Maryland Mulls Ways to Keep Insurers from Abandoning Coastal Properties

By | February 15, 2007

Alarmed that homeowners on Maryland’s coasts may one day be cut off from home insurance, state lawmakers are mulling new rules prohibiting insurers from pulling out of areas they deem risky.

But insurers met with lawmakers Tuesday to say there’s no need for alarm and that lawmakers shouldn’t tinker with the insurance market.

Senators were briefed on the insurance question amid concerns about insurance availability after the state’s second-largest home insurer — Allstate Corp.’s Allstate Insurance Co. — said last year it would stop writing new home policies in many coastal areas in Maryland.

Citing projections of more hurricanes and tropical storms in the mid-Atlantic states and north, Allstate added Maryland to the states where coastal home policies may no longer be written. Delaware and parts of Virginia also were included.

States on both coasts are scrambling to look for ways to keep home insurers in coastal areas or to reduce premiums from dramatic price hikes. In hurricane-prone Florida, lawmakers recently held a special session devoted to home insurance. Mississippi is considering a policyholders’ “bill of rights.” And California recently negotiated with large insurers to cut premiums.

In Maryland, a House bill under consideration to require home insurers to cover the whole state or none of it. Similar measures were taken in Connecticut.

Allstate’s decision in Maryland has coastal residents fearful they won’t be able to get insurance, said Republican Sen. E.J. Pipkin, whose district includes Kent Island and miles of Chesapeake Bay coastline.

“It looks like they’re picking and choosing where they want to do business,” Pipkin said.

Several insurers told the senators Pipkin was correct — but that insurers should not be forced to swallow more risk than they can afford. Several insurers cited the possibility of more storms aggravated by more development along the coast.

“The population’s moving to the coast,” said Jeff Williams, regional counsel for Allstate, which covers about 300,000 homes in Maryland. “People want to live near the water. People want to retire near the water.”

But Williams added, “We cannot ignore what the forecasters … are telling us. We are looking forward to a lot more hurricanes and a lot bigger hurricanes.”

Allstate’s decision affects all or part of 11 Maryland counties — Anne Arundel, Calvert, Charles, Dorchester, Prince George’s, Queen Anne’s, Somerset, St. Mary’s, Talbot, Wicomico and Worcester. The company estimates it will avoid writing 1,600 new policies this year because of the decision.

The state’s largest insurer — State Farm Mutual Insurance Co. — testified that it was also going to stop writing some policies. Lynn Dickerson, State Farm’s vice president of operations, said the company decided last year to expand its do-not-insure area in Worcester County from 1,000 feet from the ocean to 2,500 from the ocean. Already the company does not insure in Ocean City, which is on a barrier island.

“At some point in time, a hurricane will make a direct hit in the state of Maryland,” Dickerson said. Both Allstate and State Farm testified that current policies in coastal areas won’t be canceled, but that deductibles would go up for hurricane claims.

Dickerson said there’s no shortage of insurers that will keep writing insurance policies closer to the coast.

“The market is working very well,” he said.

Steven Orr, the state’s insurance commissioner, told lawmakers there’s nothing to worry about in the home insurance market in Maryland. He blamed fears about the insurance availability on a “media frenzy.”

“Maryland is in great shape compared to many of our neighbors,” Orr said.

Orr urged lawmakers not to force insurers to cover certain areas, saying it’s an unneeded check on the industry.

“This situation is overblown,” Orr said. “Maryland is fine.”

Sen. Catherine Pugh, D-Baltimore City, worried that one day no one on the coasts will be able to get insurance.

“Will you just be forced to write new policies in the center of the country?” she asked Williams.

The Allstate lawyer answered, “I certainly hope it doesn’t come to that. But we are reducing our exposure on the coasts.”


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