THE PRICE OF SECURITY

Skyrocketing insurance sets off alarms on Strand

Area residents left struggling from impact

By Jenny Burns

The Sun News

Mary Lewis shakes her head in disbelief. The letter has to be a misprint.

How could her homeowners association's insurance premium increase from $126,000 to $879,000?

She'll have to find a way to pay an initial increase of $690 along with the $1,600 a month she pays for her multiple sclerosis medication.

Lewis, 64, and her husband, Vern, 66, live on a fixed income and the increase may force them to move out of their Waterway Village condo, which they bought seven years ago for $77,000.

"We're seeing nightmares across the board," said Bruce Langston, certified public accountant at Wright Management, a Myrtle Beach management company. "It's every condo - no matter whether the condo costs $100,000 or a million dollars. This is going to result in foreclosures or people forced to sell."

An insurance crisis slamming the Grand Strand could drive people from their homes, devastate the real estate market and slow tourism.

"I see this becoming one of the major obstacles that we've had to overcome along the coastal zone in South Carolina. If we don't deal with this crisis rapidly, it could affect our economic future as badly as anything that most can see looming on the future," said state Sen. Dick Elliot, D-North Myrtle Beach.

The effect could be far-reaching:

Businesses may have to pass the extra expenses on to consumers or take a hit on the bottom line.

Apartment building owners may be forced to raise rents.

Condo owners planning to vacation or move here may go elsewhere.

"We have to do something about this," said Rachel Broadhurst, Myrtle Beach broker and president of Century 21 Broadhurst. "People can't hold units or houses when fees skyrocket like this. To be honest, we have blips in the market with insurance, but this one has the makings of being pretty rough."

In a town house in Murrells Inlet, Bob and Carol Bathgate are going through the same experience as the Lewis family.

Their insurance company expects them to pay $3,300 by Oct. 1. They used to pay $993 for their condominium association insurance in St. John's Bay.

They're putting their home on the market because of the costs. No vacation this year - all that extra money just went to insurance.

Condo crisis

Finding insurance for condominium associations here has become a matter of availability, not affordability.

Condos from U.S. 17 Business inland are not covered by the state-run wind pool - which offers wind coverage to property owners who can't find it on the regular market.

Few admitted insurance carriers - which must file for rate changes with the S.C. Department of Insurance - are writing wind policies west of the highway for condo projects, insurance agents say.

"Nonadmitted carriers [not required to file rate changes] are the only ones writing [for condos]. We represent almost 60 different companies and none of them are writing condo property," said Tim Baxley, principal with Statewide Insurance Group in Myrtle Beach and president of the Independent Insurance Agents and Brokers of Horry-Georgetown Counties.

That means finding insurance for condominium associations is virtually impossible - and when it is found, it's expensive.

"I call them loan sharks. [Insurance companies] can charge anything they want because the state can't say that's too much," said Sammy DeRemigio, president of the homeowners association at Waterway Village.

River Oaks, a 387-unit condo complex next to Waterway Village, has renewed its insurance coverage and been canceled twice this year. The homeowners association was paying $173,000 a year. Today, it's paying $700,000.

"[The homeowners] are all in shock. Many have been owners since this [River Oaks] was built in 1998. We were having a pretty active resale market, but now our real estate sales has slowed way down to nothing," said Gordon Johnson, president of the homeowner's association at River Oaks.

Insurance market forces

Growth along the coast and rising real estate values have tightened the state's insurance market, said S.C. Director of Insurance Eleanor Kitzman. Every time a new home is built, more insurance is needed.

With skyrocketing reinsurance rates - the insurance that insurance companies buy - and forecasts of severe hurricane seasons, the problem has worsened, she said.

"A large part of this is the fear that insurance companies have of another Katrina-like event," Kitzman said. "That has really caused a lot of companies to reconsider how much business they want to write."

Kitzman acknowledged that a 700 percent increase is "certainly a lot," but added: "If no one else will write it for less, I don't know how you can think it is too much."

Condominium projects are seeing the highest increases because few companies are willing to write large policies.

"It's a niche that only so many companies do, and if you write several of those, you don't want to write the one next door," said Smitty Harrison, executive director of the S.C. Wind and Hail Underwriting Association, or the wind pool.

Rating organizations have also been placing pressure on carriers to reduce risk on the coast by threatening to reduce financial ratings if the carrier is overexposed, Harrison said.

Real estate market trouble?

A once-booming real estate industry could take the biggest hit.

Condo owners can't afford to pay an HOA fee that is almost as large as their mortgage.

And when potential buyers find out what the insurance payments are, some may back out. Investors are finding they can't raise rents enough to cover the increased cost.

"I hope that the insurance industry realizes what's going on because they could devastate the real estate market," said Tom Maeser, local market analyst and president of the Fortune Academy of Real Estate.

The Strand has seen the number of condos on the market triple since last year and condo sales have fallen by 27 percent.

"This is not going to help that. This is without the massive insurance scare. It's just going to add to that problem," Maeser said.

Connie Grilli, her mother and sister have three contracts on condos at Marcliffe West at Blackmoor. When they found out their association dues jumped from $200 to $310, they began to wonder if moving to Myrtle Beach from New Jersey was a good idea.

Grilli said she's concerned how high the rate could climb. Unless something is done, they may back out of their contracts.

"This is unheard of. This is like paying New Jersey taxes all over again. And, we are so looking forward to moving to South Carolina," Grilli said.

Hotels, restaurants and other businesses can't pass on such increases to consumers without impacting tourism, said Brad Dean, president of the Myrtle Beach Area Chamber of Commerce.

Already, tourism officials are seeing a softening in discretionary spending. Raising hotel rates and other prices would just make the situation worse, Dean said.

Move that line

Since getting hit with increases, DeRemigio and other homeowners have been flooding the Department of Insurance and the governor's office with calls asking that the wind pool line be moved.

"[The insurance companies] are taking advantage of these people because they suspect a hurricane," DeRemigio said. "There is no justification for this increase. Tell her [Kitzman] to move that line back. I'm going to fight this insurance company until I beat them. I am not giving up."

Kitzman said she has the authority to move the line "if there is a lack of availability through normal channels."

Her department is working on the law's definition, since there is availability, but in some cases only through nonadmitted carriers.

Condo owners - miles from the ocean - are being charged higher premiums in some cases than those on the oceanfront.

"Being in the wind pool in some cases is less expensive. I can buy wind coverage cheaper than I can buy it west of the waterway," Baxley said.

He recently wrote a policy for a $5 million condo project on the ocean that had a cheaper premium than a $5 million project sitting on a golf course in Carolina Forest, several miles inland.

Insurance agent Alice Sanders at Woodbury & Co. said she hadn't been in favor of expanding the wind pool until this year.

"After last year's hurricane, the companies just won't write. I think we just have no choice. This is too important to the economy of South Carolina for people to not be able to afford to buy," Sanders said.

Harrison said he's spent the last week preparing surveys with the Department of Insurance, and a report has been submitted to the director. But Kitzman gave no idea whether the line will be moved.

She said her department is focused on bringing in new carriers, which would help lower rates by increasing competition.

"The carriers that are here can't keep up with the development. Every time they write a policy, they have to have a certain amount of money in reserve for the losses that may be incurred. They have to put more capital up for that. That's why we have been trying to get new carriers," she said.

Kitzman added that moving the line would not necessarily lower rates.

That's because the wind pool would then file for a new rate for the new exposure it is taking on, she said.

"It's a commercial rate. The state doesn't kick in for that," she said.

The only reason to move the line, she said, is to ensure insurance is available.

And that comes with its own problems. Carriers may decide not to come to South Carolina because they can be charged an assessment from the wind pool in the event of significant losses.

"By expanding the wind pool, you expand potential for loss and potential for assessment," she said.

Nonetheless, chamber president Dean says the wind pool line must be moved.

It's "an arbitrary designation that may have made sense a decade ago, but it doesn't make sense with the Strand's growth today," he said.

Moving the line is a good first step, even though it won't bring prices back to pre-Katrina levels, he said.

Nature could also help out. A quiet hurricane season could lower rates, Kitzman said.

"Right now, the bottom line is no one is willing to put their capital at risk for less," she said. "If we can have an average [hurricane] season, I think it will ease some of the pressure and it will start to see prices moderate slightly."

For the Lewises, moderating prices can't come too quickly. It's only a matter of time before they'll have to leave their home because of the insurance increases, even though they've got no idea where they'd go.

"I might have to pay for insurance instead of my meds," Mary Lewis said.

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