N.Y. Homeowners Insurance Market: Strong or Weak?

New York’s homeowners insurance market is either strong, stable or fragile depending upon whether the speaker is an agent or an insurer.

Also, Allstate Insurance Co.’s decision to limit its business in eight counties in the state is either a “draconian” step out of character with the company’s past or a measured response to hurricanes and financial reality.

While insurance companies told state officials at a public hearing that the state’s homeowners insurance market is healthy despite a cutback by the largest writer, some independent agents maintained that the market is “fragile” and called for regulatory action to maintain access to markets.

At the same public hearing, Allstate, the company that triggered the market review, defended its decision, maintaining it had no choice but to curtail writings in light of hurricane forecasts, the density of certain downstate communities and its own concentration of business.

“We are, and we will take steps to remain, a financially strong insurer. We also intend to remain one of the top insurers serving the New York marketplace,” said Brian Pozzi, regional counsel for the giant insurer, in prepared testimony.

Allstate told officials that its reduction in policies written would be less than four percent a year and that it would give insureds 75 days notice, more than the required 45 days. Allstate and its independent agent subsidiary, Encompass, write about 25 percent of homes in the state.

But New York Superintendent of Insurance Howard Mills, who called the hearing to gauge the condition of the marketplace following the giant insurer’s early February announcement, wondered if the insurer was overreacting.

“It seems to us and many of your customers that after a five year period of rapidly increasing your market share, built upon your long history of being very aggressive in this market, that this is a very draconian and sudden action,” Mills commented.

If Mills is worried about consumers, he need not be, according to one insurer group, the American Insurance Association. The AIA told Mills that the state’s homeowners insurance market is strong.

“There is much concern about the availability of homeowners insurance, particularly in the downstate area. AIA believes this insurance is readily available and will continue to be so, even in light of recent underwriting decisions by Allstate. The homeowners market is competitive throughout the state,” said Gary Henning, AIA assistant vice president, Northeast region.

“Additional capacity has been created in the marketplace since the end of the most recent hurricane season. New Yorkers should continue to have relatively easy access to the homeowners insurance market, despite the concerns.”

Another group of insurers was a bit more guarded in its optimism. Kristina Baldwin, regional manager for the Property Casualty Insurers of America, whose members write about one-third of the homeowners policies in the state, told regulators that despite concern on Long Island and other areas with catastrophic exposure, there are still enough insurers in the state to avert a market crisis.

“All indications are that, despite the tumultuous 2005 hurricane season, insurance is available in New York’s coastal areas,” she said. “Still, some insurers are concerned about their ability to charge premiums to adequately cover their exposure and consumers may have fewer choices in some areas.”

According to Baldwin, the relatively small growth of the state’s residual market, the New York Property Insurance Underwriting Association, is a sign that private insurance remains available.

While insurers painted a positive picture and warned against government intrusion, some independent agents told a different tale. They said they are “deeply concerned about the health” of the Long Island and the metropolitan New York City homeowners market. The Independent Insurance Agents & Brokers of New York, Inc. estimates 50,000 Long Island homeowners will have to find other coverage due to Allstate’s cutbacks.

IIABNY Chair Mark J. Hagan and George Yates, president of Dayton Ritz & Osborne, East Hampton, questioned whether other carriers would be able to absorb these 50,000 policies and recommended legislative and regulatory steps be taken to assure availability of coverage.

The Professional Insurance Agents of New York State Inc. said it conducted a week-long survey of its members in downstate New York and found there is no immediate crisis in availability in the area.

N. Stephen Ruchman, immediate past president of PIANY, testified that a degree of competition exists in most areas. However, Ruchman noted that Allstate’s recent moves could potentially undermine a currently stable situation.

“Our information suggests that, at this point in time the homeowners market in the downstate area remains adequate to handle the current level of new business,” said Ruchman, stressing that PIANY’s data captures a certain window in time and conditions may change.

“PIANY encourages the insurance department to do all within its power to persuade Allstate to reconsider its plan to cease insuring new clients, and to aggressively nonrenew existing customers,” said Ruchman. “New York residents should not suffer for the failure of this company to calculate its exposure correctly, either here or elsewhere, and to secure appropriate reinsurance for losses in the Gulf Coast region. Yet, a review of the company’s actions over the past few months suggest this is what it plans.”

According to Ruchman, the customers Allstate wants to drop will likely be of two types: those who have had a claim or those who live closest to the water.

“The utmost caution is needed to prevent more of these policies from being nonrenewed than the existing market can readily absorb,” said Ruchman.

Allstate’s Pozzi testified that the spate of hurricanes will continue for many more years and will not be just a Florida or Gulf Coast problem. “Hurricanes have hit downstate New York, and hurricanes will hit downstate New York again. Our very high market share numbers therefore compelled us to take appropriate, measured actions that balance the best interests of customers, shareholders, agency owners, employees and the community at large,” Pozzi explained.

He reminded officials that downstate New York is one of the most densely populated areas in the U.S. and has a very high median home value. If a Katrina size hurricane (Category 3 when it made landfall) were to hit the New York metro area, it would cause many billions of dollars in damage. Experts predict that even a Category 1 hurricane, such as Gloria, which hit New York in 1985, would cause hundreds of millions or even billions of dollars in damage.

“It is in this context that Allstate takes these difficult yet absolutely necessary market actions,” the Allstate official added.

If Mills is worried about overreaction, he might focus on the government’s own stance, according to industry representatives. The New York Insurance Association Inc. submitted a letter to Mills in which its president, Bernie Bourdeau, suggested any insurance problems could be worked out by private markets if government does not overreact to the current situation.

“Companies today are poised to capture the market share being conceded by their competitors,” wrote Bourdeau. “The worst thing that could happen at this point would be a government reaction, by legislation or regulation, that is perceived by these companies as restricting their ability to manage their business. That would reduce the flow of new capacity to the coastal market, the very thing that is most needed at this time.”

Several parties pointed to the department’s voluntary Coastal Market Assistance Program, which was begun in the wake of Hurricane Andrew in 1992, as a possible answer should availability become a problem. C-MAP is a voluntary network of insurers and producers who assist homeowners residing in coastal areas in obtaining insurance.

“Largely because there was not an overreaction by government, other companies moved in to write the business being shed by the companies that decided to reduce their coastal exposure,” claimed NYSIA’s Bourdeau in recalling how the C-MAP worked 14 years ago.

“What lesson can we draw from New York’s post-Andrew temporary market dislocations? If public policy stays the course, and assists in the efforts to match buyers and sellers, the private sector will act to stabilize the market. It always does,” Bourdeau said.

Allstate vowed to assist the state in reinvigorating the existing C-MAP program.