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Friday, February 18, 2011

Insurers face consequences of global warming. Some companies (State Farm, Allstate) are refusing to write new policies on waterfront properties in Maryland because they say it’s too risky

Insurers face consequences of global warming

Some companies are refusing to write new policies on waterfront properties because they say it’s too risky

Gazette file photo
Damage like that done to this building in St. Mary’s County, which was flooded by Hurricane Isabel in September of 2003, will only get worse due to global warming, some scientists say, prompting several insurance companies to rethink writing home policies in coastal areas.
Ralph Watson has no idea how he is going to insure his waterfront property on St. George Island.

Most of Watson’s property was destroyed by Hurricane Isabel in 2003, and he still has not rebuilt the two houses on his land. One is a small cottage that was his daughter’s home; the other is his home since 1964. Both houses have yet to be repaired. A long battle to get paid by his insurance company has become another battle with the county’s planning department to actually build his home.
And now, it is becoming more difficult than ever to insure waterfront property, not just for Watson but for any home that is considered to be in a ‘‘catastrophe-prone” area.
State Farm Insurance has already limited its coverage of residences near waterways, and Allstate Insurance is planning a similar move.
Allstate was scheduled to stop writing new policies on homes that are in catastrophe-prone areas, but is now holding off on that decision. Legislators have a long list of questions for the company, said Allstate spokeswoman Debbie Pickford.
‘‘They’re asking why we’re making the business decisions that we’re making,” she said. She said the company is hoping to decrease its risk of coverage in light of global climate changes.
‘‘We’re hearing from scientists that in 10 to 20 years, there is a greatly increased risk of hurricanes,” Pickford said.
Meteorological forecasts showed a 40 percent greater chance of a strong hurricane making landfall on the Eastern Seaboard this year than in previous seasons. A spate of catastrophic storms that have hit the Gulf Coast in recent years also led home insurers to reassess their risk levels.
‘‘Two years ago, three years ago, we never would have thought our exposure would be as great as it is,” said Jeff Williams, Allstate’s regional counsel. Now, he said, the hurricane risk is ‘‘virtually uninsurable.”
Allstate still plans to stop writing the new policies, but the company wants to wait until the questions are answered.
All three Southern Maryland counties include some of the towns where new policies eventually will not be available through Allstate. Also, State Farm changed its policy in October 2010 to exclude any home within 2,500 feet of the Atlantic Ocean or within 500 feet of a coastal bay or intercoastal waterway, said Maria Jackson, spokeswoman for State Farm. 
Legislators’ solution
Allstate’s decision has unnerved some state lawmakers, who fear other insurance companies might follow suit, leaving coastal homeowners with less affordable coverage options.
‘‘When you start closing the door and not writing insurance, it makes it tough because competition is the greatest thing in the world,” said Del. John F. Wood Jr. (D-Dist. 29A) of Mechanicsville.
Maryland Insurance Commissioner R. Steven Orr has tried to quell the fears of lawmakers in a letter sent to legislative leaders in January. ‘‘The property insurance market remains healthy, and there remain many fine insurers looking to write business across our state,” he wrote. ‘‘We are not facing an availability crisis in Maryland.”
Still, legislators have drafted a bill that changed in the past week and would force insurers to write homeowner policies statewide.
Although the ban on new coastal policies affects much of Southern Maryland, it does not include western Charles County. Still, many homeowners will see their insurance deductibles increase from 3 percent to 5 percent when policies renew.
And that troubles lawmakers.
‘‘That’s way out of a lot of people’s reach,” said Del. Sally Y. Jameson (D-Dist. 28) of Bryantown.
‘‘It’s going to have a huge cost associated with it, and folks are going to be angry,” said Sen. Thomas ‘‘Mac” Middleton (D-Dist. 28) of Waldorf.
There might come a point when people will not be able to buy waterfront homes because of the high cost of insurance, warned Judy Fulir, a Realtor for Re⁄Max in St. Mary’s County. ‘‘They won’t be able to,” she said. ‘‘You’ve got to have that insurance to satisfy the mortgage.”
Fulir said at one point she was trying to close on a house, but the potential buyer could not get insurance, and therefore a mortgage, because there was about to be a hurricane in Florida.
But homes with a river or lake in the back yard will always appeal to buyers. ‘‘I think waterfront is probably going to hold its own,” Fulir said.
Insurers’ decision
An Allstate official said raising the deductible was not an easy decision.
‘‘There’s no way to sugarcoat this. The hurricane deductible is basically this sharing of the risk of hurricane loss. It is the unfortunate reality of having a home near the coast,” said Jeff Williams, who recently briefed the Southern Maryland delegation.
‘‘The reason we are changing our guidelines is we are wanting to protect the customers we have,” said Maria Jackson, the State Farm spokeswoman. ‘‘We want to stay financially strong ... so we can keep our promises.”
Only State Farm writes more homeowner policies in Maryland than Allstate, which has between 75,000 and 90,000 policyholders in Southern Maryland, Williams said.
Waterfront property, despite carrying considerable risk, remains highly sought after in Maryland, he said. ‘‘It’s great, but you’re very much exposed to the elements.”
Jackson said that after Hurricane Isabel, the company paid claims to 16,000 customers in Maryland, Washington and Delaware. It paid 76,000 claims in North Carolina and Virginia.
Middleton, who chairs the Senate committee that tackles insurance issues, asked what will stop other home insurers from pulling out of the market if they use similar data and risk assessments. Coverage options, he said, will soon dry up.
But Williams said that didn’t happen in Virginia Beach when Allstate stopped writing new policies, and there’s no reason to believe a domino effect will take place in Maryland.
He also told lawmakers that Allstate has no plans to further reduce its customer load in coastal areas. ‘‘It is not our objective to exit this market entirely,” Williams said.
Pickford stressed that Allstate agents can still help new customers with insurance.
‘‘We’ve brought in a third-party carrier so agents could place new business,” she said. ‘‘So if someone in Maryland comes to us, an agent can still place them with another carrier.”
Also, current policyholders who buy a new house or build on their property will also be able to be insured by Allstate, Pickford said. ‘‘We’ve been told that there’s no less competition in the marketplace,” she said, after researching through brokers and other agents. ‘‘It’s a very vibrant marketplace for insurance.”
Allstate had already taken steps to mitigate risk before deciding to nix new policies, such as purchasing the maximum amount of reinsurance to protect itself, Williams said. ‘‘We are trying to avoid the harshest of remedies: the nonrenewal option,” he said.
The parent company is also taking steps to protect local Allstate agents who may lose business as a result of the decision to stop writing new policies. They’ll be able to sell coverage offered by other home insurers, Williams said. ‘‘We understand the realities of the marketplace, and we’re trying to soften the landing for everyone,” he said.
Watson still waits
When Watson rebuilds, his houses will be considered new, and while people who already own waterfront property are supposed to be protected, new policies are not being accepted by an increasing number of insurance companies.
Jackson said State Farm customers who own waterfront property now cannot buy insurance on any new property they purchase within the company’s parameters of a coastal area.
Watson said he had a policy through one company when Hurricane Isabel hit, but the policy was dropped after years of fighting with the insurer and bringing in lawyers to get a payout on the damage to his property.
‘‘There are a lot of clauses in the contract,” Watson said, adding that the companies cheated him and many others like him out of what they owed them.
When he tried to buy an insurance policy for his property last year, Watson said, he had signed the papers and written the check when one insurer came back to him and said it couldn’t insure him. In the future, he said, he might have a lawyer look at his insurance policy before he decides what to buy, just because he can’t be sure he has the policy he believes he has because of the clauses and possible loopholes.
‘‘It used to be, if your house burned down, they paid you. If the wind blew it down, they paid you,” Watson said, adding that he does not believe that any more.
But Watson doesn’t think insurance companies deserve all the blame. ‘‘The clauses wouldn’t be in there if somebody didn’t allow it,” he said. ‘‘The laws that have been passed allow that sort of thing.

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