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Location, location, location. We’ve each heard this phrase when it comes to establishing the value of a home. Now, however, many East End homeowners are shocked when they learn that their homeowners policy will not be renewed.
Ironically, locations that are considered to be very desirable have become an insurance liability, making obtaining coverage a new challenge for homeowners. Extreme weather and natural disaster threats combined with the high cost of reconstruction have caused many insurers to back away from covering coastal properties — a trend that began over 30 years ago and is now escalating.
“It’s a perfect storm of issues,” said Dermot Dolan, a 30-year-plus insurance industry veteran with Hamptons Risk Management in Bridgehampton. “We’re very exposed. Therefore, it is difficult to attract and retain carriers to write business here. In terms of underwriting, this is the worst market I’ve experienced.”
Several carriers have recently gone out of business while other well-known national and regional brands will no longer write new coverage in eastern Suffolk County or anywhere on Long Island. In some cases, coverage varies by location and policy. As insurance is all about risk management, some carriers are imposing limits on existing customers’ homes.
“We’re in a product desert because of a lack of carriers,” lamented veteran agent Bill Condy of Goosehead Insurance in Center Moriches. “Carriers backing away from bayfront or creekfront properties to reduce exposure mostly in new business is a trend that started in 1992 after Hurricane Andrew. It’s only gotten more restrictive.”
Behind the scenes, higher interest rates have made less capital available, reducing funds available to reinsurers, the companies that share the risks with standard carriers. This is especially true in what are now being called “exposed coastal areas,” such as the South Fork.
There is a difference between cancellation and nonrenewal. An insurer cannot cancel a policy that has been in force for more than 60 days except if the policyholder has not paid the premium, committed fraud or made serious misrepresentations on the application according to the New York State Department of Financial Services, which regulates property-and-casualty insurers.
Nonrenewal occurs when either the client or the carrier decides not to renew a policy upon expiration. In New York, an insurance company must provide the policyholder with a 45-to-60-day notice period and explain the reason for nonrenewal before terminating a policy. For a thorough explanation, policyholders can call their insurance company directly or speak with their agent. If a policyholder believes the nonrenewal is unfair, a complaint can be filed with the Department of Financial Services. If a policy is not renewed, the homeowner may not necessarily be charged a higher premium by another carrier.
Do not assume a nonrenewal is the result of homeowner action. The carrier may have decided to eliminate a certain coverage line or write fewer policies in the area. A call to the insurance carrier should promptly clarify the reason for the nonrenewal. However, if the homeowner has done something that could seriously raise the risk level, such as commit a fraudulent act or neglect to pay the premium, then the carrier has the right to terminate coverage.
“Maintain your property,” Dolan advised. “Only good quality properties will be accepted by carriers.”
If you are considering buying an existing home, learn its recent claims history. A history of water or wind-loss claims can determine if an insurer will classify it as high risk. A prospective owner can request that the current property owner provide a Comprehensive Loss Underwriting Exchange (CLUE) report before purchase. A CLUE report is generated by a claims history database that enables insurance companies to access consumer claims information for underwriting purposes.
“Mortgage providers generally want a B+ or better rating from one’s insurer,” Condy said.
As homeowners understandably tend to focus on price instead of coverage when insurance shopping, it is often only after a disaster has struck that they learn exactly what their policy covers. Flood damage is usually not covered under standard home insurance policies. When customers make a claim in response to hurricane damage, they frequently find themselves caught between trying to determine which damage was caused by flood and which was wind-created.
Flood insurance is available from the National Flood Insurance Program (NFIP). Policies can usually be purchased from the same agent or broker who provided the home policy. Property owners can typically purchase insurance protection against losses from flooding through the NFIP even if they reside in a community designated as a special flood-hazard area as long as it implements and enforces measures to reduce future flood risks. Residents of communities that participate in the NFIP are generally eligible for the Emergency Program that provides a limited amount of insurance at federally subsidized rates. Once a community adheres to the more comprehensive floodplain management requirements of the NFIP, residents are eligible for the Regular Program under which they can purchase higher coverage amounts.
The Coastal Markets Assistance Program (C-MAP) is a voluntary network of insurers and insurance producers that helps New York coastal-area homeowners obtain coverage. Administered by the New York Property Insurance Underwriting Association (NYPIUA) it is for owner-occupied, one-to-four-family dwellings, apartment or condominium units in Suffolk and Westchester counties as well as the five boroughs. Dwellings generally must be located within one mile of the shore. Before applying to C-MAP, homeowners must have received a nonrenewal, cancellation or conditional nonrenewal notice from their existing insurer for a reason other than premium nonpayment. For new home purchases, applicants must identify the prior homeowner’s insurer.
Homes in flood plains or areas susceptible to hurricanes and excessively high tides can be considered to be in high-risk locations as insurers may see a good chance for property loss, resulting in greater payouts to settle claims. The high cost of reconstruction and repair is another item considered by carriers. It’s recommended to get enough insurance to rebuild ones’ home and replace all personal belongings.
“Owners of older homes tend to file more claims due to dated building materials,” said Jason Metzger, senior vice president and head of underwriting and risk management at PURE Insurance, headquartered in White Plains.
If you have made a major home alteration or improvement, or major purchases of such items as furniture, appliances, fine arts or antiques, be sure to notify your carrier and update the coverage. For further coverage, an inland-marine policy, a form of property insurance that can be added to a homeowner policy, covers high-value or unique personal items that are not adequately covered by a standard policy such as jewelry or electronics. It can also cover property that is being transported or moved between locations.
Taking preventive measures like installing hurricane shutters, waterproofing and using landscape design to prevent or reduce flooding can help lower risk. A higher deductible will reduce premium costs and discourage numerous small-claims filings.
Those who’ve exhausted the traditional carriers can likely get coverage from a “non-admitted” carrier. Non-admitted insurance products are furnished by excess and surplus lines carriers. They are regulated by the state’s surplus lines office and do not offer the benefit of state-backed insolvency protection but are required to have reserves or adequate reinsurance and may provide some advantages. “We use several non-admitted carriers,” Condy said. “Clients are generally satisfied with them.”
Many non-admitted carriers are highly rated, and their products often fill gaps left by standard markets. Coverage can usually be found for clients that may be deemed too high-risk or have other insurability issues. Clients may also need coverage that exceeds what an admitted carrier can provide. Non-admitted carriers’ more diverse coverage choices can make it difficult to compare pricing or coverages. Premiums are often higher than their standard counterparts and may require additional state fees and/or taxes.
