Ala. Coastal Property Owners Facing More Insurer Restrictions

October 10, 2006

More insurance cutbacks for Alabama coastal properties — not only for buildings and homes near the beaches — are coming in the wake of 2004 and 2005 hurricanes.

Two of the state’s largest insurance firms said they’re reducing coverage and increasing deductibles in Mobile and Baldwin counties, citing frequent hurricanes, coastal construction growth, lack of strong building codes and the cost of reinsurance.

Reinsurance is the practice of having one company insure the losses of another company.

The firms, State Farm Fire & Casualty Co. and Allstate Property and Casualty Insurance Co., cover about 41 percent of the homeowners market in Alabama and took financial hits from Hurricanes Ivan on Sept. 16, 2004, and Katrina on Aug. 29, 2005.

Other insurance firms could follow State Farm and Allstate’s lead with cutbacks, insurance officials said.

State Farm decided that effective Sept. 18, any new homeowners policy in most of Mobile and Baldwin counties will carry a mandatory 5 percent hurricane deductible, rather than the 2 percent in existing policies.

The company is not writing new homeowners, boat or commercial policies near the water, and it won’t take on any new policies for churches, condominiums and apartment buildings for an even larger area — most of Mobile and Baldwin counties, the Press-Register in Mobile reported Thursday.

Any new homeowners policy in those counties will now carry a 1 percent deductible for any non-storm related loss, rather than a set dollar amount.

State Farm spokesman David Majors and officials with the Alabama Department of Insurance confirmed the changes.

“They’re basically taking the position of no new business in areas near the coast,” said Ragan Ingram, a spokesman for the state insurance department.

Allstate also plans to “significantly” expand the area in which it will require 5 percent hurricane deductibles for all residential policies, including some areas of the city of Mobile, Ingram said. He said none of the changes for the two companies affect renters insurance.

Allstate spokeswoman Renita Ward confirmed that change and said the company may also drop some customers, raise premiums, limit new commercial policies and change other underwriting practices. She said the company has not decided which areas will be affected.

In some cases, Ward said, Allstate could help people whose policies are not renewed find coverage with other companies.

Though the company hasn’t completed its actions, “we can say we will be doing something,” Ward said. “We earnestly and honestly are working to determine what we can do that is prudent but still allows us to have a presence in that area.”

Allstate has filed a request with the state Insurance Department to raise its homeowners rates, but that hasn’t been approved and probably will be the subject of a hearing, Ingram said.

The state has already approved changes to State Farm rates. Statewide, rates went down about 2 percent on average, but in Mobile and Baldwin counties, rates went up 23 percent close to the water and 14 percent further inland, Ingram said.

In August, Alfa Insurance Co. said it would discontinue wind coverage for about 2,300 policyholders in Mobile and Baldwin counties. That move followed a similar cutback after Ivan slammed the Baldwin County coast and Florida Panhandle.

Last year, the company canceled insurance for about 50 commercial policies, including churches, that were insured for more than $1 million.

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