Storms cause insurers to seek higher ground.

• Position: INSURANCE

North Carolina was spared a direct hit from hurricanes Katrina and Rita. But like Gulf Coast residents in the path of the storms, some Tar Heel insurers had a big mess to clean up afterward. Chapel Hill-based James River Group, a property-and-casualty company, blamed third-quarter losses of $9.5 million--compared with a $3 million profit in the same period of 2004--on payouts to Katrina and Rita victims.

The storms forced James River to buy more reinsurance--insurance for insurers--to guarantee it can pay future claims. It also quit writing policies temporarily and revised its underwriting guidelines. James River wasn't alone in its soul searching. "A number of companies following the 2005 storms decided to take a hard look at their underwriting guidelines and how they employ models to inform them about what their total exposure might be given a particular storm or weather event," James River CEO Adam Abram says.

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Eric Goldberg, an assistant general counsel with the American Insurance Association, says the big question for regions not directly hit by hurricanes is whether the cost of reinsurance will go up. That probably won't be determined until years pass and scientists know whether the heavy storm season in 2005 was part of a trend.

But many insurers already are treating it as just that. "There are a number of people who believe that the frequency of storms might increase and that the intensity of storms might increase as well," Abram says. "There are much higher values near the coast. That would cause insurance companies to take a hard look at the concentration of risk that they have." Home insurers already had raised their rates by as much as 15% in coastal regions, with smaller increases elsewhere, the month before Katrina.

Other sectors had problems, too. As the year closed, auto insurers were locked in their annual tussle with state Insurance Commissioner Jim Long, requesting an 11.5% increase. In 2004, the industry had agreed to no change in premiums after initially requesting a 12.3% increase, and Long's office negotiated a 15% decline in 2003. No decision had been made on the latest rate request by late December.

Profits are falling at Chapel Hill-based Blue Cross and Blue Shield of North Carolina, the largest health insurer in the state. Net income slipped 8% to $133.3 million in the first nine months of 2005. Blue Cross has been under pressure from critics, some in the General Assembly, who say the...