Do your clients own a beachfront retreat in Hilton Head? A second home with a private dock in Boca Raton? A primary residence filled with art treasures overlooking the ocean on Cape May? If you haven’t already, you’d better take another look at how well that investment is protected–particularly if it makes up a substantial portion of their net worth.

According to the National Oceanic and Atmospheric Administration (NOAA), coastal county populations soared by nearly 35% from 1970 to 2000, to 148 million. From 2000 to 2015, that number is expected to grow by another 17 million people.

In the midst of an active hurricane cycle expected to last another 10 to 20 years, Max Mayfield, director of the National Hurricane Center, left the National Weather Service in January convinced that bigger storms await. He warned that casualties could mount by a factor of 10 with another catastrophic storm.

Insurers, or their reinsurers, are listening, and the rules of the insurance game are changing. A requirement late last year in Connecticut for storm shutters on homes within a mile of the water, imposed by the Andover Companies and eight other insurers, has caused an uproar among consumers. The cancellation of homeowner’s policies in 23 parishes in Louisiana in July 2006 resulted in a September 2006 order by the Illinois Commissioner of Insurance to Horace Mann Insurance Companies, of Springfield, Illinois, to halt the cancellations and restore coverage.

In December 2006, Allstate Insurance announced it would no longer write new policies anywhere in the state of New Jersey. This follows its retreat from writing new coverage in the states of Delaware, Connecticut, and Florida. In fact, Allstate, the second largest home insurer in the country, now writes only limited coverage in all coastal areas along the Gulf and the Atlantic Seaboard.

After the hurricane seasons of 2005 and 2006, many insurers have cut their exposure to what Michael Trevino, a spokesman for Allstate, calls “catastrophic loss.” But it’s not just hurricanes that are generating new models and changes in insurance coverage; those living on the earthquake-prone West Coast are in a similar position.

Realtors are sufficiently concerned about the potential slowdown in the real estate market in “hot” areas, like hurricane-prone Florida, that the National Association of Realtors (NAR) appeared before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises of the House Committee on Financial Services in September 2006, presenting a statement on “Stabilizing Insurance Markets for Coastal Consumers.”

To advisors, Trevino says, “It’s fundamentally about risk. Those who own property in harm’s way should expect that the cost of protecting that property is going to continue to go up, but it’s going to go up because the risk is rising.”

Coping Strategies

Allstate Insurance has taken several steps to help offset what it sees as inevitable rising risk. It has not only curtailed coverage, but added reinsurance resources to fund claims payment for existing policies, should the worst occur. It has also helped spearhead www.protectingamerica.org, a national coalition co-chaired by James Lee Wit, the former FEMA director, and Admiral James M. Loy, former deputy secretary of the Department of Homeland Security. The organization gathers under a wide banner not only Allstate and State Farm Insurance, but also numerous first responder organizations, the New York City Mayor’s Office, and many federal, state, and private groups ranging from builders to realtors to universities.

Trevino says Allstate has also supported HR 4366, omnibus legislation that did not pass the last Congress but is expected to be reintroduced. It included provisions to toughen building codes, fund first responders, and educate consumers about what they can do to protect themselves and to mitigate the damages from catastrophic storms. The Unites States has not been as proactive as other nations in taking steps to make construction more secure, not only against catastrophic storms, but also against earthquakes; Hong Kong factors in typhoon survivability, and post-1995 structures in Kobe, Japan, are built to withstand earthquakes.