Stormy whether: what went down on the Gulf Coast will push up insurance costs in North Carolina. But when, how much and for whom?

• Author: Willis, Dail
• Position: FEATURE

The sand went first. As the waves of Hurricane Ophelia pounded Emerald Isle in September, thousands of tons of it, pumped onto the eroding beach in recent years, vanished back into the thrashing Atlantic. Then came more than a foot of rain. The roof caved in at Emerald Isle Video in K & V Plaza, a strip shopping center owned by Coastal Land Ventures. Then, when wind gusts hit 90 mph, the roof of Bell Cove Village, another shopping center Coastal was building on the island, began to flutter. "The wind just got up under it and lifted it off," says Larry Watson, vice president/secretary and half owner of Coastal.

After two days, the storm passed. It left behind in North Carolina $35 million in insured damages, says Jersey City, N.J.-based Insurance Services Office. Coastal's losses totaled about $100,000. But for Watson, a 56-year-old shopping-center developer, and hundreds of Tar Heel business owners like him, insurance checks will come with a catch.

Ophelia might rate only a footnote in the nation's worst hurricane year, but another storm, Katrina, with $60 billion in damage along the Gulf Coast, will force many business owners to give back some of their claim checks. For some, the pinch could come next year.

"My annual premium on all my centers is in excess of $100,000," Watson says. Coastal owns about a dozen small shopping centers on the island. "That covers wind and hail, general liability and fire. When they all come up for renewal, which will be in 2006 sometime, they're going to be quite a bit higher." Watson's agent has warned him it could be at least 15%.

Nobody knows how severe increases will be, but there are hints. Homeowner rates in coastal counties had jumped 15% in August, prior to Katrina. In October, North Carolina Farm Bureau Mutual Insurance and Allstate, the third- and fourth-largest home insurers in the state, said they would cut back coverage in coastal counties. That could signal similar cuts or premium increases in commercial insurance.

Some insurance insiders say the clout of Katrina, Wilma, Ophelia and other storms might be less than the flooded streets of New Orleans and devastated coast of Mississippi suggest. They paint a picture of an industry that learned lessons with its chin--for instance, Hurricane Andrew in 1992 taught companies to quit concentrating coverage in compact areas--and had muscled up financially, thanks to a stronger stock market and higher surpluses.

"Property-and-casualty insurers were on...