Maryland regulators cleared Allstate Corp. yesterday of wrongdoing in its decision to stop writing new homeowner policies in certain coastal areas, a move that had been criticized by consumer advocates and state legislators.
The regulatory decision comes as the General Assembly takes up legislation intended to protect consumers and ensure the affordability and availability of homeowner's insurance in coastal areas that are most vulnerable to hurricanes.
Insurance Commissioner Ralph S. Tyler is working with legislators to craft the bill based on a task force report that's expected to be released in coming days.
Tyler acknowledged that his office's decision in the Allstate case, which was triggered by a complaint from the consumer advocate People's Insurance Counsel, might be "disappointing to some." But, he said, it was based on "the law as it is written, not as we might wish it to be."
He added that while homeowner policies for coastal areas are available, they have gotten more expensive.
"The market has gotten tighter," Tyler said. "The legal and regulatory problem we're concerned about is what can you do to protect consumers without discouraging insurance companies from writing in the area all together."
Some insurance companies have moved to limit their liability along the Eastern Seaboard and in some cases near the Chesapeake Bay, noting warnings by scientists that a warmer Atlantic Ocean will lead to an increase in the number of strong hurricanes hitting those areas.
Allstate, one of the largest insurers in Maryland, said it would no longer offer new property insurance in all or part of 11 counties in the state. Existing customers weren't affected by the change.
Retreat after storms
Insurance companies are retreating from coasts after a series of devastating storms in recent years, including Hurricane Katrina, which swamped Louisiana and Mississippi. Risk modelers, who forecast natural disasters for the insurance industry, have updated their methods to take into account higher sea temperatures.
Allstate, which implemented its policy in June, submitted modeling data in the regulatory case showing that several hurricanes making landfall in Worcester County, Virginia and Delaware could cause hundreds of millions of dollars in damage in Maryland.
Insurers also say that development and higher property values along coasts have increased their exposure to disaster losses. Allstate and other companies say they limit their liability in catastrophe-prone areas to remain financially healthy enough to pay the claims of current customers.
"It has always been our intent to manage catastrophe exposure in a way that avoids disrupting the Maryland insurance market while maintaining our ability to protect our policyholders from a position of financial strength," Allstate spokeswoman Debbie Pickford said in a statement.
The People's Insurance Counsel, a division of the attorney general's office, argued that Allstate's move was arbitrary and unreasonable, and that the company failed to show that the rates it charged weren't enough to cover projected losses.
Ilene J. Nathan, an assistant attorney general, said the counsel's office is reviewing whether to appeal the insurance regulator's decision through the courts.
The Maryland Insurance Administration, which heard the case, found that Allstate's move was not discriminatory and had a reasonable business and economic purpose.
State lawmakers also expressed concern last year over Allstate's move, which was announced in late 2006. They held hearings on the issue but eventually voted down a bill that would have forced companies to write policies in coastal areas. Instead, the legislature approved a task force to study the issue.
This year, legislators are considering proposals to address the legal standard governing when insurers can change their underwriting policies and whether insurers should be required to get prior approval for any changes.
In addition, lawmakers said, a bill could address deductibles related to coastal coverage and how homeowner efforts to protect their property and smart planning by localities should be reflected in policies.
"We just found it to be very arbitrary that you can come in and cherry-pick where you did not want to do business," said Del. James N. Mathias Jr., an Eastern Shore Democrat and former Ocean City mayor.