Vermont Mutual Latest to Exit Cape Cod Mass. Homeowners Market

January 26, 2006

Another insurer has decided it can’t continue to write homeowners insurance policies on Cape Cod.

Starting April 1, Vermont Mutual will stop renewing about 4,700 homeowners and 400 dwelling policies, Tom Tierney, president of the insurer, confirmed to Insurance Journal.

The Montpelier-based company that writes throughout New England and New York had already stopped writing new homeowners policies on Cape Cod after Andover Insurance Companies dropped its more than 14,000 policies in the spring of 2004.

Last December, Quincy Mutual and Hingham Mutual announced they were pulling back on writing Cape policies as well.

“This does not make us happy because of the relationships we have had for years with our agents,” Tierney said. He said the decision does not affect its writings in its other states nor its commercial policies.

While several private carriers remain writing selectively, the exodus of Vermont Mutual and others leaves the residual market insurer, the Fair Plan, as the most likely recipient of the business being dropped. The Fair Plan has become the largest writer on the Cape with about 27 percent of the market.

Tierney says that the Fair Plan is part of the problem because its rates are too low and insurers are on the hook for whatever losses it may suffer down the road.

Tierney says a company like his can’t charge what it needs to reflect the true risk and recover rising catastrophe reinsurance costs related to Cape properties. Private carriers must also face the fact they will be assessed for whatever future losses the Fair Plan might suffer. In addition, the Fair Plan does not carry its own reinsurance but instead relies upon individual carrier’s reinsurance.

“You have A.M Best looking at you also,” he noted, referring to the organization that rates insurers’ financial stability.

Tierney believes that storm forecasting models used up until now have actually underestimated the potential losses on the Cape and that reinsurance costs for Cape business will go up again after the models are updated.

The Fair Plan is currently in negotiations with the state to raise its rates. The insurer has proposed a 25 percent average hike on the Cape but Tierney says even that wouldn’t be enough.

“Polticians use the term affordability but that’s not the issue,” he said. As more and more people are moving to coastal areas to live, insurance costs must reflect the risk, he added.

Tierney suggested that the state grant insurers an offset against Fair Plan assessments on any Cape policies they write to help cover higher catastrophe reinsurance costs on these risks.

That offset, along with the Fair Plan buying its own reinsurance and insurers being allowed to charge the correct price, would help restore a private marketplace on Cape Cod, the executive suggested.

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