Insurers of Last Resort Choice for Over 3M Home and Business Owners in 2011

A record-high 3.31 million residential and commercial policies were offered through state-run property insurers of last resort in the United States in 2011, a 17 percent increase over the previous record of 2.84 million in 2010. More than half of the policies are in Florida.

That’s according to the Insurance Information Institute’s (III) updated white paper, “Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice.”

The 3.31 million U.S. residential and commercial property insurance policies in-force in 2011 were primarily bought from one of the 30-plus Fair Access to Insurance (FAIR) Plans or six Beach and Windstorm Plans, the report states. The cumulative exposure to loss in the U.S. residual property insurance market grew to a record-high $884.7 billion in 2011, up 17 percent from 2010’s $757.9 billion figure and higher than the previous record of $771.9 billion, set in 2007, the III’s white paper states.

Residential and commercial property owners are insured in the residual market when they are unable to acquire an insurance policy in the standard private market.

“Today, many residual property market plans have shifted away from their original mission as insurers of urban properties into major providers of insurance in high-risk coastal areas. It is important to recognize that many operate at deficits, or from slim positions of surplus, even in years with little or no catastrophe losses,” write the report’s co-authors, Dr. Robert Hartwig, president of the III and an economist, and Claire Wilkinson, author of the III’s Terms+Conditions blog. “A variety of factors are at play here, including the fact that state plans may be prohibited from charging a rate that is commensurate with the risk being assumed.”

Florida’s Citizens Property Insurance Corp. wrote more than half (1.7 million) of the 3.31 million residual market policies that were in-force nationally as of year-end 2011.

The III report tracks with a July 2010 report from the Government Accountability Office (GAO) that said state-backed property funds in Florida, Texas and Mississippi had grown the most from 2005 to 2009. The number of policyholders in Mississippi grew by 169 percent, in Texas by 91 percent and in Florida, by 27 percent.

Of the 10 state programs examined, the GAO found that six charged rates that were not actuarially sound.

As of November 2011, 32 states and the District of Columbia had property insurance plans known as FAIR, an acronym for Fair Access to Insurance Requirements Plans. Six coastal states have similar Beach and Windstorm Insurance Plans that property insurers operate to provide coverage for both residences and commercial properties against damage from hurricanes and other windstorms. Properties must be located in a designated area to be eligible for insurance under these plans.

The III report provides analysis of the state-run property insurers of last resort in Alabama, Louisiana, Massachusetts, Mississippi, New York, North Carolina, South Carolina and Texas.