NU Online News Service, Oct. 20, 3:00 p.m.EDT

A new study from the Insurance Research Council (IRC) concludesthat state-run residual markets have unintentionally provided themeans for development in vulnerable coastal areas while some plansface an increasing risk of insolvency.

The study provides a detailed look at the residual market plansin Alabama, Florida, Louisiana, Mississippi, North Carolina, SouthCarolina and Texas and is meant to serve as a reference for publicpolicy regarding coastal homeowners insurance markets, the IRCsaid.

Though the programs were created to be markets of last resortwith actuarially sound rates, they have grown to become "viewed astools for promoting economic development in coastal areas andproviding low-cost insurance," the study stated. "As these residualmarkets grew, prices in the voluntary market were suppressed, andthe gap between demand and supply widened as insurers were willingto insure fewer risks using artificially low rates."

For instance, in Florida, where 79 percent of the state's totalexposure is on the coast, the IRC found that the percentage ofcoastal exposure held by the state-run Citizens Property InsuranceCorp. has doubled the past five years to 20 percent.

"The plan's jump in market share over the past few yearsindicates [Citizens] is acting more as a competitor in theinsurance market than as a market of last resort," the studysaid.

Annual growth in residual market exposures in the United Statesis growing about 18 percent on average each year. The overallmarket has grown more than 1300 percent from 1990 to 2007. Thevalue of insured coastal exposures rises, on average, 8 percenteach 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 forinsurance" though private insurers have pulled back from manycoastal markets due to the inability to get rates that match therisk, the IRC said.