- The Washington Times - Tuesday, June 20, 2006

Insurers in the Washington area are raising wind-insurance rates or canceling coverage amid predictions of severe storms like the hurricanes that hit the Gulf Coast last year.

Meanwhile, state governments are considering intervening to keep rates affordable.

“We could be one hurricane away from having to rely on the public market to provide backstop,” said Steven Orr, commissioner of the Maryland Insurance Administration. “We see and our legislature sees what is going on in the Gulf Coast.”

Wind insurance refers to any property damage caused by high wind, whereas hurricane insurance covers damage specifically from tropical cyclones.

In Gulf Coast states devastated by hurricanes Katrina and Rita last year, major property insurers are pulling out or raising premiums to the point that consumers are asking state governments to intervene.

Meanwhile, the National Weather Service is predicting another severe storm season this year.

In Virginia, Allstate Insurance Co. and Nationwide Property & Casualty Insurance Co. are raising the minimum deductible for coastal homeowners from 2 percent to 5 percent of the claim amount. Allstate’s new limit takes effect Aug. 1, and Nationwide’s begins July 1.

“The companies explained to the Bureau of Insurance that the reason for the change in the deductibles was so that they could remain in the market,” said Katha Trainor, spokeswoman for the Virginia Bureau of Insurance.

Virginia Mutual Insurance Co. refuses to write homeowners’ insurance within a half-mile of coastal high-tide waters.

In Maryland, Allstate is raising the minimum deductible to 5 percent for property owners in coastal areas, up from as little as 2 percent now. The new minimum deductible takes effect Sept. 15 — the height of this year’s predicted “increased hurricane activity,” said Debbie Pickford, Allstate spokeswoman.

Allstate endured $1.55 billion in hurricane claims in the third quarter of last year.

In the District, the D.C. Department of Insurance, Securities and Banking says insurance companies have notified officials there that they intend to change storm-related insurance rates and coverage.

“They will make some changes, including dropping some wind and hail and storm coverage from their policies,” said Lili Qi, spokeswoman for the Department of Insurance, Securities and Banking.

The department is consulting with its attorneys to determine an appropriate response, she said.

At a National Association of Insurance Commissioners (NAIC) meeting last week in the District, the group of state insurance commissioners urged Congress to consider providing a financial backstop for insurers when major disasters overwhelm their ability to pay claims.

So far, Mid-Atlantic states have relied solely on private companies to provide wind and hurricane insurance.

Along the Gulf Coast, state insurance companies or “wind pools” provide supplemental or lower-cost wind insurance when it is unavailable from private insurers.

Wind pools are associations of all property insurers in a state who agree to pay a portion of each claim, thereby diminishing the risk for any one of them.

Maryland Insurance Administration officials say they have discussed the possibility of creating a wind pool.

In Virginia, the General Assembly failed to approve bills introduced in 2004 that would have created the equivalent of a wind pool by allowing homeowner insurance companies to exclude coverage for wind losses along the coast. Instead, the Virginia Property Insurance Association would be authorized to write wind policies.

Earlier this month, the Virginia Bureau of Insurance issued an advisory to homeowners that said, “Hurricane and wind deductibles are being applied to an increasing number of homeowners’ insurance policies in Virginia. The amounts of these deductibles are on the rise and may vary depending upon how close a property is to the coast.”

Walter A. Bell, president-elect of the NAIC, said state intervention in the insurance industry is becoming more of an unfortunate reality because of recent hurricanes.

“We would like to see the private market work, but when the private market doesn’t work, then we get involved in public-private insurance pools or state-owned insurance companies,” Mr. Bell said.

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