Agents Fear N.Y. Coast Insurance Market Worse; Pols Weigh Options

October 11, 2007

New York lawmakers are considering taking action to improve coastal insurance availability while insurance agents are telling them they fear market restrictions are worsening.

Insurance companies, meanwhile, claim the state’s homeowners insurance market is fine and are urging public officials to be patient and refrain from intervening in he market.

The chair of the Independent Insurance Agents and Brokers of New York, Inc. told lawmakers he is “deeply concerned” about insurance companies limiting homeowners coverage in the state’s coastal region.

Testifying at a Senate Insurance Committee hearing, IIABNY Chair Stephen R. Zogby maintained that insurance company market restrictions, such as canceling and non-renewing policies in Westchester County, New York City and Long Island, are making it difficult for “consumers trying to find adequate coverage” to protect their homes.

The Professional Insurance Agents of New York State Inc. also urged legislative and regulatory action in the face of what it says is a tightening coastal insurance market for homeowners, particularly on Long Island.

“Members tell us that the market for property insurance near the shore continues to be extremely difficult,” PIANY past President N. Stephen Ruchman told the committee.

The market decline began in February, 2006 with Allstate’s decision to cancel and non-renew policyholders in the so-called “hurricane counties” of New York state, according to Zogby. “We have been working with the insurance companies,” said Zogby, “and have developed a list of critical areas that must be addressed.”

Zogby called on the Legislature to make permanent the state’s residual property insurer, the New York Property Insurance Underwriting Association, and to encourage insurers to use the wrap-around policy option in conjunction with NYPIUA policies.

He also urged Congress to create a national catastrophe fund and to permit insurers to set aside reserves for future catastrophe losses on a tax-deductible basis. N.Y. Superintendent of Insurance Eric Dinallo last week proposed a state plan granting insurers tax breaks for setting aside catastrophe reserves.

Zogby also encouraged the New York Insurance Department to recognize insurers’ use of computer catastrophe models in rate-making; standardize the triggers for activation of windstorm deductible clauses; and give insurers greater flexibility in the degree and timing of rate changes.

“We need to find new markets and capital for New York State and assist insurance companies through regulatory and legislative channels,” Zogby said, “making our state an attractive place to invest underwriting capital.”

PIANY’s Ruchman said his group conducted interviews with selected Suffolk County members who confirm that the situation remains difficult for people with homes near the water. Insurance coverage generally can be obtained, but it is not usually available from standard homeowners companies, he said.

The PIANY-member survey data revealed that about half of members in Nassau and Suffolk counties say they never can place homes close to the water with their regular companies.

PIANY also recommended that lawmakers give permanent, legal authority to the NYPIUA, along with improvements in the property coverage it provides; provide stronger protections against nonrenewal of existing homeowners policies; and provide an annual notice about the National Flood Insurance Program.

“Although it was formed to protect urban property in times of civil unrest, NYPIUA now has become an important safeguard for many with properties on barrier islands and along the shore. There is a permanent need for this market, and it is senseless to keep NYPIUA on a sunset basis,” Ruchman maintained.

As for regulatory steps, Ruchman said the state should examine current windstorm deductibles; improve the Coastal Market Assistance Program; and amend the state’s Regulation 41 “export list” to add coastal homeowners and comprehensive personal liability insurance.

PIANY’s recommendation to examine current deductibles focuses on two items: standardizing the provisions, which activate the deductibles, and providing customers the option to buy back the deductible.

Regarding CMAP, PIANY said it found through member surveys that only about one-out-of-10 members is using CMAP to place coastal risks. “There is a lack of understanding about how the program works, including among agents and agency staff; not enough companies are participating in the program; and agents are wary of coverage gaps that can occur with CMAP wrap-around policies,” he told lawmakers.

By adding coastal homeowners and comprehensive personal liability insurance to the “export list” of Regulation 41, PIANY said it hopes to simplify the process of obtaining excess line policies for people who need and want them. “The absolute number of such policies is not large, but year-over-year growth is considerable,” Ruchman said. “New homeowners policy transactions are running about two and one-half times what they were last year.”

For their part, insurers maintained that the current market is healthy and that government intervention would make insurance less affordable.

Instead of launching insurance plans, public policymakers should concentrate on fostering competition and mitigating potential losses, according to the American Insurance Association (AIA).

AIA said the current market is “largely healthy” with very little growth in the NYPIUA, the market of last resort.

“Homeowners’ insurance has been, and should continue to be, available to downstate homeowners. Any governmental efforts to address availability in the homeowners’ insurance market should focus on fostering greater competition, attracting new capital to the market, and creating a regulatory environment that allows insurers to manage their catastrophic exposures,” said James J. Whittle, AIA assistant general counsel.

Whittle offered support for one public initiative — a bill (S. 8358) that would strengthen the state’s coastal market assistance program (C-MAP), reconvene a panel to study issues facing the state’s coastal residents and require the Superintendent of Insurance to undertake efforts to attract new insurance carriers to the market.

The AIA representative also told the panel that maintaining strong building codes and incentives for homeowners to retrofit their properties to make them safer in the face of a hurricane would be beneficial.

The insurers oppose a state catastrophe fund or a proposal to require insurers to submit a withdrawal plan when non-renewing four percent of their writings in a single territory.

“This is a bad idea, it is a barrier to exit that will act as a barrier to entry and expansion”, said Whittle of the “4%” legislation.

Meanwhile, another insurer group, the Property Casualty Insurers Association of America (PCI), expressed doubts about Superintendent Dinallo’s state catastrophe reserve plan. His proposal called for insurers to pay into a state fund now, with the promise that tax breaks would be granted in the future.

PCI said it agrees that voluntary, tax-deferred, pre-event reserves to fund catastrophe risks is a good idea, but at the federal, not state, level.

“While Superintendent Eric Dinallo’s proposal attempts to address the reserve issue, without the proper tax treatment we question the real impact of such a regulation. We hope, however, that this will spur federal consideration of the tax treatment of such reserves,” the group said in a statement.

Dinallo has promised that his proposed regulation will go through a formal process, which includes a formal 45-day comment period. PCI said it plans to submit written comments after it has had an opportunity to fully study the proposal.

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