May 29th, 2009 11:31 AM

Mobile Bay Blog

 

Rates for policyholders of Alabama's insurer of last resort will go up 5.5 percent on average, beginning July 1, the Alabama Insurance Underwriting Association said in a letter dated Tuesday.

Rates are going up in Mobile, Gulf Shores, Orange Beach, Fort Morgan and Dauphin Island, while they will decline in south Mobile County, the Eastern Shore, and areas of south Baldwin County including Magnolia Springs, Perdido Beach, Josephine, Elberta and Lillian. They'll stay flat elsewhere in Mobile and Baldwin.

The group, commonly known as the Beach Pool, charged $2,173 on average for a residential policy at the end of April. A 5.5 percent increase would bump that by $120 to $2,293.

Individual customers will see rates change at their annual renewal. Changes will vary based on location and type of construction.

Manager Bob Groves said that models showed that the pool's risks had increased as it grew to more than 11,700 policies in Mobile and Baldwin counties, and it needed to charge higher rates.

"We believe the rate change we are implementing is very modest," he said.

The pool initially applied to the Alabama Insurance Department for a 7.4 percent increase, but cut its request during regulatory talks.

The Beach Pool passes on much of its risk to firms that do business elsewhere in the state but shun the coast. It writes bare-bones policies.

Hardest hit will be customers in Gulf Shores, Orange Beach, Fort Morgan and Dauphin Island, who will see rates increase by 9.9 percent.

State regulators capped the increase for any single policyholder at 15 percent. The pool plans to impose the maximum on 1,575 customers, more than 13 percent of its policyholders.

The pool has traditionally used three rating zones, but a fourth zone consisting solely of the Mobile city limits was added along with the rate changes. Groves said that was meant to match the pool's territories more closely with those used by the Insurance Services Office, a group that draws zones for carriers.

Rates in Mobile will go up 5 percent on average. But for more than 400 policyholders in the area south of Interstate 10, rates should fall substantially, Groves said.

Pool board member Jay Ison, a Mobile insurance agent, said the group has taken on many older homes in Mobile. "That zone needed a rate increase because of a higher concentration of risk," he said.

Mobile had almost 20 percent, or 2,198, of the pool policies at the end of April, the most of any city but Gulf Shores. Mobile traditionally made up a much smaller share of the policy total.

Charges will go down 3.3 percent in the rest of south Mobile County's mainland and in parts of Baldwin including the Eastern Shore, Magnolia Springs, Perdido Beach, Josephine, Elberta and Lillian.

Gulf Shores resident and former State Farm employee Davey Jones, who pays the pool more than $3,000 a year for wind coverage alone, said he doesn't understand the need for an increase, considering the pool hasn't faced any major hurricanes since 2005. He said he'd like a more public explanation of how the pool spends its $26 million in premium income.

The Beach Pool will spend most of this year's premiums, almost $15 million, on reinsurance. Reinsurance prices rose this year, and the pool is buying less coverage than in 2008, leaving member firms more at risk.

After the member companies pay for the first $100 million in losses, reinsurance would cover the next $235 million. Al Carlson, a spokesman for All Churches Together, or ACT-II, which lobbies for more affordable insurance, said the increases are a "wake-up call" to policyholders who hoped rates would drop or stay level.

Gulf Shores Mayor Robert Craft, the lone member of the 11-person pool board who doesn't work in the insurance business, took a leave of absence from the panel starting in January as he recovered from brain surgery, and wasn't part of rate increase talks. It's doubtful, though, that his lone vote or protest would have made a difference.

"As mayor, it certainly is not good news for our city," Craft said. "Unfortunately, I don't know how you fight it."

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