Coastal Alabama Rates Going Down

Alabama homeowners insured by the state’s property insurer of last resort are paying less after the insurer implemented its first rate decrease in three years.

The Alabama Insurance Underwriting Association last month called for an average 6.2 percent rate cut, which will drop the average cost of a residential policy from $1,977 annually to $1,845.

As of July, the association had 22,300 policies and $44.7 million in premiums, equaling a total insured value of $3.9 billion.

AIUA Manager Bob Groves said the rate is based on revised computer models, including the new RMS model, which redistributes hurricane risk showing more damage inland and less on the coast.

“AIUA uses a blend of AIR [another catastrophe modeler] long-term view and RMS near-term in analyzing both reinsurance and rate adequacy,” said Groves. “The recent change in the RMS model affected both of these.”

ALUA was fortunate in that it that it purchased reinsurance before a number of tornadoes devastated parts of the state earlier this year. The association paid $19 million for $100 million to $400 million in coverage. By comparison, in 2010, the association paid $21 million to cover the same range of losses.

The reinsurance is designed to cover the association’s probable maximum loss from a one in 148 year storm.

Rates have gone down in three of the four zones the association covers, including the city of Mobile, where rates dropped by an average 14.5 percent. Rates also dropped in Mobile County and in central and northern Baldwin County.

Rates, however, have increased by an average 6.9 percent in Gulf Shores and the surrounding area.

In 2010, the association increased rates by an average 14.3 percent after implementing a 5.5 percent increase in the previous year.