It's the Homeowners vs. the Hurricanes

Last week we had our regular meeting of the Independent Insurance Agents and Brokers of Suffolk County, the local part of the national organization of Independent Agents. Our guest speaker was Howard Mills, New York State Superintendent of Insurance.

We were immediately impressed with his depth of knowledge and up-front speaking style. This is no political hack we were listening to, so we paid close attention. Naturally a good part of his talk was about the New York homeowners insurance issues, especially focusing on Long Island and Suffolk County. In a relatively short time he took us all the way from the global market for reinsurance, which is the way insurance companies themselves protect against catastrophic losses, right down to what we as individual homeowners should be looking at to help lower our risk of damage in a storm.

He stressed that no one approach will solve this problem, it will have to be a combination of changes in the insurance industry and changes to things like building codes and construction methods. The one thing I thought was interesting for our discussion here was a survey that his department did of home improvement stores in the area.

Mr. Mills told us that storm shutters, reinforced garage doors, and hurricane resistant roof clips are standard all through Florida, and required in all new construction there. Not only are they not required here on Long Island by building codes, but his office could not even find a store, large or small, that carried them in stock. They are only available by special order.

Hurricane roof clips, in particular, are apparently pretty inexpensive, easy to install, and provide great protection against high winds. It may be some time before local building departments require them on all homes, but it may be a relatively short time before insurance carriers start to offer insurance savings, or more liberal underwriting, based on people who go the extra mile to lower their risk of a hurricane claim.

The Homeowners Insurance Market Shrinks...

So to continue where the last post left off, what are the insurance carriers doing about this situation of increasing storm frequency and severity combined with the tremendous run-up in home values of the past few years? Well, Allstate Insurance Company fired the first shot, completely closing down for new homeowners insurance policies on Long Island. In their original news release, they said they would be keeping those customers they already have. But shortly after, they announced that they would be non-renewing (canceling) the number allowed by law, up to 4% of their customers. Unfortunately, the current law is that the 4% is based on the number of homes they write statewide, not just in a particular area. This means that they could actually cancel a much larger percentage here on Long Island as long as they don't cancel many people from other parts of the state.

Last week, MetLife Auto and Home announced that they are going to stop writing homes that are not at least five miles from tidal waters on Long Island, which takes in a pretty large slice considering we are only 20 miles wide at the widest point.

Nationwide followed next with what they are calling 'managed growth', and exactly what action they are taking depends on whether you are in the relatively sheltered areas of Nassau and Queens counties, or in the more highly exposed sections of Suffolk starting in Brookhaven.

This is only going to get worse because the companies that remain can't absorb all this business at their current rates. Part of that issue has to do with reinsurance, which basically is when the insurance companies buy insurance themselves, through giant carriers that spread billions of dollars of risk around to help stabilize the market. The problem is that the reinsurance carriers have raised their rates because of the recent storms and the predictions that we will be having more of them. But the regular insurance carriers are not allowed to pass those costs on to their policy holders. There are valid reasons for this which are beyond the scope of our discussion, but still it is making it very difficult for insurance companies to price their policies and offer coverages in high hazard regions like ours.

Long Island Homeowners Insurance - What's the Real Story?

This week we will begin a series of articles looking in to what is really happening in the homeowners insurance market in the downstate New York area, especially on Long Island. There is a lot of confusion and misinformation running around right now, and it is critical that we stay well informed on the real issues, not the hype.

The big talk is about hurricanes and flooding. After Katrina last year, and after the large number of storms that have formed in coastal waters the past 6-8 years or so, panic is finally setting in with insurance carriers as they are realizing just what they have at stake in the New York area, and how it is (and isn't) different from other areas of the country.

Let's start by looking at what the insurance companies really fear. They are not afraid of a fire. The age when conflagrations such as the Great Chicago Fire could easily occur are long past, with improvements in buildings and in fire protection. So while a 'bad' fire might damage several buildings, or one large one such as the World Trade Center, they will not wipe out an entire city or even an area. The same can be said for most other kinds of damage covered by property insurance, including vandalism, burst pipes, and so on.

The real fear is of a truly catastrophic storm ripping through the New York area. Property values here are higher than almost anywhere else (we all know what ridiculous prices our homes are worth compared to a few short years ago) and the TOTAL property values in the NY metropolitan area are just astounding. The World Trade Center insured loss for the events of 9-11-2001 are somewhere in the range of $65 billion, depending on just which account you are reading. The damages being paid out for Katrina by insurance carriers are currently estimated at about $25 billion (see CBS News article here.) However, the current estimate of residential property values in the coast around NYC and the various suburbs is $1.5 TRILLION! Allstate lost $1 Billion last year and stopped writing all homeowners on Long Island in order to manage their exposure. According to NY State figures, they write about 26% of homes on Long Island, which exposes them to probably close to $100 Billion in property values! Is it any real wonder they are worried?

Today's Useless Info

Well, the useless tidbit for today, or actually for tomorrow, is that at two minutes and three seconds after one a.m. on Wednesday, it will be 01:02:03 04/05/06. This will happen again that afternoon and then not for 100 years.

Just to give credit where due, I received this from Michael Watt, of LongIsland.com, though I understand it's circulating the Web all over the place.

Getting Cheap Insurance Quotes, continued

One of the things that has changed over the past five years or so when you shop around for auo and home insurance is that you are asked for your Social Security number. In these days of privacy concerns, that’s not an easy thing to give out, nor is it pleasant for us to ask. However, it’s a ‘fact of life’ now in the business, and in fact, any insurance quote you get without giving your Social Secuity number is, at best, a wild guess, and at worst, a lowball quote. The only exception is in a case where you are specifically told by the agent or company that they are using a company that does NOT do insurance or credit scoring, and that is becoming more and more rare.

These days, most companies have anywhere from 10 to 100 different rating tiers, and your placement depends more on your score than on any other single factor. Some of your rate is, of course, still based on traditional factors like violations and accidents for car insurance, or age of dwelling and nearness to water for home insurance.

But for most companies, your final rate is as much determined by your score as by anything else. Your insurance score is typically made up of about 150 elements, each assigned a weighting. The factors vary from company to company, though a lot are common to most. Those might include home ownership, length of time on your job, and things like that. But the biggest part of your insurance score, make no mistake, is your credit history. Research data companies such as ChoicePoint and Fair Isaac have come up with a whole bunch of characteristics of people that correlate with those who have fewer insurance claims.

In some ways, it’s fairly obvious. I have no trouble believing that the kind of person who pays all their bills on time all the time is also the person who does preventive maintenance on their house and cars which helps reduce both the frequency and severity of claims. But make no mistake, these data companies, and the insurance carriers that are using the data, are not concerned with why there is a difference. They make no claim that having a good credit history is the reason a person has lower claims. They just know that they can show a good historical relationship, and so can use it to give each client what they feel is an appropriate price.

Our office still has carriers for both auto insurance and home insurance that do not require an insurance score, but in both cases, chances are the rate will not be the lowest it could be, even if your credit is not sparkling clean. Still, some people want the option. But if you want the best insurance rates, you can help yourself a lot by working on your credit score.