Posted on Fri, Oct. 27, 2006

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Shift in hurricane coverage suggested

Wind insurance pool would grow, get new purpose

By Jenny Burns

The Sun News

A group of Charleston independent insurance agents wants to change the state's wind insurance pool to a hurricane-only coverage that would be expanded inland to Interstate 95 - or the entire state.

They contend the plan would create more competition in the coastal insurance market, stabilize premiums at a fair market price and solve skyrocketing rates hitting South Carolina's coast.

"With the hurricane peril removed from the policy, the premium on a coastal risk should be almost exactly the same as a risk located in the upper part of South Carolina," said John "Chappy" Chapman, account executive for Riley & Associates, Inc. in Mount Pleasant.

The Charleston group presented its plan Thursday to the Independent Insurance Agents and Brokers of Horry-Georgetown Counties in Myrtle Beach.

Sen. Dick Elliott, D-North Myrtle Beach, attended the presentation and applauded the agents for "thinking outside the box."

"We need to do more of that," Elliott said.

He said he would need to review the plan before forming an opinion.

Once the agents have a final draft from all of the state's coastal areas, they plan to present it to Eleanor Kitzman, director of the S.C. Department of Insurance, and legislators.

In a phone interview Thursday, Kitzman said she would like to review the plan.

"All options are on the table," she said.

Meanwhile, they are tweaking the plan - which they've been developing for five years - as they travel around the coast.

The plan needs to be studied to determine whether it is actuarially sound.

The main difference between the wind pool, also called the S.C. Wind and Hail Underwriting Association, and the proposed hurricane pool, or S.C. Hurricane Association, would be the hurricane pool would only cover hurricane damage - not thunderstorm or hail damage.

"The insurance company is scared of a major hurricane. They're not scared of thunderstorms," said Henry Lowndes, owner of C.T. Lowndes & Co. in Charleston.

The group says today's wind pool, which was formed in 1974, must change because population and building density along the coast have increased.

"We want to bring the wind pool into the 21st century," said Bill Lesemann, owner of Lesemann Insurance Agency in Charleston.

Charleston agents say they want to expand the pool territory, which sits along a narrow strip on the S.C. coast - east of U.S. 17 Business to the ocean in Horry and Georgetown counties - to I-95 or Interstate 20 or the entire state.

I-95 runs north and south through Florence and I-20 through Columbia.

"Remember that Hurricane Hugo maintained hurricane strength to Charlotte, 200 miles inland," Chapman said.

Other differences between today's wind pool and the hurricane pool:

The hurricane pool would be tax-exempt. The wind pool is a taxable S.C. corporation.

The hurricane pool would be funded through premiums, reinsurance, funds accumulation, investment income and - as a last resort - a policy holder assessment.

The wind pool assesses insurance companies in the event of massive loss - which insurance agents say keeps insurance companies from writing policies in South Carolina.

Assessing policy holders would likely attract more insurance companies, which means more competition and availability of insurance, Lowndes said.

"If you assess the insurance companies, they are just going to pass that along to the consumer a year or two down the line. It's a difference between directly or indirectly assessing the consumer," Chapman said.

The assessment to property owners would be capped.

Hurricane claims would be handled by adjusters from insurance companies. Wind pool claims are handled by appointed adjusters, Chapman said.

The agents contend that would ensure better service in the aftermath of a hurricane.

The hurricane pool would offer coverage up to $2.5 million on residential property and $5 million on commercial to reflect today's construction costs. The wind pool offers residential coverage up to $1.3 million and commercial up to $2.5 million.

The hurricane pool would offer replacement cost coverage on second homes and rental property. The wind pool offers replacement coverage on only owner-occupied units, Chapman said.

With the hurricane peril removed, companies insuring inland properties may be more likely to insure coastal properties, Chapman said.

A similar pool worked in Hawaii, the group said. It was started in 1992 after Hurricane Iniki, and after 10 years without any major hurricane, the insurance industry resumed writing hurricane coverage.

Frank Sheppard, president of the Independent Insurance Agents and Brokers of South Carolina, said it's important that agents have a strong grass-roots backing before they present the idea to legislators.

Tim Baxley, president of the Horry-Georgetown association, said he wants to see the plan explored to see whether it is viable.

He said he worries that policy holders in Greenville would feel slighted by being assessed for hurricane damage along the coast.