THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, July 7, 1996 TAG: 9607060491
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 114 lines
After years of intense competition for homeowners' policies in Hampton Roads, rising rates and more restrictive underwritingpractices raise the specter of an eventual scarcity in the region.
Will there be a sufficient number of insurers to meet the local demand for coverage?
Despite the decisions by Allstate Insurance Co. and State Farm Mutual Insurance to significantly boost their homeowners' rates in Hampton Roads, agents with other companies insist there will be plenty of coverage available - at reasonable rates.
``Availability doesn't appear to be an issue,'' said Alex H. Bell II, a Nationwide agent in the Hilltop section of Virginia Beach.
Kirk Hammaker, president of Pembroke Insurance Agency Inc. in Virginia Beach, said three companies recently contacted him about writing more homeowners' policies in the region.
Citing their concerns about exposure to hurricane-related losses along the Atlantic coast, Allstate and State Farm, the two largest providers of homeowners' insurance in the region, said in June they were hiking their rates throughout Hampton Roads.
Some Virginia Beach homeowners with Allstate policiesface premium increases of more than 74 percent.
The Allstate and State Farm disclosures have not yet prompted waves of disgruntled customers to look elsewhere for less costly policies,agents with other companies said.
For years, many insurers have refused to provide homeowners' insurance within 1,000 feet of the oceanfront or Chesapeake Bay. Now some have imposed even tougher limits on the business they will take in the region.
``When some insurance underwriters hear the words `bay' and `ocean,' they say `I can't write that,' '' said Kirk Hammaker, president of Pembroke Insurance Agency Inc. in Virginia Beach.
And some local agents of Nationwide Insurance express concern that their company may become more selective when writing homeowners' policies. Nationwide has been a major provider of insurance for oceanfront businesses, including several hotels.
``I've heard from the management that Nationwide is reviewing its coastal strategy,'' Bell said. ``We're all wondering what's going to happen.''
To date, there has been no sign of a shortage in homeowners' insurance, said Mary Bannister, deputy commissioner of Virginia's Bureau of Insurance.
The bureau is in the midst of a survey of prices and availability of property and casualty insurance throughout the state. The results are due to be compiled by mid-August, and the bureau will have a better understanding of conditions for homeowners' insurance then, Bannister said.
If state regulators determine that there is a shortage, they could seek permission from the State Corporation Commission to approve or reject proposed rate hikes for homeowners' insurance.
Under Virginia's regulatory system, the insurance bureau approves or rejects rates only when it has determined that there is insufficient competition for that type of insurance. Rates for most lines of insurance, including homeowners', can take effect as soon as a company files its rates with the bureau.
Allstate, based in Northbrook, Ill., said it will raise its rates an average of 74 percent in Virginia Beach, where its share of the homeowners' market is about 20 percent.
In Norfolk, Portsmouth, Chesapeake and Suffolk, the rate increase will average 23 percent. In Hampton, the average increase will be 47 percent. The increases will take effect Aug. 1.
State Farm, based in Bloomington, Ill., said it will raise its rates on existing homeowners' policies an average of 9.9 percent in Chesapeake, Norfolk, Portsmouth, and Virginia Beach beginning Sept. 1. In Suffolk, the average increase will be 6.1 percent.
Allstate and State Farm said they will not stop writing homeowners' insurance in the region.
What prompted Allstate, State Farm and other insurers to look closely at their homeowners' business were the staggering losses they suffered in the wake of Hurricane Andrew four years ago.
When Andrew tore through southern Florida, the storm left behind almost $16 billion of insured losses. The devastation could have been much greater. If Andrew hadstruck a more populous area like Miami, even large and financially strong companies like State Farm and Allstate might have had difficulty surviving.
The reserves of State Farm's homeowners' unit were wiped out by its losses from Hurricane Andrew, and the company was forced to borrow funds from another State Farm subsidiary.
In an assessment earlier this year of Allstate's ability to meet its financial obligations, the credit-rating agency Standard & Poor's gave high marks to the insurer but added: ``The primary challenge to Allstate's financial strength is its exposure to catastrophic losses.''
In their efforts to reduce the risk ofcrippling losses from hurricanes, Allstate and State Farm have already stopped writing new homeowners' policies and are not renewing existing policies in certain parts of Florida. Allstate also has created a separate company to take over some of its homeowners' policies in the state.
The industry-wide concern about hurricane-related losses hasn't been restricted to Florida.
Armed with sophisticated computer models, insurance companies have been examining at the likelihoodof catastrophic losses all along the Atlantic coast. These models take into account the paths of previous storms, the intensity, the coastal terrain, and the amounts of insured property in vulnerable areas.
Insurance Services Office Inc., an advisory company that collects rate-making data for insurers, recently used one of these models to predict the financial impact that catastrophic earthquakes and hurricanes would have on 80 insurance companies. The most severe catastrophe in its model would occur once in 260 years and inflict as much as $58 billion of losses on the companies.
As many as 29 of the 80 companies would be unable to meet their financial obligations after the most severe catastrophe, and as much as $55.5 billion in policyholder claims would go unpaid, according to an Insurance Services Office report.
Because so many variables about storms have to be plugged in, computer models like this one are inexact, said Jonathan White, an actuary with Insurance Services Office.
Still, they are valuable. With the intense development of coastal areas like Virginia Beach in recent decades, measures of property damage caused by past hurricanes aren't adequate indicators of losses from future storms, White said. by CNB