Homeowners might not have realized it, but the news last Thursday and Friday carried a double whammy that may be more worrisome than the housing bubble bursting.

First were the news reports out of Florida that nine tornados, up to F3 in force, had dropped out of the darkness seriously damaging or destroying 1,500 buildings and killing 20 people in the central part of the state. Next was a report from The Intergovernmental Panel on Climate Change which effectively eliminated further discussion on the reality and cause of Global Warming. The Panel's report stated that there is a 90 percent certainty that humans and their greenhouse gas emissions are causing warming and that global temperatures could rise by an average of 4.5 degrees by the end of the century.

The effects of such warming are still being debated but some estimates are that ocean temperatures will increase 1 degree or more (contributing to the nourishment of hurricanes which are expected to increase in intensity and become a threat to more northern locations than before) and that sea levels will increase seven to 23 inches both because of the melting of ice caps and because water volume increases as it warms.

So what do these two pieces of news have to do with homeowners other than those directly affected by Friday's weather? A lot.

The tornados were freakish. Not only were they strong - probably the strongest in Florida in many years - but they were out of season. Tornados are typically a spring and summer phenomenon. And this follows a winter of record high temperatures in much of the U.S. followed by paralyzing ice storms and now record low temperatures across the northern tier. Clearly our weather is changing, perhaps only temporarily and maybe even independent of global warming.

But news reports of the tornado damage brought a truth home to roost. Victim after victim, pawing through the wreckage of their homes, told reporters that they were uninsured, either because their premiums had skyrocketed into the realm of unaffordable over the last few years or because their insurance had been cancelled outright.

Therein lays the danger to homeowners and maybe to the whole economy.

According to Ceres, a national network of investors, environmental organizations and other public interest groups, homeowners' insurance coverage is at risk in coastal areas that have been hard hit by seven hurricanes in the 2004 and 2005. Ceres' statistics include the following:

  • FLORIDA: As of last March, 225,971 homeowners' property policies were cancelled and 224,868 policies were not renewed About 489,418 new policies were written by both private insurers and Citizens, the state-operated high risk pool. Allstate Insurance had plans to let lapse about 120,000 policies in Florida by the end of 2006 following cancellation of 95,000 policies in 2005. State Farm, the state's largest insurer announced it would not renew 39,000 windstorm policies in 2006 and plans to cancel all master condo policies. Premiums were doubling for windstorm insurance in many parts of the state with owners of 1,500 sf. homes facing premiums of $10,000 for wind damage alone with total insurance costs of $13,000 and deductibles of up to $18,000.

  • GULF COAST: Allstate Insurance has indicated its intent to raise premiums and deductibles and reduce benefits for temporary living expenses and is dropping coverage completely for 140,000 customers in 18 Louisiana parishes.

  • NEW YORK: Allstate is no longer offering new policies on Long Island, New York City, or Westchester County and will not renew 30,000 policies because of hurricane risk. The company also cancelled 28,000 policies in 2005. Ceres points out that New York has not had a damaging hurricane for almost 70 years.

  • MASSACHUSETTS: Three different insurance companies have dropped a total of over 23,000 homeowners on Cape Cod and other coastal areas since 2004.

  • RHODE ISLAND: Some insurers plan to discontinue homeowner coverage in coastal neighborhoods and others are limiting or refusing to write new policies. The state's insurance regulator has been allowing companies to cancel policies in some neighborhoods so the companies don't leave the state altogether.

Terms are also being tightened. Ceres states that some insurers in hurricane prone areas are now basing deductibles on percentages rather than dollar amounts and that these deductibles can ranges from 1 percent of insured value up to as much as 15 percent.

Many homeowners have been forced to drop windstorm coverage, keeping only basic property casualty and liability either because the coverage is no longer available or the cost is prohibitive. When I inquired about my wind coverage and whether it covered a catastrophe involving one of six huge Live Oaks that surround my house I was told it did but that I would have to bear the cost of tree removal, effectively raising my $1,000 deductible to about $8,500 if even one tree fell.

Add to the woes of coastal homeowners sharply rising premiums in California and the Southeast from weather related wildfires, ice storms and unusually severe summer thunderstorms in the Midwest. Flooding is another issue. Years ago the Federal government was forced to come forward to insure against surface water when private companies universally dropped flood coverage. Hurricane Katrina effectively bankrupted the U.S. flood insurance program ten-times over even though coverage is capped at a maximum of $250,000 - hardly enough to replace most homes in coastal areas.

So, what happens to a homeowner with a mortgage who can no longer obtain homeowners' or flood coverage? Failing to carry coverage is generally considered an act of default on the mortgage, and while the lender is unlikely to start legal proceedings, it will probably "force place" coverage with a high risk insurer. This can be many times more expensive than traditional insurance and lenders will usually only arrange coverage for the amount of the mortgage and not insure contents or owner liability.

And what if you are buying or selling a house in an affected area? If you can't find insurance you can't get a mortgage. More likely you will be placed in your state's excess risk pools. Citizens is expected to soon be the largest carrier in Florida and has been charged with inefficiency and even corruption. Some states are now considering or have enacted a surcharge on privately issued policies to help fund their high risk pools. But, if weather-related claims continue at the pace of the last few years it is unlikely that even state and federal coverage will be sustainable. Then what happens to the housing market?