Insurance Rates Skyrocket on Alabama Gulf Coast

July 17, 2006

Property owners are stunned by insurance rates that have tripled for some properties on the Alabama Gulf Coast after back-to-back years of hurricane damage.

Owners of the 35-unit Romar Tower at Orange Beach, Ala. saw their annual premium jump last month from about $35,000 to more than $424,000.

“It was a complete shock to us,” Romar Tower owners association president Maynard Hellbusch told the Press-Register for a story Sunday.

“If we didn’t have some people with mortgages in this building, we probably wouldn’t have insurance,” Hellbusch said.

Owners of the Four Seasons of Romar Beach condominiums saw their annual premium soar from about $40,000 to nearly $1.1 million, said Robert Smith, president of the Four Seasons owners association.

Smith said he wrote a letter to Alabama Insurance Commissioner Walter Bell asking whether the huge premium increase was legal.

“It doesn’t sound legal,” Smith said.

Hurricane Ivan repairs increased the value of the two Four Seasons towers from $12 million to $24 million. But the insurance increase means additional expenses of nearly $15,000 a year for owners of each of the 71 condos.

The Baldwin County coast was hit by Ivan in 2004, but spared major damage from Hurricane Katrina in August. However, the insurance industry took hits from multiple storms from Texas to Florida.

Some traditional insurers have pulled out of coastal markets, often leaving only reinsurers and state-sponsored insurers of last resort.

The lack of competition, combined with the need of reinsurance syndicates and state-sanctioned insurers to reload their coffers quickly, has pushed coastal insurance prices to unprecedented levels.

Unlike traditional insurers, who usually must get approval from the state Insurance Department to raise rates, reinsurers do not have to answer to Alabama regulators, according to department officials.

Reinsurers, the large, typically international, syndicates that back insurance companies like State Farm or Nationwide, also often invest in risks, such as multimillion-dollar gulf-front condos, that mainstream insurers deem too precarious.

Tommy Robinson, a principal of Brett/Robinson, offered examples of the annual premium increases at some of the condo towers that his real estate firm manages: Phoenix III went from $71,000 to $225,000; Phoenix East rose from $73,000 to $225,000; Island Winds East climbed from $41,000 to $165,000.

Madarinn Group owner Patty Madaris said each of the 23 local property owner associations that her Gulf Shores company manages has been hit with increases, with 300 percent being the norm.

Daniel Craven, an attorney who represents more than 100 local condominium owners associations, said some of his clients, particularly those with older, wood-frame and stucco buildings, are having trouble buying enough coverage to insure the entire cost of their structures.

Foley Mayor Tim Russell, who is treasurer for the area’s insurer of last resort, commonly called the “beach pool,” said the insurance situation has the pool “growing at a tremendous rate.”

“In my 34 years I’ve never seen it like this,” said Russell, who is president of Baldwin Mutual Insurance Co.

Jay Ison, of the Mobile insurers Thames Batré Mattei Beville & Ison, said that traditional insurers largely handled damages arising from the five hurricanes including Ivan. According to the Insurance Information Institute, those storms created $23.7 billion in insurance claims.

“As bad as those storms were collectively, those storms individually were not that catastrophic and did not pierce the reinsurance bucket,” Ison said.

In 2005, six hurricanes struck, including Katrina, Rita and Wilma, resulting in $53.7 billion in claims, according to Insurance Information Institute data. That, Ison said, used up a third of the reinsurance reserves.

Ison said reinsurers must replenish the till, and they’re doing so by charging high premiums.

Reinsurers eventually will earn their money back. When that happens, he said, other companies will see how much money the reinsurers are making and they’ll want to re-enter the market, driving down prices.

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