DEBBIE ELLIOTT, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Debbie Elliott.

As of yesterday, if you live in Mississippi, you can no longer get homeowners insurance from the state's biggest home insurer, State Farm. The company announced this week it won't sell any new policies there because of all the lawsuits it faces over Hurricane Katrina claims.

State Farm had already quit writing policies in Coastal Alabama. Some see this as evidence of a mounting insurance crisis, and we want to take a closer look at what's being proposed to solve it. The attorney general of Mississippi plans to seek legislation to block State Farm from pulling out of the state, but that's not likely to help Gulfport homeowner Louis Alexander.

Mr. LOUIS ALEXANDER: The only insurance available went up 90 percent.

ELLIOTT: Louis Alexander is a retired dentist. His home was completely destroyed by Katrina, reduced to a slab of concrete. He managed to buy a new house, get it insured, but then, when it came time to renew the policy, sticker shock.

Mr. ALEXANDER: I'm in a situation where I will have to go without insurance.

ELLIOTT: Alexander is able to do that because he doesn't have a mortgage on his home, so there's no bank requiring that he buy the costly insurance. Many of the residents rebuilding on the Mississippi Coast don't have that option. And with fewer companies writing policies for homeowners there, it's not likely they can shop around for a better rate.

Mr. GEORGE DALE (Insurance Commissioner): Our people can get an insurance but it's extremely expensive.

ELLIOTT: George Dale is Mississippi's long-time insurance commissioner. He's joined the ranks of commissioners in other coastal states who are calling for a federal response.

Mr. DALE: As a conservative Southern commissioner of insurance who has been in office - I'm beginning my 32nd year - for me to have advocated in previous years that the federal government should be involved in any extent, as a backdrop for the insurance industry, it would have never happened, but now after Katrina, I'm leaning towards asking for federal help in those areas.

ELLIOTT: That's interesting. The situation has actually prompted a political conversion, if you will.

Mr. DALE: Well, my contention has always been when the free enterprise system cannot respond to our people's needs, then government must step in. But sometimes government steps in before they're wanted. If people are going to live in disaster-prone areas, we've got to find a way to insure those areas.

ELLIOTT: Insurance commissioners met in Atlanta this week to consider creating a multi-state catastrophe pool that would be similar to funds but now operate in Florida and California. A portion of all insurance premiums are set aside to accumulate in a fund to cover major disasters, like the San Francisco earthquake or a major hurricane in an urban area.

Senator BILL NELSON (Democrat, Florida): The big one is coming.

ELLIOTT: Florida Senator Bill Nelson.

Sen. NELSON: That's a hurricane of economic loss of $50 billion in insurance losses. And no one state can withstand that kind of loss, and no one insurance company can withstand that kind of loss. And at the end of the day, the federal government is going to pay the charge. And so what we ought to put in place is a rational system by which the federal government backs up the states.

ELLIOTT: Nelson was Florida's insurance commissioner in the aftermath of Hurricane Andrew in the 1990s, when several insurance companies pulled out of Florida, and 12 went out of business altogether. Today, Florida has an emergency regulation that prevents companies from dropping policies.

Senator Nelson has introduced legislation that would, among other things, set up a national catastrophe fund. It's a hard sell, says Bob Hunter, a former Texas insurance commissioner who is now with the Consumer Federation of America.

Mr. BOB HUNTER (Consumer Federation of America): You'll never get people from Iowa to vote for it. For 30 years, people tried to get hurricanes and tornadoes and earthquakes into a national pool, along with flood insurance. No one has been able to do it.

ELLIOTT: Hunter says insurance companies can handle the scope of these disasters. He points out the industry has had record profits the past three years, even with Hurricane Katrina and the major strikes on Florida in 2004.

The insurance industry is split on the issue. Most companies don't want the federal government to get involved in the reinsurance business. But the country's two biggest insurers, State Farm and All State, favor a national catastrophe fund. Consumer advocate Bob Hunter questions their motivation.

Mr. HUNTER: In my view, the companies that are favoring it want to keep all the very profitable businesses and dump all the higher risk business onto taxpayers.

ELLIOTT: All State and State Farm are backing a group called protectingamerica.org. It's been a vocal proponent of creating a national catastrophe fund. It's co-chaired by former FEMA director James Lee Witt and former Coast Guard Commandant James Loy.

Admiral Loy says protectingamerica.org is not advocating the use of taxpayer dollars, but instead, a fund that would come from a slice of insurance premiums.

Admiral JAMES LOY (Protectingamerica.org): Set aside, not unlike yours and my IRA, which will allow it to accrue dramatically and more quickly, and be available when that next nightmare storm comes by.

ELLIOTT: But critics argue that kind of a national backstop would encourage unwise development in high-risk areas.

Mark Racicot is president of the American Insurance Association.

Mr. MARK RACICOT (President, American Insurance Association): If you're going to build on a sandbar, shouldn't you make, as part of that value judgment, an assessment of whether or not you could secure private insurance, and if people are going to sell you private insurance, shouldn't they also be able to assess the same possibilities for risk?

ELLIOTT: This argument is the biggest obstacle facing lawmakers like Florida Senator Bill Nelson. Why should homeowners in low-risk states have to pay for someone else's disaster? The answer, Nelson says, is that they are already paying.

Senator NELSON: Just like Katrina, at the end of the day, the federal taxpayer is who is going to pay that tab. And that means the taxpayers in Montana and the Dakotas and Iowa and Kansas as well.

Senator Nelson is hopeful there will congressional hearings in a few months on a national catastrophe fund. But he also thought hearings would happen in the wake of Hurricane Katrina, something he's still waiting for.

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