Realtors fear insurance pullout will hurt housing market

Allstate's decision to stop issuing new homeowners insurance policies in coastal areas of Maryland has caught the attention of the housing industry, fueling fears that fewer policy options could complicate an already cooling market.

Wary state legislators, on the other hand, are taking more of a wait-and-see approach.

As insurers across the country shrink their coverage to minimize their risk in areas prone to heavy storms, real estate agents are worried that cutbacks will quash home sales.

"It's becoming more and more of a problem across the country. It's one of the primary items our national association has on its agenda," said Tom Quattlebaum, chief executive officer of the Anne Arundel County Realtors Association.

In December, Allstate announced that it would not issue new policies for areas along the Chesapeake Bay, including Anne Arundel and Queen Anne's counties, citing an increased risk of powerful storms striking the East Coast.

Instead, Allstate agents will provide homeowners with quotes from New Jersey-based Couch Braunsdorf, which will be handling new policies. Existing policies won't be affected.

The move also affects residents in Calvert, Dorchester, Somerset, St. Mary's, Talbot, Wicomico and Worcester counties and parts of Charles and Prince George's counties.

"How are you going to sell a house if nobody can get insurance on it?" Mr. Quattlebaum said.

With a housing market already in flux, home builders also are watching the changing insurance market.

"With less options to choose from, you don't have a competitive marketplace for homeowners' insurance, which could relate to the size of the house, the cost of the house," said Susan Stroud, government affairs director for the Home Builders Association of Maryland.

Lawmakers said they're watching the situation, but doubt that the General Assembly will take any action when it reconvenes this month, saying they've heard no public outcry, probably because Allstate isn't canceling existing policies.

Del. Virginia Clagett, D-West River, said she was "kind of shocked" by Allstate's decision last month.

"We pay high premiums, and we get knocked off for it," she said.

Though Ms. Clagett wasn't sure whether the state could force the insurer to continue issuing policies, she plans to sponsor a commission to study local effects of global warming, which might be contributing to an increase in the strength of hurricanes.

However, Del. Bob Costa, R-Deale, said it was premature to sound any alarms.

"If they were cancelling policies, no ifs, ands or buts, we'd have to step up," he said.

Mr. Costa compared the situation to changes in the health insurance industry, which saw Care First take over 80 percent of coverage in the state as other insurers retreated to minimize their potential losses.

"It's almost the same situation, with just a different kind of coverage," he said.

Speaker of the House Michael Busch, D-Annapolis, couldn't be reached for comment.

Insurers can change their coverage areas simply by notifying the Maryland Insurance Administration, which regulates the industry in the state.

"They file the change with us, but they don't necessarily have to get our permission," said Darlene Frank, spokesman for the Insurance Administration. "Of the over 30 homeowners' insurers in the state of Maryland, only a few are no longer going to issues policies in certain ZIP codes."

Some insurers have been looking to divest themselves of high-risk areas since Hurricane Andrew plowed into Florida in 1992, causing billions of dollars in damage.

Just this week Allstate dropped another 120,000 policies in Florida, bringing its total number of canceled policies to nearly 400,000, as that state girds for a fractious debate over homeowners' insurance, according to Bob Lotane, a spokesman for the state insurance commissioner.

The state-run Citizen insurance, a higher-rate option often seen as the insurer of last resort, handles 1.3 million policies, making it the largest carrier in Florida, prompting that state's legislature to convene to discuss a deepening insurance crisis.

Foisting high-risk policies off on smaller insurers or state pools has made the national companies "obscenely" profitable, according to Robert Hunter, a former federal insurance regulator and insurance director for the Consumer Federation of America.

"They've given up being risk-takers," he said. "They want to be totally riskless. They want to socialize the risk and privatize the profits."

Nationwide Mutual Insurance Co. is also planning to scale back its Maryland offerings, but it won't write off entire ZIP codes, which the company did two years ago when it stopped issuing new coverage around Ocean City and Salisbury on the Eastern Shore. While the insurer will continue to issue new policies in Maryland, it will be more selective with its coverage area, particularly in flood-prone and coastal areas.

"We will likely write less new business in Maryland coastal areas in 2007," said Eileen Coyne, a Maryland spokesman for the company. "We continue to do homeowners business on the coast on a limited basis."

According to the Maryland Insurance Administration, Anne Arundel and Queen Anne's counties are among the most flood-prone areas in the state, along with Dorcester and Baltimore counties, Baltimore city and Ocean City. But in February 2006, only 3 percent of Maryland homeowners had flood insurance.

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By ANDREW CHILDERS, Staff Writer

Copyright © 2007 The Capital, Annapolis, Md.