Insurer to limit policies in state

Allstate won't write new homeowners on water as storm risk moves north

December 21, 2006|By Laura Smitherman | Laura Smitherman,SUN REPORTER

Allstate Corp., one of Maryland's largest insurers, will stop writing homeowners' policies in coastal areas of the state, citing warnings by scientists that a warmer Atlantic Ocean will lead to more strong hurricanes hitting the Northeast.

The company will no longer offer new property insurance beginning in February in all or part of 11 counties mostly along the Chesapeake Bay and its tributaries. Existing customers won't be affected; a spokeswoman said Allstate intends to renew those policies even in coastal areas. It will continue to write new policies in Baltimore and Baltimore County.

"We have been looking at hurricane and storm projections, and we're going to see a lot more severe storms further north on the coastline," said Allstate spokeswoman Debbie Pickford. "We are working to minimize our risk."

Hammered by losses from storms such as Hurricanes Katrina and Andrew, insurance companies are raising rates, dropping coverages and refusing to accept new customers in certain areas.

This has been happening for years in states such as Florida, where homeowners saw rates multiply or lost insurance altogether after Andrew flattened much of South Florida in 1992. Now the trend is edging north.

Allstate's change in Maryland is broader than a move by Nationwide Mutual Insurance Co. two years ago to cap new business in coastal areas and not to write new business in two ZIP codes near Ocean City. Allstate's move will affect residents in Calvert, Dorchester, Somerset, St. Mary's, Talbot, Wicomico and Worcester counties and parts of Anne Arundel, Charles, Prince George's and Queen Anne's.

Allstate also decided recently to let thousands of homeowner policies lapse in the Carolinas, New York and Texas, and to no longer write new policies in parts of Virginia and all of Connecticut, Delaware and New Jersey.

Consumer advocates say that when insurers pull out, prices go up because there is less competition in the marketplace. And they warn that smaller companies might take cues from larger ones that often have more sophisticated risk-modeling techniques.

"It has a tendency to push rates higher and make getting a policy more difficult, especially in coastal areas," said J. Robert Hunter, director of insurance for the Consumer Federation of America and a former federal insurance administrator. "Allstate has made incredible profits, and I find their actions very offensive, and I think consumers ought to find it offensive."

Some industry experts and regulators say residents will, at least for now, be able to find other private insurers in Maryland, where several hundred insurers write homeowner policies. Randi Johnson, associate commissioner for property and casualty at the Maryland Insurance Administration, said no policyholders have been dropped because of their proximity to the coast.

"We are nowhere near a crisis stage; people are able to get affordable insurance," Johnson said. "It may be harder to find a carrier if you're moving to the Eastern Shore. You might have to shop a little harder."

Allstate agents will still be able to help customers obtain property coverage through broker Couch Braunsdorf Insurance and a network of third-party companies.

In Florida, Mississippi and Louisiana, an exodus of private insurers has driven huge numbers of homeowners to state-run insurance pools that are considered "insurers of last resort," some of which face solvency problems.

By contrast, Maryland's home insurer of last resort, the Joint Insurance Association, covers only $700,000 worth of property on the Eastern Shore. Its general manager, Victor Mastalski, said even though insurers are limiting coverage in coastal areas, he doesn't expect that more residents will rely on the association. "What we try to do is encourage them to go to the standard market where they will get cheaper premiums and better coverage," he said.

Robert P. Hartwig, chief economist at the Insurance Information Institute, said building continues along coasts that are at risk of weather-related catastrophes. Insurance companies are caught in the middle, suffering huge losses when they stay in those markets and maligned when they raise rates or leave, he said.

Direct insured property losses from such catastrophes rose to a record $61.2 billion last year, more than double the year before, as powerful hurricanes ravaged the Gulf Coast. Katrina alone accounted for $40.6 billion in insured losses, according to Insurance Services Office Inc., which surveys insurers.

Still, industry profits increased nearly 12 percent, or $4.5 billion, to $43 billion in 2005. Allstate reported a profit last year of $1.8 billion despite a loss of $1.6 billion in the third quarter, when Katrina led to billions of dollars in claims.

The profits have drawn criticism, especially as Allstate faces legal complaints from homeowners who say they were wrongly denied coverage. The disputes typically revolve around whether the damage was caused by flooding, which isn't covered by homeowners policies.

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