THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, October 20, 1996 TAG: 9610190464
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 111 lines
For decades, the availability of insurance for factories and office buildings has swung from abundance to scarcity - and back.
That wasn't supposed to happen with homeowners' insurance.
In good times, property and casualty insurers compete for commercial customers by slashing their rates. When their losses mount, or their investments falter, they boost rates and write fewer policies.
Insuring homes has been different. Insurers didn't jump in and out of the homeowners' business, so the prices and availability of coverage tended to be more stable.
That's quickly changing.
Fears of catastrophic losses from hurricanes have prompted several insurers to raise their rates for homes in coastal areas such as Hampton Roads. In addition, several have scaled back the volume of business they will do in hurricane-prone regions.
The latest to put a lid on new business is Nationwide Insurance, which announced two weeks ago that it was limiting the number of new policies that its agents could write in coastal areas. The Columbus, Ohio-based insurer said it also was limiting new policies for commercial property coverage in coastal regions.
If rates for homeowners' insurance climb sharply and the availability shrinks, regulators will be under pressure to act.
``As a state regulator, you can't allow your licensees to pick and choose from one week to the next. Insurance is supposed to bring stability,'' said J. Robert Hunter, director of insurance for the advocacy group Consumer Federation of America.
One mechanism that Virginia and other states can use is a joint underwriting association - a pool managed by companies writing a particular line of insurance for individuals who cannot get coverage through regular channels.
In Virginia, formation of a joint underwriting association to provide homeowners' insurance would require action by the General Assembly.
Meanwhile, the debate over availability of homeowners' insurance is likely to fuel discussion of new ways that companies could protect themselves from catastrophic losses. In Virginia, one of these would be a separate insurance pool for selling protection from wind-storm damage. A handful of other states, including Texas, Florida and North Carolina, already have such pools.
Another mechanism would allow property and casualty insurers to borrow from the federal government to meet their claims from a catastrophe. This would require approval by Congress.
Like other property and casualty insurers, Nationwide learned from the damage that Hurricane Andrew inflicted in Florida four years ago that it had to reduce its exposure along the coast, said Lou Fabro, a Nationwide spokesman.
``The concern is that one major hit could impair the company's ability to pay claims,'' he said.
The company, he said, has no plans to cancel existing homeowners' policies in Virginia, something it did in Florida in the wake of Hurricane Andrew.
How available is homeowners' insurance in Hampton Roads?
Nationwide's decision to restrict the availability of new policies comes on the heels of recent rate increases and greater selectivity by Allstate and State Farm, the two largest providers of homeowners' insurance in Hampton Roads.
Some Hampton Roads agents said they have increasing difficulty lining up coverage for homeowners throughout the region. Since 1993, three companies he represented have stopped writing policies east of I-95, said Sid Askew, president of the Hamilton Insurance Agency in Norfolk.
``Basically, it's the wind they are worried about,'' he said.
The availability of homeowners' insurance does not involve coverage from flood damage. Flood insurance, which is sold separately, is provided only through a federally sponsored program.
Most affected by the restrictions are properties along the oceanfront.
Although coverage for homes elsewhere might be more expensive than it once was, it's still available, insurance agents said.
``There's plenty of capacity except along the oceanfront,'' said Jim Kitchin, head of the Hilb, Rogal and Hamilton Co. of Virginia office in Virginia Beach.
Responding to complaints from some agents that insurers had made homeowners' coverage less available in Hampton Roads, the Virginia Bureau of Insurance surveyed insurance companies earlier this year and began meeting with agents' groups to discuss conditions. The bureau and the agents are scheduled to meet again Wednesday.
From its survey of insurers and the telephone calls received from consumers, the bureau found no evidence of reduced availability of homeowners' coverage, said Mary Bannister, deputy insurance commissioner.
Also, the number of homeowners insured by the state's FAIR plan - the property insurer of last resort - has not increased significantly, she said.
However, the bureau plans to install a toll-free hot line in November to provide consumers with the names of companies providing homeowners' insurance and the persons to contact, Bannister said.
With the price of reinsurance falling and more investment flowing into the insurance industry, the pressure on homeowners' insurance probably will ease, said the Consumer Federation's Hunter. Many insurance companies buy reinsurance to reduce the risk of facing heavy claims.
That's partly why he was surprised that Nationwide imposed such stiff limits on writing new business, said Hunter, a former insurance commissioner for Texas.
``You're not supposed to take unreasonable risks, but one condition of being a licensed insurance company is that you're supposed to make a market,'' he said.
For now, homeowners in coastal areas may have to shop around for coverage. But the situation is likely to ease, Hunter said.
``Capital is seeking a profit here, so I think the situation will right itself,'' he said. ``The big trend is for the market to improve.''
But insurers' appetite for new homeowners' policies could evaporate if they suffer heavy losses this year or next from hurricanes. When announcing its limits on writing new business two weeks ago, Nationwide said it's likely to pay out $150 million on claims from Hurricane Fran, which tore through North Carolina and Virginia in September.
For Nationwide, that will rank just behind the $179 million it paid for damages from Hurricane Hugo in 1989, the costliest hurricane for Nationwide. by CNB