NU Online News Service, Oct. 20, 3:00 p.m. EDT
A new study from the Insurance Research Council (IRC) concludes that state-run residual markets have unintentionally provided the means for development in vulnerable coastal areas while some plans face an increasing risk of insolvency.
The study provides a detailed look at the residual market plans in Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina and Texas and is meant to serve as a reference for public policy regarding coastal homeowners insurance markets, the IRC said.
Though the programs were created to be markets of last resort with actuarially sound rates, they have grown to become "viewed as tools for promoting economic development in coastal areas and providing low-cost insurance," the study stated. "As these residual markets grew, prices in the voluntary market were suppressed, and the gap between demand and supply widened as insurers were willing to insure fewer risks using artificially low rates."
For instance, in Florida, where 79 percent of the state's total exposure is on the coast, the IRC found that the percentage of coastal exposure held by the state-run Citizens Property Insurance Corp. has doubled the past five years to 20 percent.
"The plan's jump in market share over the past few years indicates [Citizens] is acting more as a competitor in the insurance market than as a market of last resort," the study said.
Annual growth in residual market exposures in the United States is growing about 18 percent on average each year. The overall market has grown more than 1300 percent from 1990 to 2007. The value of insured coastal exposures rises, on average, 8 percent each year in the beach plan states, the IRC said.
Population growth in the states outlined in the report has grown "substantially," which has "fueled the increase in demand for insurance" though private insurers have pulled back from many coastal markets due to the inability to get rates that match the risk, the IRC said.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
