The Checkout

Global Warming Ate My Insurance Policy

Allstate plans to stop offering property insurance in nearly a dozen counties along the Chesapeake Bay starting in February.

The reason: the increased risk of hurricane damage due to rising ocean temperatures, possibly caused by global warming.

According to the Baltimore Sun, Allstate is part of a growing number of insurance companies that are refusing to cover hurricane-prone areas. The trend started in Florida, which sustained millions of dollars in damage from Hurricane Andrew, and is now moving up to our neck of the woods.

Nationwide Mutual Insurance decided to limit the amount of business it does in coastal areas two years ago and not do any new business in two ZIP codes near Ocean City, Md.

The counties impacted by Allstate's decision are: Calvert, Dorchester, Somerset, St. Mary's, Talbot, Wicomico and Worcester counties, and parts of Anne Arundel, Charles, Prince George's and Queen Anne's.

Suffice it to say, this is not good news for consumers. There are still plenty of insurers to choose from in Maryland. But each time a company drops out, it can mean less competition and fewer options.

The other danger is that more companies will follow suit. If enough private insurers leave, consumers may have to turn to state-run insurance pools. That is what happened in Florida, Mississippi and Louisiana, where some of the state-run pools are having trouble staying afloat.

Maryland already has one, the Joint Insurance Association, but the coverage it offers is not as good as what many other private insurers offer.

J. Robert Hunter, director of insurance for the Consumer Federation of America and a former federal insurance administrator told the Sun: "Allstate has made incredible profits, and I find their actions very offensive, and I think consumers ought to find it offensive."

Hunter is referring to the $1.8 billion in profit Allstate earned last year, even after taking into account a Katrina-related loss of $1.6 billion in the third quarter.

In fact, the entire insurance industry had a pretty good 2005, boosting profits by 12 percent to $43 billion.

Allstate says it is acting on storm forecasts, which predict annual insurance losses could increase by up to 30 percent in the mid-Atlantic and Northeast.

If you're a coastal property owner and are shopping around for insurance, several companies such as Standard & Poors rate insurance providers based on their financial strength. You can find a list of the different rating agencies here.

If you think a claim has been unfairly denied, you can file a complaint with the Maryland Insurance Administration.

What do you think of Allstate's decision?

On another note: The Checkout will not publish Christmas week. Happy holidays and I'll see you back in this space on Jan. 2.

By Annys Shin |  December 22, 2006; 7:50 AM ET Consumer News
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Comments

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Even though I'm a red meat Republican I think that when an insurance company announces something like this the state should come back and say "Ahhight, then you can't write any insurance in the state; no HO, no auto, no life, nada. You write everything, everywhere or you write nothing!" I mean, what the heck are premiums for? If enough states did this then we wouldn't have a problem. However, having people build on fragile, barrier, ecosystems or below water-level, should be discouraged so that's why they should just vary the premiums by location or risk.

Posted by: Stick | December 22, 2006 9:57 AM

Allstate's decision is one based on risk. The good thing is there are plenty of other insurance companies out there that will insure these types of houses.

Allstate can do what they like. Some other company will come in and fill the void.

For those die hard Allstate customers who feel hurt by this, the good news is Allstate will suffer from this in the long run because the national weather service can't predict much beyond tomorrow.

Remember the NWS said this was going to be a season of major hurricanes? I have yet to see a major on on the east coast this season.

Allstate took a risk by doing this, but it's their decision to make. It's also going to be their loss.

Posted by: Radioactive Sushi | December 22, 2006 10:12 AM

This is a little off topic, but I wish FEMA would stop underwriting premiums for rich folks to rebuild their second homes on the beach. I don't think the government should be insuring folks who decide to build in flood plains or on the beach. Especially irritating to me are the folks who have gotten federal payouts time after time and rebuild in the same darn place. Why should the government be subsidizing folks to live in hazardous or ecologically risky areas?

Posted by: Glo in the dark | December 22, 2006 11:11 AM

I think the government should confiscate all private property within 1 mile of the high tide mark and designate it all national parkland, open to the public. There should be no private ownership of the seashore.

Posted by: Will | December 22, 2006 11:14 AM

Glo and Will,

I agree

Posted by: Radioactive Sushi | December 22, 2006 11:16 AM

>

Obviously, Allstate thinks differently. They think it's too risky to write policies in what might be hurricane areas. It's Allstate that will lose if a hurricane comes. If you believe there won't be any hurricane damage in years to come, why don't you start an insurance company and start insuring beach property. Put your money where your mouth is.

The Washington Post did a story about this:

A Dream Blown Away
Washington Post
Saturday, December 2, 2006

http://www.washingtonpost.com/wp-dyn/content/article/2006/12/01/AR2006120101759.html

Posted by: Carlin | December 22, 2006 11:19 AM

Did you notice Allstate's full-page ad in yesterday's WSJ about its commitment to support New Orleans and the Gulf Coast? Seemed a bit nervy given their rush to withdraw from Florida and the rest of the Gulf Coast after the '04 and '05 hurricanes. On the encouraging side, a bunch of insurers, including Firemen's, Marsh and AIG, are coming out with new insurance products to help reduce financial losses from hurricanes and reduce the pollution causing global warming. I especially like the insurance credits Firemen's is offering for 'green' buildings. All these trends -- good and bad -- are outlined in a 9/06 report at ceres.org.

Posted by: fleming | December 22, 2006 11:23 AM

Did you notice Allstate's full-page ad in yesterday's WSJ about its commitment to support New Orleans and the Gulf Coast? Seemed a bit nervy given their rush to withdraw from Florida and the rest of the Gulf Coast after the '04 and '05 hurricanes. On the encouraging side, a bunch of insurers, including Firemen's, Marsh and AIG, are coming out with new insurance products to help reduce financial losses from hurricanes and reduce the pollution causing global warming. I especially like the insurance credits Firemen's is offering for 'green' buildings. All these trends -- good and bad -- are outlined in a 9/06 report at ceres.org.

Posted by: fleming | December 22, 2006 11:23 AM

Let's not blame this on global warming. In fact, let just not get started on global warming.

Posted by: Radioactive Sushi | December 22, 2006 11:32 AM

I live in Sarasota County, Florida. My house was built to withstand storms of up to 130mph.

My house insurance expired on the 16th of December.

I was paying about $410 a year total when W first took office.

I was paying $906 a year when Katrina hit.

I got a renewal notice the day before Katrina hit and sent in my premium that day.

The State of Florida closed my insurance company, probably because it didn't have enough money to pay possible claims.

I went in to get new policies on November 20th. I got quotes based on the fire insurance company's estimated value of $132,000.

It turns out the state insurer Citizens wants $189,000 worth of coverage for windstorm coverage. This would push the total annual cost to $2,700. Since an approved rate hike would take this to about $4,000 next year, I had to consider my future ability to pay for insurance. I also had to consider the possibility of insurance levies to bail out Citizens if a storm hit Miami-Dade or Broward County.

I will have to lose my house for certain if I buy insurance. I might lose my house through fire or storm.

I chose the chance rather than the certainty.

I have enough money to rebuild if I can reuse the concrete structure.

If I'm forced to remove the concrete, I will just build a small shack and pay far less property tax.

I turn off the electricity whenever I leave the house.

Posted by: Brian Griffin | December 22, 2006 12:00 PM

I'm sorry Brian Griffin, but what does that have to do with Allstate? You leave on a beach (practically). What do you expect?

Posted by: John | December 22, 2006 12:24 PM

I'm sorry Brian Griffin, but what does that have to do with Allstate? You live on a beach (practically). What do you expect?

Posted by: John | December 22, 2006 12:25 PM

As others have said, Allstate is just running their business according to how insurance companies calculate risk. To me, this speaks more towards the legitimacy of the global warming threat than to anything else. Businesses like Allstate have to factor IN the external costs of our "addiction to oil" (G.W. Bush) whereas oil companies only factor IN the the costs of exploration, drilling, and distribution. Check out "Power Shift" by Barry Hanson for more qualitative analyses of the cost of our energy use.

Posted by: Kurt Reinhold | December 22, 2006 1:32 PM

Allstate's "offensive" profits of $1.8B yield a net profit of 4.9%; 5 cents out of every dollar in premium they charge. Doesn't sound so exorbitant when you look at it that way, does it? If the state gives them an all-or-nothing choice, they will likely choose nothing and expand their offerings in other states to compensate. The state is the loser if they get too heavy handed.

Posted by: Ed | December 23, 2006 3:09 AM

Will, nice idea but what about the folks on Long Island? I grew up close to the water, but not on the "beach" so to speak. It would take one heck of a storm to get to my parents house which has been there since the 1800's. Parts of Long Island are hilly thanks to glaciers and my hometown is full of them. Just because they happen to live within one mile of the LI Sound, you want towns and villages to fold up? There goes the economy.

We need to stop paying the claims of the people that build their homes on stilts (think the Hamptons, Ocean City, VA Beach) and also out west where wild fires are rampant. If you're going to build your house in the water and in the forest, you should pay the consequences.

Posted by: Columbia, MD | January 3, 2007 10:37 AM

Will, nice idea but what about the folks on Long Island? I grew up close to the water, but not on the "beach" so to speak. It would take one heck of a storm to get to my parents house which has been there since the 1800's. Parts of Long Island are hilly thanks to glaciers and my hometown is full of them. Just because they happen to live within one mile of the LI Sound, you want towns and villages to fold up? There goes the economy.

We need to stop paying the claims of the people that build their homes on stilts (think the Hamptons, Ocean City, VA Beach) and also out west where wild fires are rampant. If you're going to build your house in the water and in the forest, you should pay the consequences.

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