Coast Expansion = P-C Insurance Problem, Says Hartwig

WASHINGTON--Rapidly expanding coastal development in high-risk areas means continued problems for the nation's property-casualty insurance market "for years to come," an insurance economist has warned Congress.

Robert P. Hartwig, president and chief economist for the Insurance Information Institute, made his comments yesterday while testifying on the availability and affordability of p-c insurance before the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Of equal concern, he said, is that state-run insurers of last resort have offered little short-term property insurance rate relief to hurricane-prone regions of the country and may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.

"Despite the well-known vulnerability to hurricanes and rapidly escalating property values, coastal development in high-risk areas continues at a furious pace," Mr. Hartwig said.

Specifically, he noted, 15 new condominium projects, with a total of more than 2,100 units, will be completed by year-end 2009 in South Miami Beach, Fla.

"Rapid build-ups are also observed in many other coastal areas, including Galveston Island, Texas; Hilton Head and Myrtle Beach, S.C.; the Maryland shore; eastern Long Island; and Cape Cod," Mr. Hartwig noted.

Florida, he said, has the highest population growth among hurricane-prone states and is expected to gain 12.7 million new residents between 2000 and 2030, according to the U.S. Census Bureau.

Florida is the most storm-vulnerable state in the country, by far, accounting for 27 percent of all hurricane-exposed property," Mr. Hartwig said.

Adjusting for growth since 2004, insured coastal exposure in the state now exceeds $2 trillion, he said.

Although New York is a close second, it is statistically less likely to be hit by major hurricanes than Florida, Mr. Hartwig said. "It is expected that the value of insured coastal property will double within the next decade as coastal populations and property values continue to soar," he said.

The major focus of the hearing was the soaring cost of insurance in coastal areas in the wake of Hurricanes Katrina and Rita.

Mr. Hartwig said that the price of insurance is determined primarily by the degree of risk assumed by the insurer.

"Hurricane Katrina revealed that too many U.S. coastal structures are unable to withstand the forces of a major hurricane, the importance of prudent zoning and land-use management, and that private-sector insurers provide by far the fastest, most efficient means of economic recovery for communities affected by disaster," he said.

Mr. Hartwig said insurers paid more than $40 billion to 1.7 million U.S. policyholders in six states after Hurricane Katrina struck in August 2005.

According to Mr. Hartwig, state-run insurers of last resort have offered little short-term property insurance rate relief to hurricane-prone regions of the country and may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.