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"Like a good neighbor, State Farm is there" - unless you need insurance
along the coast.
Within the last year, numerous insurers have elected not to renew policies,
refused to write new policies, left the coast altogether or dramatically
raised their rates for coverage along the coast.
What "along the coast" means depends on the company. For some, the phrase is
defined by flood lines, for others by ZIP code, county or highway boundary.
The purpose of insurance is to limit risk in return for a premium paid. When
companies refuse to write policies at all, they simply are no longer in the
insurance business.
The affordability issue is serious enough, but the lack of availability at
all is a big problem for economic development. The fact is that in South
Carolina, more people are moving near the coast, and the coastal counties
generally have the strongest economies in the state.
If a homeowner cannot buy insurance or cannot afford what is available, the
housing market will be severely damaged. It is not just "greedy" developers
that will be negatively affected. Real estate agencies, builders, mortgage
bankers and brokers, furniture and appliance stores, carpet and tile
dealers, lumber yards, home-improvement stores, architects, interior
designers and a host of others will see a decline in business.
Already, planned projects have been canceled along the coast, especially in
the multifamily sector, because of skyrocketing premiums. Anecdotally, some
of the 400 percent or more increases have been coming down for the
multifamily sector recently, but the damage has been done to numerous
projects. Insurance companies seem to think the South Carolina coast is too
risky for them. It seems that if you are in the insurance business, "too
risky" is an oxymoron. In any case, the question remains as to how to create
an atmosphere in which insurance is both available and affordable.
There are several proposals to consider that might help.
First, South Carolina could offer to be the insurer of last resort. In this
case, the state would make a bargain with insurers that the companies would
cover losses up to a specified amount in a given year for damage from storms
or flooding. Above that amount, the state would cover the loss, either out
of revenue or by buying catastrophic insurance coverage for itself or, a
combination of both.
To finance the costs of this state coverage, the wind and hail pool could be
expanded or an alternative pool could be created. The costs of such a pool
would be borne by homeowners across the state, proportional to historic
damage statistics in their areas. For example, water damage can occur along
lakes and rivers as well as the coast but is not as likely. Consider the
Sumter area: During Hurricane Hugo, its damage was almost as bad as that
along the coast.
Second, the state would require that insurance companies and the state
Insurance Department base premiums on loss history in South Carolina, and
possibly Georgia, but not the Gulf Coast or Florida. Anyone who can look at
a map or plot hurricane tracks on the Internet (see
www.weathunderground.com for
one) knows that our history with hurricanes is much different than Florida's
or Louisiana's. To base South Carolina premiums on loss history in those
states is just unfair.
Third, the state would require any insurance company issuing any type of
coverage anywhere in the state to offer those lines everywhere in South
Carolina. That would foster competition.
There are two alternatives to solving the problem with this carrot-and-stick
approach. One is to allow a company like Wal-Mart into the industry. It
would likely become an insurance behemoth.
Another is to create a captive insurance company just for South Carolina and
Georgia.
One way or another, this problem has to be solved and solved quickly before
serious damage is done to our economy.
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