State Farm Restricts Storm Coverage for Coastal Alabama

March 21, 2008

Reacting to Gulf Coast hurricanes and potential future storm losses, State Farm said it will limit coverage in Alabama for new policies in Mobile and Baldwin counties beginning April 1.

State Farm, based in Bloomington, Ill., will no longer write wind and hail coverage on homes south of Interstate 10 in Mobile County, and south and west of U.S. 98 in Baldwin County.

In much of the rest of the two coastal counties, State Farm will require a 5 percent hurricane deductible unless a house is protected against wind in ways that few local houses now are built. That means a policyholder would have to pay for damage equal to 5 percent of the insured value of a house after a storm before insurance payments would begin.

State Farm spokesman David Majors said the new restrictions are part of an ongoing process. The industry has reacted to damages from Hurricanes Ivan in 2004 and Katrina the following year.

“We have assessed our risks on the coast and find it necessary to make these changes to be able to respond to all of our policyholders,” Majors told the Press-Register for a story Wednesday.

Majors said there would be no change for existing policyholders unless they moved to a new house. Then the new rules would apply.

State Insurance Department officials said they were still meeting with State Farm, which is Alabama’s largest property insurer. The department previously has tried to persuade companies to ease cutbacks, with limited success.

“The department is in ongoing discussions with State Farm regarding its decision to mitigate its coastal exposure,” said Ragan Ingram, the assistant insurance commissioner. “We consider the situation fluid.”

The State Farm restrictions could force more property owners into the state-backed Alabama Insurance Underwriters Association, known as the “Beach Pool,” for wind and hail coverage. That insurer of last resort, a state conduit that forces liability for coastal areas onto companies that shun it, has grown to more than 9,000 policies since 2004.

Los Angeles-based Farmers Insurance Group will be the largest company broadly taking new business without exclusions after April 1. That firm, Alabama’s fourth-largest property insurer, has added policies in Mobile and Baldwin counties to build its market share, the industry says.

Farmers spokesman David Bishop said it was excluding some areas, but that the company was not planning to restrict new policies over broader areas.

Alabama’s three largest insurers of property _ State Farm, Alfa Insurance and Allstate Corp. _ earlier had dropped hurricane coverage for a total of 17,500 homeowners in Mobile and Baldwin counties after Katrina struck Aug. 29, 2005.

Montgomery-based Alfa is only writing policies that exclude wind in areas close to the water. North of there, the company is writing new policies with hurricane deductibles of 2 percent or 5 percent.

Allstate, based in Northbrook, Ill., is only writing new policies that exclude wind for all areas south of a line that cuts across northern Mobile and Baldwin counties at a level equivalent to the Florida Panhandle’s northern boundary.

Representatives for Nationwide and Liberty Mutual said they weren’t writing policies in coastal Alabama.

Information from: Press-Register,

Was this article valuable?

Here are more articles you may enjoy.