Alabama Coastal policies bearing big risk

Originally Published by the Mobile Press Register

Link: http://www.al.com/news/press-register/metro.ssf?/base/news/1251710140109130.xml&coll=3

Private insurers reap profits as beach pool grows

Monday, August 31, 2009

By GEORGE ALTMAN

Capital Bureau
MONTGOMERY — Property insurers have enjoyed profitable years in Alabama recently, but are also covering fewer coastal homeowners, according to industry data and some in the insurance business.

As a result, more coastal homeowners are turning to the state's insurer of last resort, concentrating risk in a pool that experts agree couldn't cope with all the costs if a big hurricane hit. In that event,

policyholders throughout the state would likely have to help foot the bill.

"Let's be very candid. Our industry is coming off of what we call a peak-earnings period," David Langman, managing director of the Atlanta office of Marsh USA Inc., an insurance company, told Alabama lawmakers earlier this month. "You haven't seen the benefit of it within these communities that need protection, wind-storm coverage."

But in interviews, other industry representatives described their profits as more modest, particularly from homeowner coverage. By writing fewer coastal policies, they are trying to protect the rates of customers elsewhere, they added.

"Ivan wiped out every bit of profitability we ever made in the homeowners line," said Shane Robinson, a spokesman for Allstate Corp. "That's when you take a ... serious look at your exposure in those areas."

Double blow Hurricanes Ivan and Katrina delivered hard blows to insurers in 2004 and 2005. Data from the Insurance Information Institute, a repository for industry statistics, show that insurance companies in Alabama experienced losses of 7.3 percent and 7 percent, respectively, in those years, counting all types of coverage, including homes, autos and others. Company representatives noted that their losses on homeowner policies alone were much larger.

Still, during the next two years, the companies more than made up ground, charting total profits of 13.6 percent in 2006 and 12.2 percent in 2007.

Also during that period, the state's insurer of last resort — the Alabama Insurance Underwriting Association, commonly known as the beach pool — nearly tripled in size. Analysts attributed this surge to homeowners denied coverage by private insurers.

More than 12,500 policies The beach pool boomed from 3,244 policies in December 2005 to 9,100 policies in December 2007, according to the state Department of Insurance. As of June 2009, the beach pool had 12,572 policies, covering $2.16 billion in property value.

Private insurers, meanwhile, have reduced or canceled coverage on at least 27,000 policyholders in Mobile and Baldwin counties since Ivan, according to Press-Register counts.

The beach pool could pay for only about $240 million of coverage following a big storm, according to the Insurance Department, leaving insurance companies and their customers across the state to pick up remaining costs.

Langman said that if private insurers didn't write more coastal policies when profits were high, he doubts they'll do it anytime soon, effectively pushing more people into the beach pool.

Numbers questioned Representatives from the state's three largest insurers — State Farm Mutual Automobile Insurance Co., Alfa Mutual Insurance and Allstate — questioned the Insurance Institute statistics but would not provide data showing their overall profitability or number of coastal policies. Only State Farm gave its number of coastal policies: about 37,000 in 2006, dropping to 35,000 the following year and climbing to 36,000 through June 2009.

Alabama Insurance Commissioner Jim Ridling said that the industry collected handsome profits in 2006 and 2007, but has fared poorly since then, although the newer statistics are not available.

"If you're going to lose a lot of money in the years of storms," Ridling said, "you need to make a lot in the years you don't have them."

But state Sen. Ben Brooks, a Mobile Republican who has championed coastal insurance reforms, said that the withdrawal of insurers from coastal areas has left homeowners in Mobile and Baldwin counties with few options.

"I think it's clear that the market has not yet responded adequately to the needs of our consumers here," Brooks said.