Insurer delays pullout

Allstate planned to stop offering new policies in Md. coastal areas

February 14, 2007|By Laura Smitherman | Laura Smitherman,sun reporter

Allstate Corp. has postponed its decision to no longer write new homeowner policies in certain coastal areas it deems too risky.

Company officials said yesterday that they are working to satisfy inquiries from Maryland regulators, who have asked for detailed financial data and information on hurricane forecasting models.

The insurer decided last year to stop offering new property insurance policies in all or part of 11 Maryland counties on the Atlantic Ocean and along the Chesapeake Bay and its tributaries, while continuing to renew policies.

Allstate has been changing its underwriting policies nationwide, noting warnings by scientists that a warmer Atlantic Ocean will lead to more powerful storms and hurricanes hitting the Northeast.

Since then, Allstate has been peppered by questions from the Maryland Insurance Administration and the People's Insurance Counsel, a consumer division of the attorney general's office. The company's move also prompted state lawmakers to propose legislation that would force insurers to provide coverage in coastal areas.

Allstate's decision follows less-extensive changes at State Farm Insurance Cos. and Nationwide Mutual Insurance Co., which have limited new business in coastal areas in recent years. Together, the three companies have about half of the market share in Maryland.

Maryland Insurance Commissioner R. Steven Orr testified yesterday at a Senate Finance Committee hearing that concerns about the insurance market are "overblown." He warned that the proposed legislation could have unintended consequences, including driving away insurers.

"Please be careful with legislation," Orr told the panel. "It can be dangerous."

Orr could prevent Allstate from implementing its new policy if he found it to be "unreasonable." But he appeared to defend the company yesterday, saying that it has been forced to reassess its exposure to potential catastrophic losses, especially since Hurricane Katrina, which devastated New Orleans and other Gulf Coast communities in 2005.

Two years earlier, flooding spawned by Tropical Storm Isabel caused extensive damage along the East Coast, including more than $400 million in Maryland.

The new Allstate policy was to take effect tomorrow.

The change at Allstate would essentially mean that other insurers would have to write about 1,600 policies this year, the number Allstate had expected to write. That is a small fraction of the company's 300,000 policies in the state and of the 2 million total policies in the state. Orr said other insurers are offering new policies in coastal areas and that "our market is adjusting well."

Jeff Williams, regional counsel for Allstate, said that according to Risk Management Solutions, which forecasts the risk of natural disasters for the insurance industry, the chances that a hurricane will strike Baltimore in the next five years have increased by as much as 30 percent.

"We cannot ignore what the scientists are telling us," Williams said. "We are looking forward to a lot more hurricanes and a lot bigger hurricanes."

In other changes for Maryland, Allstate increased hurricane deductibles for customers closest to the water to 5 percent of the property's value from 3 percent and added a 3 percent deductible for some customers farther inland.

Ilene J. Nathan, an assistant attorney general, said she has "significant" questions about the hurricane forecasting models.

"Several companies are shrinking from the coasts, and that does concern us because it's not based at all on the experience in Maryland but based on the modeling they are all using, which is absolutely an inexact science," she said.

Lawmakers said they have heard from concerned constituents. Sen. E.J. Pipkin, an Eastern Shore Republican, pointed out that despite losses from Katrina, the industry had a profitable year and that the forecast for a busy hurricane season last year was wrong.

"If we let Allstate get out, are we going to get six more [companies] next year saying, `We're leaving too'"? he asked.

Orr said other insurers are unlikely to follow Allstate's lead.

Reese Cropper, an independent insurance agent in Ocean City and a member of Insurance Agents & Brokers of Maryland, testified that other insurers are available and that legislation to require that insurers offer coverage statewide is unnecessary.

"Despite the limited number of insurance carriers willing to insure in coastal areas, that does not mean there is no availability," he said. "Premiums may be higher than a consumer feels is right. However, it seems to me that owning properties in high-risk areas, such as the coastline or earthquake zones, simply means that the cost of living in those areas is going to be higher."

laura.smitherman@baltsun.com

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