KAI RYSSDAL: They don't get too many hurricanes out in Colorado. But forecasters there came out with their storm predictions today. The weather group at Colorado State University says there will be 17 tropical storms this hurricane season. Which starts tomorrow. Nine of those storms will turn into hurricanes. And five will be major hurricanes. Not good news for people in Florida and along the Gulf Coast who are still struggling to rebuild from last year's storms. Hurricane Katrina, not to mention Rita and Wilma, left their financial marks as well. Especially when it comes to insurance. Marketplace's Business Editor Cheryl Glaser has that story.
CHERYL GLASER: Twenty-nine years ago, Rob Bleser opened his own dive shop in Key Largo, Florida. Since then, he's built it into a booming business:
ROB BLESER: I started it right out of college, and it's everything I have — the business and the property associated with it.
So it came as a nasty surprise last year when Bleser's insurance company said they'd no longer cover him for wind damage from hurricanes. Bleser's been hunting for replacement coverage ever since. And it doesn't come cheap:
BLESER: In order to cover the basics here, we're looking at between $25,000 and $30,000 a year just for the windstorm.
KAREN CLARK: Insurance companies have to make sure that they are not overly exposed to these storms.
That's Karen Clark, head of AIR Worldwide. She helps companies and insurers think through their potential risk from catastrophes like hurricanes. She says insurers have been burned in the past:
CLARK: After Hurricane Andrew in 1992 in Florida, 11 companies went insolvent. It really doesn't do anyone any good — particularly the policy holders — if the insurance company cannot pay for the claims when they come in.
Insurance companies are still paying claims from last year's storms. They could total $40-$60 billion. And government scientists are predicting another busy hurricane season this year. So some insurers are trying to cut their risk by limiting the number of hurricane policies they write. Others are hiking deductibles and bumping up premiums from 40 to 95 percent.
Those increases have folks like Rob Bleser considering self-insurance. That is, buying no coverage at all and hoping the storms pass them by. University of Wisconsin professor Dan Anderson says it's a lousy idea for small businesses:
DAN ANDERSON: You would never want to totally self-insure because the total value of your property or of your business would in all likelihood exceed your ability to pay for it.
In other words, a factory owner or a mom-and-pop store could get wiped out completely by just one bad storm. But Anderson says self-insurance can make financial sense for big companies that do business in lots of places.
Take Wal-Mart. It announced a few weeks ago it's decided to self-insure for windstorms in the wake of Hurricane Katrina. As one of the biggest companies on the planet, Wal-Mart has deeper pockets than many insurers. And it has more than 6,000 stores around the world. So if Wal-Mart takes a hit — say, on the Gulf Coast or in the Southeast — it'll still have lots of money coming in from other stores to pay for the damage.
Self-insurance is a dicier bet for dive-shop owner Rob Bleser. But it may be his only option:
BLESER: Obviously you've got to be prepared to handle things on your own if you self-insure. But if it's the difference between being able to stay here and stay in business versus leaving, sometimes you don't have a choice.
Now he's got to decide if he's willing to take the risk.
I'm Cheryl Glaser for Marketplace.