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?