The dog and I have a daily obligation -- we walk about a mile and a half each morning, mostly through woods and country-like roads by the house. This is good exercise for us both, as well as a way to count the deer, fox and raccoons that live nearby.

Alas, our morning walks have been interrupted during the past few days as a result of Hurricane Isabel. Not a nice lady, Isabel downed trees and knocked out power lines in a big way. As a result, electrical service in Baghdad has been more reliable then what we have locally -- and what we have locally is just a few miles from the White House and Capitol Hill.

You know what's going to happen next -- insurance companies will be flooded with claims, mostly with good reason. But given recent trends, homeowners might want to think carefully before making such calls.

To understand the concern, consider that in the Washington area we have an arsonist who has apparently struck more than 25 times in recent months.

One victim explained how her home was set on fire and so she did what anyone else would do: she filed an insurance claim. As I understood the story on TV, the claim will be paid -- but her policy has been canceled because the owner had a prior claim several years ago.

You have to ask: Did this owner deserve to have her policy canceled? Plainly not. She didn't set the fire. She's a victim of bad luck, an event she did not create, encourage or assist. As Phil Ochs wrote long ago, "there but for fortune go you or I."

Does she need insurance? You bet. Mortgage companies and common sense require us to have homeowner policies.

For years insurance companies made money from two core sources: odds and investments. Get together enough policyholders and the odds that one will have a fire or robbery are so small that the insurance company makes money. Take the money that you pool, invest what you don't pay out and a second income and asset stream will be created.

Alas, profits from investment portfolios have been "challenged" in recent years by declines on Wall Street, so insurance companies have three choices if they wish to maintain income levels:

1. Accept lower profits -- an option which will not thrill shareholders.
2. Raise premiums.
3. Reduce or end coverage by redefining risk -- the reason homeowners insurance is increasingly difficult to get nationwide.

What these trends tell you is that filing insurance claims is something which should be reserved for only the most dire catastrophes. When facing a disaster it may be wise to look at the real costs you face in the new insurance era.

Example: It will cost $1,500 to remove a tree that has fallen in the backyard. You have a $500 deductible. The insurance company will pay $1,000 and you will pay $500 -- now. But you may also face higher premiums that quickly equal the $1,000 payment. Or your policy may be canceled and that may lead to huge problems with your mortgage lender.

In a way, the new insurance realities make sense because we are effectively moving to an ad hoc system of higher deductibles. It costs money to process modest claims so if insurance companies are not forced to deal with smaller repairs they will have lower costs. As with health insurance, higher deductibles mean lower premiums and reduced consumer costs.

Alternatively, policyholders should not be required to "make up" profits no longer available from Wall Street. If profits from insurance are not as great as they once were, that's a shareholder risk, not something homeowners should be required to "insure."

For more articles by Peter G. Miller, please press here.

Published: September 23, 2003

Use of this article without permission is a violation of federal copyright laws.

Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .