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Some insurers stop renewing home insurance policies after disasters

Mark Henricks

If you live in an area that’s prone to natural disasters, it’s not just your home that’s in danger – your insurance policy could be, too. Alabama insurer Alfa didn’t renew insurance policies on about 70,000 properties after the 2011 Tuscaloosa-area tornadoes, and a study of the industry says it’s happening nationwide.

Insurance companies have significantly reduced their exposure to losses from natural catastrophes in recent years, says Robert Hunter, director of insurance at the Consumer Federation of America and author of the 2012 study, “The Insurance Industry’s Incredible Disappearing Weather Catastrophe Risk.”

Because insurers had stopped issuing policies to thousands of people living in disaster-prone areas, the busy hurricane seasons of 2004 and 2005 had less of a financial effect on insurers than a single hurricane, Andrew, in 1992.

Hunter questions the use of mass non-renewals, which often force homeowners into state-financed “last resort” insurance pools, such as Citizens Property Insurance Corp. in Florida.

“Insurance company cutbacks have left more than 1 million coastal residents scrambling to land new insurers or learning to live with weakened policies,” Hunter says.

In Florida, “last resort” pools have become the largest writers of property insurance. These situations allow insurance carriers to cherry-pick, covering only the lowest risks and shifting the burden of higher-risk properties onto taxpayers, Hunter says.

In Texas, State Farm spokeswoman Patti Kelly confirms the company didn’t renew about 11,000 policies in coastal counties effective May 1, 2012.

“State Farm has more exposure to weather-related catastrophes than any insurer in Texas,” Kelly says. “We’re a very catastrophe-prone state, and our 800-mile coastline is very subject to hurricanes. Rebuilding costs have increased and hurricanes have become more severe. The prudent thing is to manage our exposure.”

Kelly says such decisions are handled on a case-by-case basis. “If folks come to us, we’re going to take a look at where they’re located on the coast and take all those factors into consideration,” she says.

Texas Department of Insurance spokesman Jerry Hagins says affected policyholders should be able to secure other coverage.

Consumer group reactions

In Texas, Attorney General Greg Abbott has not accused State Farm of any wrongdoing. But consumer advocates question State Farm’s methods as well as its motives.

“State Farm should not be allowed to just tuck tail and run without any explanation. A full investigation is warranted,” says Alex Winslow, executive director of nonprofit consumer group Texas Watch.

Unfortunately, homeowners whose policies have not been renewed may find that they’ve got to pay much higher rates to secure new coverage – and that coverage may not even be available from private insurers. Linda Sherry, a spokeswoman for advocacy group Consumer Action, says a homeowner whose policy has not been renewed most likely would need to shop around and deal with a number of insurers or insurance agents to find new coverage.

“This is very unfair to consumers, who have paid religiously and on time and in many cases not made any claims,” Sherry says.

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