
Mr. MOON: We didn't have to lay employees off. We actually were able to hire additional employees to cover areas where we needed them; the services that were required right after the hurricane. And it really made the difference in our economy.
SCHAPER: Not only, Moon says, in helping the city recover more quickly from the hurricane, but he says the insurance policy improved Orange Beach's bond rating, making it cheaper for the city to borrow. All of which leads one to ask if Moon has been swamped with calls from other municipalities with queries about business interruption insurance.
Mr. MOON: Oddly enough, the answer to that question is no.
SCHAPER: Many city managers and comptrollers may not know such insurance is available, while others, before Katrina, may have thought it unnecessary. Those who become interested in business interruption policies in the new year will find it becoming quite costly. Orange Beach's premium has tripled and, like other kinds of insurance in hurricane-prone areas, fewer insurers may be willing to even offer it. David Schaper, NPR News.
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