Residents of North Carolina barrier islands received a wake-up call this month, when officials at the state Department of Insurance revealed that State Farm insurance had announced plans to drop homeowners' coverage on 1,600 barrier-island properties. The Wilmington Star-News has the story (" State Farm dropping homeowners policies along N.C. coast," by Wayne Faulkner), and the online Insurance Journal offers more detail in its report (" State Farm to Drop 1,650 Policies on North Carolina's Barrier Islands"). Homeowners dropped by State Farm will likely be forced into the state-backed coastal property insurance pool, formerly known as the Beach Plan. The Insurance Journal quotes North Carolina Department of Insurance spokeswoman Kristin Milam as saying, "I think it's unlikely that other [private] carriers will take over these policies." State Farm's decision to drop barrier island coverage appears to be part of a broader company strategy, the Star-News reports: "Milam said State Farm’s move is national. It is withdrawing from the barrier islands of all coastal states, including South Carolina and Virginia, she said." And news reports from other coastal states indicate that State Farm is, at the very least, seeking steep rate hikes in coastal regions. In South Louisiana, coastal parishes may bear the brunt of a proposed rate hike that averages 19% across the state, but could reach 30% or higher in New Orleans, Lake Charles, Lafayette, and Houma-Thibodaux, reports the Houma Courier (" State Farm seeks 30 percent rate hike in Houma-Thibodaux," by the Associated Press). In Mississippi, State Farm will raise premiums by 19.5 percent in February, after State Insurance Commissioner Mike Chaney rejected the company's proposal to hike those rates a whopping 45%, according to the Biloxi Sun-Herald (" State Farm raising rates in some coastal counties," by Anita Lee). Chaney also announced that he will no longer allow rate hikes applied solely to coastal areas, the Sun-Herald later reported. State Farm is not alone in seeking to avoid covering coastal homeowners. In Alabama, the Insurance Journal reports, Allstate and Alfa, two of the state's top insurers, plan to drop 14,000 coastal homeowners from their rolls (" Allstate, Alfa to Drop Wind Insurance on 14,000 Alabama Coastal Homes"). And in Florida, State Farm has been threatening to stop covering homeowners statewide since early 2009, playing an extended, high-stakes game of "chicken" with state regulators who had denied a 47% rate hike request (the Florida Office of Insurance Regulation has this timeline of the entire controversy). The Wall Street Journal reported the company's intentions on January 28, 2009 (" State Farm Won't Cover Properties in Florida," by Liam Pleven). But last month State Farm agreed to stay in Florida — but covering fewer homeowners, and at higher rates — as a consent order by Insurance Commissioner Kevin McCarty ended (for now) a long process of litigation between the insurance company and the state. More details appear in stories in several publications: Insurance and Financial Advisor (" State Farm withdraws request to leave Florida homeowners’ market," by Keith L. Martin)

Miami Herald (" State Farm to hike rates nearly 15 percent, drop some policies," by Beatrice E. Garcia)

St. Petersburg Times (" State Farm will stay, Florida insurance regulators say," by Jeff Harrington). But Florida's settlement with State Farm by no means offers a long-term solution to the vexing problem of coastal risk. Writes the St. Petersburg Times, "State Farm spokesman Chris Neal said the settlement 'allows us to stay in the game a little longer' as Florida continues to seek a long-term solution for its exposure to costly storm damage." Neal told the Times, "While this does help and moves us to restore our financial stability, it doesn't solve the problem of Florida's property insurance market. There's a long list of problems, but first and foremost are hurricanes. We've been very fortunate here the past five years, but I don't know how much longer that's going to last."