̽»¨¾«Ñ¡

Number of Policyholders Doubled Between 1997 and 2006; Stabilized in 2007-2008

INSURANCE INFORMATION INSTITUTE
Contact: Press Offices
New York: 212-346-5500; media@iii.org
Washington, D.C.: 202-833-1580

NEW YORK, May 28, 2008 - Over the last four decades, state-run property insurers have experienced explosive growth both in terms of the number of policies issued and the exposure value covered, according to a recently released I.I.I. white paper, "Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice." In fact, total exposure to loss in the plans surged from $54.7 billion in 1990 to $656.7 billion in 2006.

These property insurers of last resort are housed in state-run Fair Access to ̽»¨¾«Ñ¡ Requirements (FAIR) programs as well as beach and windstorm plans. There are FAIR plans in 32 states and the District of Columbia while Texas, Mississippi and South Carolina have sizable beach and windstorm plans. FAIR, beach and windstorm plans are run by state insurance regulators in conjunction with private insurers and basically operate as pools, combining public and private resources to finance economic recovery from accidental losses. The pool acts as a single insuring entity, and premiums, losses and expenses are shared among pool members (i.e., insurers) in agreed-upon amounts.

"In contrast to the private market, state-run insurers concentrate risks on the state itself-its property owners, business owners, even its drivers, and, in some cases, the state's taxpayers. While private insurance transfers and spreads risk ensuring that sufficient funds will be available in the event of a loss, state run plans act as a conduit to pass along their cost to other insurance buyers, even those who have never filed a claim, live nowhere near the coast and in some cases have no property exposure at all," wrote I.I.I. President Robert Hartwig and Claire Wilkinson, the I.I.I.'s vice president - Global Issues, co-authors of "Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice."

Between 1997 and 2006, for example, the number of residential FAIR plan policies nationwide grew to 2.4 million from about 1 million and FAIR commercial policies expanded even more dramatically in percentage terms, to a little over 172,000 from almost 58,000. Florida and Massachusetts were, as of 2006, the states with the most FAIR plan policyholders, according to the Property ̽»¨¾«Ñ¡ Plans Service Office (PIPSO).

"Today, many residual property market plans have shifted away from their original mission as insurers of urban properties into major providers of insurance in high-risk coastal areas. It is important to recognize that many operate at deficits, or from slim positions of surplus, even in years with little or no catastrophe losses," wrote Hartwig and Wilkinson.

The I.I.I. also found that the relatively calm hurricane seasons of 2006 and 2007, along with state legislative efforts to reduce the exposure of their state-run property insurers, contributed to either a flattening or a slight decrease in the number of homeowners and businesses purchasing property insurance policies through a state-run insurer since January 2007. For example, so far in 2008, the Florida Office of ̽»¨¾«Ñ¡ Regulation (OIR) has approved plans to remove 500,000 policies from Florida's state-run plan.

Nevertheless, Florida's state-run Citizens Property ̽»¨¾«Ñ¡ Corporation has become the largest homeowners insurer in the Sunshine State. In fact, Florida Citizens accounts for the vast majority (68 percent) of the total FAIR plans' exposure to loss, and 60 percent of the total policy count nationwide. Of the 2.6 million total policies insured by U.S. FAIR plans in 2006, just over 1.5 million were in Florida Citizens. Massachusetts had the next largest number of policies, with 217,056, or 8.5 percent of total policies, according to the I.I.I. paper. Meanwhile, the Texas FAIR plan, which insures residential properties but not commercial ones, had 109,461 policyholders as of 2006 while the Lone Star State's Beach and Windstorm plan (the Texas Windstorm ̽»¨¾«Ñ¡ Association) had 158,233 policies in-force across 14 coastal counties and parts of Harris County two years ago, making it one of the largest Beach and Windstorm plans in the U.S.

The I.I.I.'s white paper gives an overview of the plans, chronicles their legislative history and assesses the claims-paying capacity of the following state-run insurers:

• Florida Citizens Property ̽»¨¾«Ñ¡ Corporation
• Louisiana Citizens Property ̽»¨¾«Ñ¡ Corporation
• Mississippi's FAIR plans
• Texas Windstorm ̽»¨¾«Ñ¡ Association
• Massachusetts Property ̽»¨¾«Ñ¡ Underwriting Association
• North Carolina Joint Underwriters Association and the North Carolina ̽»¨¾«Ñ¡ Underwriting Association
• South Carolina Wind and Hail Underwriting Association

For more information about insurance, go to the .

For related audio, go to Residual Market Property Plans.

To request a copy of the paper, contact Lilia Giordano ( liliag@iii.org ).

The I.I.I. is a nonprofit, communications organization supported by the insurance industry.