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Mass. warned on coastal development and insurance

A major hurricane making landfall in Massachusetts could cause billions of dollars worth of property damage while also severely straining the resources of the state’s residual homeowners’ insurance market, the FAIR Plan, according to the industry.

Dr. Robert Hartwig, president of the Insurance Information Institute, warned that the state is among the most financially vulnerable when it comes to insured losses from a major storm.

“The number of Massachusetts residents living in hurricane-prone parts of the state has grown dramatically over the past three decades along with the value of the properties in which they live,” said Hartwig, in testimony before the Massachusetts state Legislature’s Homeowner’s Study Commission. “These undeniable trends pose challenges to consumers, insurers and public policymakers.”

According to Hartwig, Massachusetts is home to insured coastal properties valued cumulatively at almost $700 billion. Only Florida, New York, and Texas are at greater financial risk in this regard.

Barnstable County on Cape Cod has a population five times larger than it did during the last period of intense hurricane activity in Massachusetts, an era dating back to the middle of the 20th century, Hartwig explained.

AIR Worldwide, a risk modeling firm, estimates that Massachusetts faces a 15 percent chance of a catastrophic storm within the next decade that would cost insurers $5 billion or more.

The FAIR Plan now offers homeowner’s policies comparable to ones offered by private insurers. Originally set up as the state’s insurer of last resort, it now has more than one-third of the homeowners insurance market in Cape Cod, as well as Martha’s Vineyard and Nantucket, with more than 60,000 policies. As such, the FAIR Plan’s exposure to loss, which stood at $16.7 billion in 2001, grew to $68.6 billion in 2006, an I.I.I. analysis found.

Hartwig’s report can be found at www.iii.org/media/met/massachusetts/.