Gulf Shores - Lawyers Explain Coastal Insurance Proposals

Published By Mobile Press Register
Wednesday, April 18, 2007
By RYAN DEZEMBERStaff Reporter

Seeking to build momentum for various proposals aimed at making coastal property insurance more available and affordable, the cities of Gulf Shores and Orange Beach will host a forum Thursday evening.
Scheduled for 6 p.m. at the Orange Beach Adult Activity Center on Canal Road, the forum is slated to include presentations by state legislators, representatives of the Alabama Department of Insurance and a board member of the Alabama "Beach Pool," which is also working to create a new type of government-backed insurance company that will allow businesses and condominium associations to self-insure.
"Obviously the insurance issue on the coast is a major problem for our area, and if it's a major problem for our area, the trickle-down effect impacts the whole state," said Orange Beach Mayor Pete Blalock.
Since the back-to-back hurricane seasons of 2004 and 2005, which featured some of the most destructive storms on record, annual premiums for property insurance have skyrocketed along the nation's shorelines, and many insurers have withdrawn coverage completely from coastal areas.
In Orange Beach, for example, one Gulf-front high-rise saw its annual premium rise from about $40,000 to nearly $1.1 million last summer. Many other properties saw less dramatic but still substantial increases, which have stalled sales along the beach.
Thousands of Alabama homeowners have seen their coverage dropped as insurers have shed exposure on the coast, which, in insurance parlance, extends 50 miles inland. Since Hurricane Ivan struck in September 2004, the state's three largest insurers of property -- State Farm, Allstate and Alfa -- have announced that they would discontinue hurricane coverage for more than 17,000 policyholders combined.
State Sen. Bradley Byrne, who will be joined by state Rep. Steve McMillan, R-Gulf Shores, said he would first discuss how Hurricanes Ivan and Katrina affected the insurance and reinsurance markets.
"You can't understand what the best policy initiatives are until you understand how these markets work, and these insurance markets don't work like we think a regular market works," Byrne said.
While most property owners deal with primary insurers, such as Nationwide, Farmers and Alfa, the international reinsurers that back those companies -- Lloyds of London syndicates, Lexington, Munich Re -- are in the driver's seat when it comes to coverage availability and cost, he said. And while lawmakers in Alabama won't be able to do much to sway businessmen in Munich, Byrne, a Montrose Republican, said he'll talk about some local initiatives aimed at bolstering the market.
Last year, legislators passed a law to allow the formation of captive insurers, a form of self-insurance.
Byrne and state Sen. Ben Brooks, R-Mobile, have also proposed a bill in the current legislative session that would remove prohibitions against captive insurance companies offering homeowner and automobile liability coverage.
Byrne said he would also talk about legislation in the works that would prohibit insurers from dropping policyholders based simply on where they live, a practice often called "redlining." Also in the offing, Byrne said, is a proposal that would create a rate discount system for homeowners who make their homes more likely to withstand storms.
Tim Russell, the former mayor of Foley and president of Baldwin Mutual Insurance Co., said he will bring attendees up to speed on his $20 million plan to form a government-sponsored captive.
The former mayor also serves as treasurer for the Alabama Insurance Underwriting Association, commonly known as the Beach Pool. He said he'd talk about an anticipated change that would allow the state's insurer of last resort to increase its maximum coverage of homes from $350,000 to $450,000, and other proposals the association will consider at its annual meeting, scheduled for Friday in Orange Beach.
Also scheduled to participate in the forum are two officials from the Alabama Department of Insurance, Ragan Ingram and David Parson