Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 9, 1993 TAG: 9305100419
SECTION: BUSINESS PAGE: D-5 EDITION: METRO
SOURCE: The Washington Post
DATELINE: WASHINGTON LENGTH: Medium
The effect will be most acute in such storm-prone areas as Florida and other Gulf Coast states, but homeowners along the Atlantic and Pacific coasts - and as far inland as Kansas - are expected to feel the effects. And for those lucky enough to keep their old coverage, price increases loom.
Most customers cut adrift by carriers will be able to replace their policies, either with other insurers or state-run pools. In a few areas, such as Hawaii, replacement coverage may be hard to find.
Some of the largest carriers already are pulling back from areas where they have been battered.
Last month, Allstate Insurance Co. told Florida insurance regulators it does not plan to renew policies of about 300,000 homeowners in that state, reducing its business there by 25 percent.
The company also has told regulators it plans to seek rate increases averaging about 40 percent and possibly as high as 60 percent.
Prudential Property and Casualty Insurance Co. will drop a third of its Florida policyholders and will write no new business until at least June 1994, regulators said.
In Hawaii, where Hurricane Iniki caused $1.5 billion in losses and the state's largest property insurer failed, about 70,000 homeowner policies - out of a total of 218,000 - have been "non-renewed" or will be by year-end, according to insurance commissioner Linda Chu Takayama.
An additional 22,000 policies will be renewed "only with a hurricane exclusion," Takayama said in a letter to J. Robert Hunter of the National Insurance Consumer Organization in Alexandria, Va.
About 40 percent of the market in Hawaii is "impaired," she said, and surviving companies are limiting their new business, which means homeowners who lose coverage may have a very hard time replacing it.
In Louisiana, the Audubon Group, the state's largest insurer of mobile homes, has stopped writing policies in coastal areas, state insurance commissioner James H. Brown said.
Cigna Corp. and Ohio Casualty Corp. have cut back coverage on the New Jersey coast, with Cigna dropping 3,000 policies and designating 49 Zip code areas for no new business - an action challenged by state insurance regulators.
All coastal areas are expected to find insurance more expensive and harder to come by. Hunter said homeowners in the Carolinas are being hit, along with other coastal states reaching around to Texas.
The changes, according to industry officials, result from the huge losses suffered by insurers in the past few years, coupled with the realization that losses could have been even higher.
Last year was the worst in U.S. history for insurance claims, totaling $23 billion, said Marc H. Rosenberg, vice president for federal affairs of the Insurance Information Institute, a trade group here. Hurricane Andrew, which blasted through South Florida, accounted for $16 billion of those claims.
The previous high - $7.6 billion - was in 1989, he said. That year, Hurricane Hugo ripped into the South Carolina coast and an earthquake caused considerable damage in the San Francisco Bay area.
"Insurers now recognize that the potential losses [from hurricanes like Andrew] are much greater than they used to think they were," Rosenberg said.
"The three worst ones in history have all happened in the last three years. So they have revised upward their estimates of what damage the next hurricane can cause," he said.
Ten companies failed in Florida and two more in Hawaii, he said. "The risk of having too large an exposure in areas that are vulnerable to catastrophic natural events is now obvious," he said.
Damage in Hawaii exceeded 50 years of premiums, so it's no surprise that few companies are rushing to grab a bigger share of the risk, Rosenberg said.
This belated awakening by insurers is small consolation to homeowners who are thrown into a tighter, more-expensive market.
The industry has plenty of capacity, Hunter charged, noting that reserves and profits grew last year even with the losses.
"The insurance industry did fine and does not have to take these punitive actions," he said.
Hunter said the industry's admitted excessive concentration of risk in dangerous areas is "an admission of mismanagement." He also hit insurers for "acting surprised" at all the substandard construction in Florida, which he charged was "common knowledge."
"The best face that the industry can put on it [is] that we were awful managers before and now we realize it," he added.
Hunter and Rosenberg urged consumers to shop for new coverage, using the usual criteria of seeking the best coverage for the lowest price.
by CNB