Insurer to drop coastal policies

A Hingham home insurance company was swept up in the aftermath of the Gulf Coast hurricanes yesterday, forced to unload most of its policies on Cape Cod and other coastal areas in the face of rising reinsurance costs.

Hingham Mutual Group, one of the leading home insurers on the Cape and islands with about 5 percent of the market, said it doesn't plan to renew the policies of about 6,500 homeowners, about 5,000 of them on the Cape and islands, 1,000 in Bristol County, and 500 in Plymouth County.

State insurance officials said nearly all of the customers will end up with the Massachusetts Fair Plan, the state's insurer of last resort, which has seen its market share on the Cape jump from 4 percent in 2000 to 28 percent today as other companies have pulled out or scaled back because of high reinsurance costs related to new storm damage estimates. Reinsurance is the coverage that insurers buy to protect themselves from catastrophic events.

The Fair Plan, which is currently charging an average of $1,306 for its standard homeowner's policy on the Cape and islands, is seeking regulatory approval to increase its rates in those areas by 25 percent. The Fair Plan, a company created by statute that is financially backed by all of the state's home insurers, reported an estimated $25 million profit in fiscal 2005 because of fewer claims.

George Cole, a senior vice president at Hingham Mutual, said the company decided to retreat from the Cape and other coastal areas after its brokers said the cost of reinsurance would be rising 20 to 30 percent next year. Cole said the increase would have cost the company more than $1 million.

''You could say this is a direct result of those hurricanes that didn't hit anywhere near New England," Cole said. ''Those three hurricanes, Katrina, Rita, and Wilma, have been kind of a knockout punch for the industry."

Reinsurers are facing big claims from the hurricanes, and they are expected to raise insurers' rates -- even those insurers that weren't in the disaster areas.

Hingham Mutual, the parent company of Hingham Mutual Fire Insurance Co. and Danbury Insurance Co., plans to continue insuring about 2,000 homes on the Cape. Cole said those homes are less costly to insure, with the reinsurance cost less than 35 percent of the premium paid by the homeowner. On some of the policies that are not being renewed, Cole said, the reinsurance cost would be more than 100 percent of the premium being collected.

Many other home insurers have either pulled out or scaled back their business on the Cape and islands over the last two years as startlingly higher storm damage projections have led to higher reinsurance rates. The Andover Cos., the state's largest home insurer, decided in May 2004 that it would not renew all 14,000 of its policies on the Cape and islands.

Hingham Mutual's Cole said the exodus of companies is likely to continue, partly because of the fallout from the Gulf Coast hurricanes and partly because more revisions in industry storm models are expected next year.

Officials at other home insurers, such as Liberty Mutual, Quincy Mutual, and OneBeacon Insurance, could not be reached for comment last night.

The Fair Plan, set up to be an insurer of last resort for homeowners in high-risk urban areas, now finds itself the dominant insurer on the Cape and islands.

Until this year, state law had limited how much the Fair Plan could increase its prices. But as its premium increases on the Cape lagged behind those of other insurers who were raising rates dramatically, officials pushed a change in statute that allowed the Fair Plan to seek higher increases based on predicted hurricane losses and the cost of reinsurance.

In its current rate request, pending before Insurance Commissioner Julianne M. Bowler, the Fair Plan is seeking a 12.9 percent average statewide increase in its standard homeowners policy. That average reflects requests for increases of 25 percent on the Cape and islands and 20 percent in the Plymouth area and New Bedford.

In Roxbury, Mattapan, and part of Dorchester, where the Fair Plan also has a significant presence, it is seeking a rate increase of 5.9 percent.

Fair Plan officials couldn't be reached for comment yesterday, but in the past they have said the company needs to build up revenues and purchase expensive reinsurance to offset potential future hurricane losses.

Bowler, in a statement, said homeowners affected by Hingham Mutual's decision will receive a 45-day advance notice that their policy is not being renewed. She urged homeowners to file Fair Plan applications.

Bruce Mohl can be reached at mohl@globe.com.