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Hurricanes Cause Latest Strain on Insurance Industry

March 31, 1993

MIAMI (AP) _ One of Meri Framer’s house sales fell through when the buyer couldn’t find any homeowners insurance - another sign that buying coverage in states visited by hurricanes can be chancy and nerve-wracking.

″It’s been a real strain,″ the Miami Beach real estate agent said. ″It’s just another difficult piece of the deal now.″

The states of Florida after Hurricane Andrew and Hawaii after Hurricane Iniki have responded by establishing programs that serve as safety nets when standard insurance becomes too scarce or expensive.

The programs are an extension of so-called residual market insurance programs that exist in some form in every state to guarantee insurance in tight markets.

Policies often cover property, automobiles, truck fleets, workers compensation and medical malpractice, but only occasionally guard against damage from oddities such as volcanoes, brush fires and wind storms.

The crisis in Florida is so widespread as companies retrench in response to an estimated $15 billion in claims from Andrew that the program expects to become the state’s third-largest insurer with as many as 600,000 policies.

Prudential announced plans in early March to drop 25,000 customers and two of every three policies in the Miami and Fort Lauderdale areas. State Farm and Allstate, which dominate the Florida market, also have imposed cutbacks.

The residual markets operate in different ways in different states at the discretion of legislators and regulators. Some are phased out when the need disappears, which happened with riot coverage after the upheaval of the 1960s.

The predominant plan for auto coverage, available in 40 states, assigns high-risk drivers to insurers.

Elsewhere, Florida, Michigan, Missouri and Hawaii have a limited number of insurance carriers, but they spread losses across the industry under joint underwriting associations. North Carolina, South Carolina and New Hampshire back their drivers with reinsurance. Maryland has an insurer-subsidized state fund to cover losses. Massachusetts has a combination plan.

Residual market plans are created ″for those who can’t get voluntary coverage at the levels they feel they want to pay,″ said Dean Moffitt of the Alliance of American Insurers, a trade group. Insurers ″retire from certain markets, and the residual market picks it up.″

But where insurers speak in terms of losses and potential risk, consumers sometimes feel abandoned by a profit-driven industry.

″As long as you’re paying, everything is fine,″ said real estate agent Gene Mastro, whose Village Pride Realty on the fringe of Andrew’s path has suffered delays in completing sales.

″When they’re paying your premium, obviously they’re running like scared rabbits, which doesn’t do much for consumer confidence in the insurance industry.″

To Kenneth Burt, spokesman for the California Department of Insurance, ″The long-term answer of course is to reform the insurance market so everyone has access to reasonably priced insurance.″

One option that would radically change the insurance business is ″pay-at- the-pump″ auto coverage. Imposing a gasoline surcharge to cover all drivers would attack the growing problem of uninsured motorists in large states with high insurance rates but likely cut insurance industry employment.

California produces annual comparison price surveys to give consumers a better idea of what the industry offers, and Florida decided to produce a report card on property insurers after the hurricane.

Burt said he’d like to see insurers place more emphasis on safety and prevention to help control their costs and rates.

″That’s the very origins of the business,″ said Sean Mooney of the industry’s Insurance Information Institute. ″When you go back to Benjamin Franklin’s company, he wasn’t much of an environmentalist. He wouldn’t insure you if you have trees in front of your house because that was an obstruction for the fire service.″

End adv for Monday AMs March 31

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