While most other insurers were fleeing the coastal homeowners market, Narragansett Bay Insurance was striding in, writing policies almost exclusively on the coast.

In other words, they’re the kid who hops the fence to pet a neighbor’s Rottweiler while friends look on from the safety of the other yard. Says Narragansett, while patting the Rotweiler’s head: If you’re smart about it, it can pay off.

CEO Nick Steffey is confident Narragansett can keep a lid on its risks, but that dog might bite after all – many insurers, seeing no way to mitigate the risk from a potential large-scale catastrophe, prefer to stay away.

Although many officials say Massachusetts’ coastal insurance market appears to be stabilizing, the coast isn’t all clear. The state-run FAIR plan is still too dominant, with many insurers skittish about writing on the coast and consumers unhappy about rates.

What odds, then, on finding a middle ground? Companies like Narragansett say smart business practices can make the area fertile ground for business. Others say the majority of insurance companies won’t stay put unless government regulation steps in to balance the vagaries of the insurance and reinsurance markets.

Rare Birds

Steffey says his Rhode Island-based company has scooped up a lot of middle-market business on the Massachusetts coast because it focuses on detail-oriented underwriting while most of its competitors broad-brush entire counties or regions. For example, some label all houses on Cape Cod as the same type of risk, without considering that certain houses are sturdier and more sheltered than others.

Narragansett does meticulous assessments of each house it writes for, he said, while most others base their writing on a drive-by of the place.

The company is often able to offer lower rates than the FAIR plan, Steffey said, and – aided by $200 million in private investment – it has grown since it started work in 2006. Last year, the company was at $6 million in revenue; at the end of this year, it’s on track to bring in $30 million.

But that kind of underwriting is a rarity. The bigger the company, the less likely it is to put in the time for that kind of underwriting, said Thomas Martin, president of consumer group America’s Watchdog, who takes a particular interest in the topic – he lost his New Orleans home in Hurricane Katrina.

It’s often up to consumers to demand that agents visit them at home and get the most tailored plan possible, he said.

Tim Hegarty of Norfolk & Dedham Insurance Group, which also favors detail-oriented underwriting, stuck it out on the coast after the hurricane seasons of 2004 and 2005 pushed reinsurance costs sky-high. Norfolk & Dedham had to pass those costs on to consumers, but Hegarty said it softened the blow by spreading out the rate increases over three years, instead of smacking customers all at once. The company took some losses, he said, but it didn’t disrupt its business – unlike some competitors.

“Some of the actions of some of the companies [that left the coasts] were impulsive and weren’t well thought-out,” he said. But, he admits, those companies might think he’s nuts for sticking around.

Because although Steffey thinks more insurers are looking to enter the coastal homeowners market, a large, destructive storm would send those companies back over the fence as reinsurance costs rise once again.

Government as Referee

“The insurance industry really does overreact in both directions,” said Steve D’Amato, of Cambridge-based Insurance Research Center. Either companies jump too far into a market and get overexposed, or they clamp down and keep out entirely.

In those times, it makes sense for state insurance officials to more actively regulate rates, he said: “It smoothes out the extremes and provides more of a leveling effect.”

For an example of higher regulation, Massachusetts need only look southward. Connecticut’s Department of Insurance does not allow insurers to deny coverage based on where a house is located – that means you can’t discriminate if the customer lives near the ocean. And while other FAIR plans ballooned in the past few years, the Connecticut FAIR plan actually shrank.

But Eric Goldberg, associate general counsel with industry group the American Insurance Association, said more regulation is exactly the wrong move to make right now.

Companies tend to stay away from highly regulated markets, he said, pointing to the companies that arrived after Massachusetts deregulated its auto insurance system. The best thing, he said, is to put the FAIR plan at market rates and let money regulate the system.