Jeff Amy should be proud. His story was picked up by the AP and posted to the Yahoo Allstate summary page. We’ll link his report at the Mobile Press Register directly:
Allstate Corp. and Alfa Mutual group will cumulatively drop wind coverage on 14,000 homeowner policies in Mobile and Baldwin counties over the next 18 months, Alabama Insurance Commissioner Jim Ridling said Tuesday.
The cuts will affect as many as 7 percent of all homeowners in the two counties.
The moves are another jolt to Alabama’s ailing coastal insurance market. Since 2004’s Hurricane Ivan, Allstate, Alfa and State Farm Fire and Casualty have said they would drop wind coverage or all coverage on nearly 41,000 policies, according to Press-Register counts.
Alfa spokesman Jeff Helms said models show his Montgomery-based firm has too much money at risk if a hurricane hits Alabama.
“This is something we needed to do to make sure Alfa could continue to serve its policyholders and pay claims statewide.” Helms said of the decision to cut wind coverage from 5,000 policies.
Allstate, the state’s No. 3 property insurer, is withdrawing in reaction to state regulators’ refusal to allow it to raise rates as high as it wants to pay for reinsurance, said Ridling and Shane Robinson, spokesman for the Northbrook, Ill.-based company.
Allstate will essentially stop insuring against wind damage in Mobile and Baldwin if it drops coverage on 9,000 policies. Since Hurricane Ivan, Allstate has announced four waves of cuts, totaling 30,000 homeowners. State officials said Allstate will have fewer than 500 wind policyholders in the counties. Robinson said he couldn’t confirm that Allstate would make all the cuts that Ridling indicated. He said he could confirm dropping 3,000 wind policies.
Alfa, Alabama’s No. 2 property insurer, will retain some number of wind policyholders in Mobile and Baldwin counties. Helms wouldn’t give a number, but said the firm will still cover more than $7 billion in all kinds of property.
Cuts to Alabama policyholders will take effect as policies come up for renewal, spokesmen for the two insurers said, meaning they will take a year to cycle through. By rule, policyholders who are losing coverage must be notified 120 days before renewal dates.
Helms said Alfa’s nonrenewals would begin in April. He said customers being dropped were chosen based on location, type of construction, amount of coverage and other factors.
There are several delicious ironies in Jeff’s report including his inclusion of the related news that Allstate was cutting back again in Louisiana. Our readers will no doubt remember Louisiana Insurance Commish Jim (Jimbo the Clown) Donelon frequently brayed (including once in the Wall Street Journal) on how Louisiana was some sort of insurance free market mecca and how things could be far worse for Louisianians frequently citing Florida as a sick insurance market. After Florida Commish Kevin McCarty turned down Allstate back in 2008 they agreed to write more coastal policies there. One thing for certain is that Jimbo the Clown is an expert in dysfunctional insurance markets as we continue:
Allstate has had a stated goal of pulling back from hurricane risk since 2005’s Hurricane Katrina. Louisiana Insurance Commissioner Jim Donelon said Tuesday that Allstate is trying to cut more policyholders in his state. The firm has asked for a 65 percent statewide rate increase in Mississippi, which that state’s commissioner, Mike Chaney, has said he intends to negotiate down or deny.
State Farm, based in Bloomington, Ill., is the only traditional state-regulated insurer that has been accepting new business in Mobile and Baldwin counties in recent months. However, the state’s largest property insurer limits how many new customers it will take.
Displaced policyholders may have to look to surplus lines insurers, who are lightly regulated, or to the Alabama Insurance Underwriting Association, the insurer of last resort known as the “Beach Pool.” Both those options are typically more expensive than traditional markets.
The stress on the private market has clearly shown up in a spike in Beach Pool policyholders. The pool added almost 8,000 new residential policyholders in the 18 months ended in October, more than doubling in size to 14,406 policies.
Alabama regulators and Allstate give differing versions of their rate dispute.
Ridling and Allstate’s Robinson both agreed that Allstate wanted to recover 100 percent of the cost of reinsurance premiums it is spending to spread the risk of a hurricane to other insurers.
Robinson said Allstate has spent an average of $25 million a year on reinsurance for Alabama in each of the last four hurricane seasons, and that such an expense makes it impossible for Allstate to make a profit in the state.
Robinson said state regulators had e-mailed Allstate on Nov. 17 granting them 100 percent recovery, and then withdrew that approval Nov. 24. Ingram denied that the department ever granted approval.
Ridling said Alabama would allow Allstate to recover some, but not all of the reinsurance cost. Reinsurance payouts after hurricanes add value for Allstate shareholders, he said, and Allstate should share with policyholders through lower rates.