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Insurers tip-toe into coastal markets in Alabama, Mississippi

December 8, 2010

Press-Register - 01/09/11
By Jeff Amy

A handful of new insurers have trickled into the coastal markets of Alabama and Mississippi in the last year, offering new options to some homeowners.

Coastal American, PURE, American Strategic, Wilshire, Republic and Southern Fidelity aren't household names, and may not increase competition enough to lower prices.

Still, the appearance of new carriers means that a few thousand policyholders could have more options in each state at a time when options for wind coverage have been dwindling. And it indicates that some insurers believe they can make money off the high premiums paid by Gulf Coast homeowners. If they're right, others could follow.

In Alabama, insurers have announced plans to cancel wind coverage for more than 50,000 policyholders since 2004's Hurricane Ivan. Farmers Insurance Group, Allstate Corp. and Alfa Mutual group are in the process of making significant cuts.

Just last week in Mississippi, officials discovered that USAA was dropping wind coverage on 1,550 policies in the three southernmost counties.

"We're treading water to some degree," said Mississippi Insurance Commissioner Mike Chaney. "It seems like I take three steps forward and fall back two." Regulators have been courting the new companies. Mississippi officials count 20 firms that have entered the state since 2005's Hurricane Katrina, and Chaney estimates at least half are doing business on the coast.

Alabama Commissioner Jim Ridling will meet with insurers in Orlando, Fla., this week in hopes of luring more firms to the state.

"We hope that more fruit will be borne from this conference to add capacity to the marketplace," said Ragan Ingram, Ridling's chief of staff.

American Strategic Insurance Co. decided to enter Alabama last year after meeting with Ridling, Ingram said.

Florida-based firms, which sprang up as national insurers pulled back from the hurricane-exposed state, are among the top nominees to move into other states with hurricane risks.

Some have limited experience and relatively small financial reserves, when compared to large, national firms. But, "there are companies down there that have the ability to come here and write," said Bruce White of Gulf Shores-based Whitehaven Insurance.

Regulators would also like to discourage firms that enter a state, write policies for one year, and then pull back, as Max Specialty Insurance Co. did several years ago.

Gulfport-based Coastal American Insurance Co. was formed as a response to insurers' retreat from the Mississippi coast. President Ned Dolese, also an investor in the firm, said that founders were fed up with what seemed to be a never-ending crisis.

"We basically just got frustrated," he said.

Coastal American, which has fewer than 1,000 policies so far, insists that customers who buy its wind coverage also buy a policy from the federal government's National Flood Insurance Program.

The company's own policy contains language that Dolese said is meant to ensure that damage is covered after a storm regardless of the cause. That's an effort to prevent the widespread disputes over the cause of damage that dogged Mississippi's recovery after Katrina.

Dolese said Coastal American is likely to seek approval to operate in Alabama. Company leaders would likely set up a separate subsidiary and seek to raise money from Alabama investors, he said.

In Alabama, the new entrant selling policies is Wilshire Insurance Co., a unit of IAT Reinsurance Co. Ltd. Reinsurers are also big players in other new companies, holding shares in Coastal American and American Strategic.

The cost of reinsurance is a big factor in high coastal premiums, and it's not clear how reinsurers' involvement will play out.

Wilshire's work in Alabama is being managed by New York-based Coastal Risk Underwriters LLC. Andy DiLoreto, the chief executive of Coastal Risk Underwriters, said Wilshire is only operating in Mobile and Baldwin counties. That's unusual -- many firms try to build business away from the coast.

In Mobile County, Wilshire will consider homes that are north of Interstate 10 and west of Interstate 65, according to a brochure circulated to agents. In Baldwin County it will take homes more than three miles from the Gulf and more than 1,000 feet from Mobile Bay. In both counties, homes must be insured for more than $200,000 and located on ground more than 20 feet above sea level.

Unlike many firms, the company is inspecting each home that it insures. Wilshire is also strongly encouraging homeowners to strengthen their homes in exchange for lower rates.

"We are doing a tremendous amount of work to assess the individual risk," DiLoreto said. He said Wilshire has written 400 to 600 Alabama policies since it started in 2010, with the goal of increasing that business three to five times this year.

Two other companies that are taking on new business in Mississippi are also taking the picky approach. Chaney said the "very selective" Dallas-based Republic Group has written more than 1,200 policies so far in Mississippi, on the way to a goal of 2,000. Safeco Insurance, part of the Liberty Mutual Group, agreed last year to write 500 policies in coastal Mississippi.

Safeco spokesman Mike Plaster said that the company is still building up to that number. "Outside of that, at this time, neither Liberty Mutual nor Safeco is offering wind coverage for new customers in coastal areas of Alabama and Mississippi," he wrote in an e-mail.

Chaney said Florida-based Southern Fidelity Insurance Co. is also expected to enter Mississippi, after setting up shop in Louisiana.

In Alabama, Privilege Underwriters Reciprocal Exchange, known as PURE, is seeking to insure homes worth more than $1 million across the state, including those in Mobile and Baldwin counties.

The Miami-based company is now licensed in 18 states, but doesn't currently plan to enter Mississippi.

Chief Executive Officer Ross Buchmueller extolled PURE's status as a member-owned company. He said that at for-profit firms, "your compass points to the shareholder and not the policyholder."

The company is touting its high-touch service to its rich clients, as well as coverage for up to $50,000 of art, jewelry and other personal effects. It also promises a $2,500 fixed deductible.

Also coming to Alabama is American Strategic, a St. Petersburg, Fla., firm that launched into Florida's challenging market and has grown to 12 states, including Louisiana and Texas.

Deepak Menon, the firm's marketing director, said ASI hopes to get its rates approved by Alabama regulators and launch as early as May. Once here, it will limit the business it writes on the coast.

"It is imperative that we have a diversification of risk," Menon said.