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Growth in coastal development challenges insurance industry and property owners

symposium_t.jpgBOONE—Insurance companies, coastal residents and builders face growing challenges when it comes to insuring, owning or building property along the United States’ coastlines.

“The coastal issue is very challenging, because basically we have overbuilt in areas that in hindsight probably weren’t the best places to build,” said David Marlett, director of the Brantley Center and chair of Appalachian State University’s Department of Finance, Banking and Insurance.

Smitty Harrison_t2.jpg More than 50 percent of the U.S. population lives near water. That’s why it’s important for homeowners to learn how to protect their property in the event of a hurricane, says Smitty Harrison, executive director of the S.C. Wind and Hail Underwriting Association. Harrison was a panelist at a symposium on coastal insurance held at Appalachian State University. “People are building bigger and more expensive houses – right in the paths of hurricanes,” he said. (Photo by university photographer Marie Freeman)

Appalachian and its Walker College of Business and Brantley Risk and Insurance Center hosted a symposium on the challenges and changes facing the insurance industry regarding

insuring coastal property.

“We have an enormous exposure along the coast now,” Marlett said, “and the question is, How do we pay for it when a catastrophic storm happens, or How do we fortify property so there is less damage in the future?”

Consider this. Property development along the nation’s coastline has grown 7.3 percent a year for the past three years, a rate that is expected to continue for the next decade, according to Steve Weisbart, chief economist for the Insurance Information Institute. “At that rate, the value of insured coastal property will double in the next decade,” he said.

Add that to predictions by scientists, climatologists and others that the United States is entering a cycle of increased hurricane activity and intensity, which will make coastal development even more susceptible to loss.

“Insured catastrophic losses are rising and hurricanes are the No. 1 source of those losses,” Weisbart said.

“We in North Carolina need to be prepared from a safety and from a financial standpoint to deal with the destruction of major hurricanes hitting the coast of North Carolina some time, whether it is this year or some years in the future,” said N.C. Insurance Commissioner Jim Long.

A variety of approaches exist to help finance losses from storm damage. Some states support a plan in which the federal government would provide catastrophic reinsurance, others support a free-market approach in which the property owner would bear the risk of owning coastal property, and some in the industry are promoting a hybrid public-private sector approach.

Mitigation before a storm occurs is an approach promoted through the S.C. Safe Home project and by the Federal Alliance for Safe Homes (FLASH). South Carolina provides grants to eligible homeowners who make their homes more resistant to loss from hurricanes or strong winds. FLASH president and CEO Leslie Chapman-Henredon says better building codes and storm mitigation measures could reduce property loss during a catastrophic hurricane by as much as 74 percent in North Carolina and up to 76 percent in South Carolina.

“Homeowners, however, don’t value having a storm-resistant structure,” Marlett said. “They would rather have granite countertops or an extra bathroom than pay for storm mitigation measures, such as storm shutters or wind-resistant windows. That’s the challenge we face in our state and in other states.”

Finding ways to reduce the economic impact of hurricane damage is important for many reasons.

“After a catastrophic storm hits, economic development stops. Insurance agents can’t sell insurance, the banking sector can’t offer loans without insurance coverage on property, homes builders can’t build and real estate agents can’t sell property,” Marlett said. “There are different ways we could try to change the system now to make it more viable so that when we do have a hurricane, economic development will continue. It’s too hard to fix the problem after the storm occurs.”

Neil T. Annas, president elect of the Independent Insurance Agents of North Carolina believes it’s important that insurance agents and companies, homeowners and others participate in discussions about hurricane mitigation and coastal insurance to help the state reduce catastrophic losses and ensure a long-term stable insurance market for North Carolina consumers.

“North Carolina could face serious insurance availability concerns if our coast is subject to a major hurricane like Katrina, Andrew or a repeat of our own storm from 1954 – Hurricane Hazel,” he said.