Allstate Limits Homeowners’ Business in N.Y. Coastal Areas

January 12, 2006

Allstate, New York State’s biggest writer of homeowners insurance, is pulling back from writing new business in New York metropolitan coastal areas in order to limit its exposure to future storm losses.

The insurer made the “difficult decision” to stop writing new homeowners policies on Long Island, in New York City and in southern Westchester County as of Jan. 1, Brian Posey, spokesman for the insurer, confirmed to Insurance Journal.

The decision does not affect any existing homeowners policies. Also, the company is continuing to write new policies for condominiums, cooperatives and renters in those areas, as well as life and commercial lines insurance.

The Northbrook, Ill.-based company is a major writer in New York, accounting for about 18 percent of the homeowners business in the affected downstate areas and about 18 percent statewide.

Posey said the action is part of an overall hurricane risk management strategy being pursued by his company with respect to coastal properties, although he declined to indicate whether Allstate might stop writing in any other territories. In its third quarter earnings report, the company did note that it considers the “greatest areas of potential catastrophe losses due to hurricanes to be major metropolitan centers near the eastern and gulf coasts.”

“The hurricane seasons in 2004 and 2005 were devastating,” Krista Conte, Allstate spokeswoman for the metropolitan area, told Newsday. “They brought terrible destruction to coastal areas of the United States. If you took what those storms brought, and combine that with similar expected in coming years, it puts us in a position where we must explore options to better manage our exposure.”

According to experts, a major hurricane making landfall in the New York City metropolitan area could result in approximately $50 billion of insured losses with total economic losses exceeding $100 billion.

That scenario was described in November by AIR Worldwide President and CEO Karen Clark at the National Catastrophe Insurance Program Summit in San Francisco. The conference was organized by insurance commissioners from California, Florida, Illinois, and New York to design a national program to more effectively spread the financial risk of natural and man-made catastrophes.

Clark presented the results of a study that analyzed the potential impact of a major hurricane on the New York City metropolitan area. The scenario is based on a category three storm, similar to the 1938 Great New England Hurricane, making landfall just to the east of New York City. AIR estimates that such a scenario, while not a worst case, would result in approximately $50 billion of insured losses with total economic losses exceeding $100 billion.

“The 1938 Great New England Hurricane was one of the most destructive storms ever to hit the northeast. Thousands of buildings were destroyed and some coastal communities disappeared entirely,” said Clark. “A storm with similar characteristics would result in far more property damage today, since the total value of exposed properties in coastal areas of New York State alone has increased to over $1.9 trillion.”

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