Housing Bubble Impacting Insurance Premiums?

From the AP:

Homeowners Far Away Pay Katrina's Damage

The letter begins: "We're writing to you with what we know is unfortunate news about your Allstate Insurance."

Startled, Marie Collins reached for her glasses, then a magnifying glass and pored over the letter, realizing with a sinking feeling this isn't a standard mailing from the company that insures her home.

It was a cancellation. Her home was being dropped, the letter said, because it's in the path of future hurricanes.

But Collins doesn't live in New Orleans or even Florida. She lives in New York City.

Hurricane Katrina may have made landfall on the Gulf Coast last year, but its impact is being felt hundreds of miles away, as insurers scramble to reduce their exposure to future catastrophes.
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Yet hers is one of 30,000 homes the nation's No. 2 insurer, Allstate Corp., is canceling in coastal counties of New York, citing the need to protect itself from future storms. Other major players are following suit: Nationwide Mutual Insurance Co. is no longer writing new policies on the eastern half of Long Island, N.Y., while MetLife Inc. is requiring extra inspections and expensive storm shutters for new customers living within 5 miles of salt water.

It's a strategy of retreat that's unfolded before: After Hurricane Andrew in 1992, insurers drastically scaled back their presence in Florida, forcing residents into the expensive, state-run insurance pool. The difference is that now insurers are not just shedding policies in traditional hurricane targets such as Florida, but all along the eastern seaboard.
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Even though the Northeast has not had a direct hit in decades, the high replacement value of homes there makes it an especially vulnerable spot in an insurer's portfolio.

"Homes in Long Island (N.Y.) have gone up in the last five years between 60 and 70 percent. Believe me, our rates have not gone up by 60 or 70 percent," said Edward M. Liddy, chairman and chief executive of Northbrook-Ill.-based Allstate. "You look at our exposure and you say 'We want to have enough capital to protect and care for all our 17 million households across the country.' To do that, you may have to reduce your exposure in a small way in other areas."

Those in the industry stress that a single massive event like Katrina can wipe out years of savings, putting an entire company with policyholders all over the nation at risk.