City to pay more to insure property

Potential for more hurricanes this year causes carrier to increase premiums

July 19, 2006|By JOHN FRITZE | JOHN FRITZE,SUN REPORTER

Because of its proximity to the Atlantic and its potential vulnerability to hurricanes, the city of Baltimore will pay nearly 30 percent more for property insurance this year to cover a wide range of public buildings, from schools to City Hall, officials said yesterday.

Predictions that this summer's season could prove more devastating than last year's - when Katrina ravaged the Gulf Coast - have driven up the cost of coverage and forced the city to negotiate a new policy now rather than wait for potentially higher premiums this fall.

"The city of Baltimore is seen today in the insurance industry as being exposed to wind," according to a memo prepared for the city's Board of Estimates, which will vote on the $1.9 million premium for the policy today.

Wind pushes water

Winds gusting up the Chesapeake Bay can cause flooding in low-lying areas of the region, including in Baltimore neighborhoods near the Inner Harbor, experts have said. Storm surges during Tropical Storm Isabel in 2003 reached 8 to 10 feet and caused extensive damage in Fells Point and Annapolis.

Baltimore's insurance is held largely through Boston-based Lexington Insurance, a subsidiary of American International Group Inc., and the policy provides $300 million of coverage on hundreds of city-owned properties. The new policy takes affect retroactive to July 1 and runs through June next year.

Municipalities and residents in many parts of the country, especially along the East Coast, are wrestling with property insurance premiums. Some customers are no longer able to buy policies from private carriers.

"We're really looking at capacity issues as well as pricing," said Eric Goldberg, an assistant general counsel with the American Insurance Association, an industry group. "When insurers and underwriters take a look at all the factors out there ... all the models are pointing to increased [hurricane] activity."

Baltimore's policy had been set to expire Oct. 1, but the city's Office of Risk Management could not secure assurances from providers that premiums would not rise if this year's hurricane season is especially violent. In response, the office canceled its policy three months early and signed a new one.

Market price

The new premium is 28 percent higher because of the market's "current pricing structure" and because of a $1.25 million claim filed after a fire damaged Winston Middle School last June, according to the Board of Estimates memo.

It is not clear whether the issue will affect other local governments in Maryland. Annapolis Mayor Ellen O. Moyer said yesterday she had not yet faced increased insurance costs. A Baltimore County councilman said that government is self-insured, so it is not affected by market factors.

Baltimore can be especially vulnerable to hurricanes if they pass to the west, because that can send wind up the Chesapeake, said Andrew J. Miller, an associate professor of geography and environmental systems at the University of Maryland, Baltimore County. In that situation, flooding can intensify at the head of the bay.

"Once you get more than a few blocks away from the harbor, the land levels start to rise," Miller said. "But the entire area around the harbor is very close to sea level."

john.fritze@baltsun.com

Sun reporter Josh Mitchell contributed to this article.

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