Many Americans dream of owning a beachfront home with ocean views, but big home insurance firms are retreating from the Atlantic coast amid fears that climate change will unleash more dangerous hurricanes. The insurers say the risk of a ‘perfect storm’ causing vast damage to communities along the Atlantic coast has simply become too high since Hurricane Katrina obliterated New Orleans in 2005.
As a result, the country’s largest home insurers, State Farm and Allstate, have decided not to seek new business along wide stretches of the US East Coast. Tens of thousands of US home-owners may thus find it more arduous to obtain new insurance for coveted coastal properties in coming years. The insurers point out, however, that beachfront property prices have skyrocketed in recent years, coastal populations have boomed and building codes in some areas are not vigorous enough.
State Farm, the United States’ biggest home insurer, has decided not to write any new homeowner’s insurance policies for coastal communities stretching south from Delaware to North Carolina, according to spokesman Dick Luedke. “Our maxim is, we don’t want to make new promises that would in any way compromise the promises that we have already made,” Luedke said.
Allstate, the nation’s second-largest home insurer, is also not writing new insurance policies for homeowners in some Maryland and Virginia coastal areas. “We've looked at this ... to look at what our risk is on this coastline, and in some areas, it’s just too great for us to insure anymore,” Allstate spokeswoman Debbie Pickford said. Allstate is also not issuing new homeowner policies for all five boroughs of New York, where millions of people reside just above sea level, and Long Island. It will also not seek new business for the entire state of New Jersey from February 5.
Both insurers, however, are continuing to renew existing homeowner policies and stressed that coverage is not being cancelled. Smaller companies, meanwhile, are continuing to seek new business. The big insurers started rethinking their oceanfront exposure in the wake of the record-setting US hurricane seasons of 2004 and 2005, and especially after Hurricane Katrina ravaged the Gulf Coast city of New Orleans, Louisiana and Mississippi, killing over 1,000 people. “All the risk-modeling professionals and all the risk-management specialists out there are looking ten to 20 years down the road and saying, and scientific evidence, as well, and everyone is saying that you’ve got a perfect storm or catastrophes that could potentially affect the coastal areas,” Pickford said.
Allstate had to swallow a loss of $1.5 billion in the third quarter of 2005 due to Katrina and three other large storms as thousands of homeowners filed insurance claims. Pickford said Allstate also needs to ensure it has enough cash on hand to meet potential damage claims. Still, Patricia Campbell-White, a real estate broker, says wealthy individuals are still buying multimillion-dollar oceanfront homes, and they are prepared to pay higher insurance premiums to live steps from the beach.
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