- A growing number of East End homeowners who live within a half a mile to a mile from the ocean, sound, bays or creeks that dominate this Island region are paying more and often getting less homeowners insurance these days, that is, if they can get an insurance company willing to write a policy at all in this high risk coastal area.
Many of the major insurance companies have canceled homeowner's policies on properties more than 12 miles from the shoreline. On the East End, and on the North Fork in particular where the distance from the sound to the bay is less than ten miles, a significant number of homeowners could be affected and find themselves without insurance very soon.
Reluctant To Write Policies
The risk factor, combined with the hefty payouts insurers would have to make if a major coastal storm hit the region, has prompted the biggest insurance companies in the region to refuse to renew customer's policies and has made them reluctant to write any new business in high risk coastal areas such as Long Island where they feel they are overexposed despite record profits shown by insurance companies since 2004.
Still reeling from the $40 billion hit they sustained in the wake of Hurricane Katrina, a category five hurricane, that slammed into the Gulf Coast in August of 2005 destroying property in Louisiana, Alabama and Mississippi, large insurance companies are reevaluating the way they do business in coastal areas. Katrina destroyed parts of New Orleans that are still being rebuilt and caused severe property damage within a one hundred mile radius of the storm's center.
Major insurance companies such as Allstate, State Farm and Liberty Mutual gradually began their retreat from coastal areas post Katrina when they began to cancel policies and stopped taking on new customers. At first the limits were within a half a mile to a mile, some broadened this range to three miles, five miles and now in some instances up to twelve miles from the water line.
Dream location or cause for sleepless nights as insurance companies drop coverage?
This left homeowners and their insurance agents scrambling to find alternative sources willing to pick up their canceled policies. Homeowners were shocked as their annual insurance premiums went from $2,000 a year to $4,700 a year depending on coverage, replacement value and other factors. Some homeowners previously held policies for as little as $900 a year and were suddenly faced with double and triple those premiums.
In addition to the higher premiums,,homeowners are also facing higher deductibles, meaning they are paying more out-of-pocket while getting less coverage in return.
"It's been a difficult time for homeowners," Joseph L. Townsend, owner of Townsend Insurance of Greenport reported. "Insurance companies are allowed to refuse to renew three to four percent of their policies annually without having to give any reason for the refusal to renew."
Townsend, a former mayor of the Village of Greenport, is a second-generation insurance company owner. He has come to the forefront of the local homeowner's insurance "crisis" along with Tom Crowley of Maran Associates Insurance in Southampton.
The two insurance professionals put their organization, the Independent Insurance Agents and Brokers (IIAB) of Suffolk County in touch with the local political community.
Townsend was asked to address the Southold Town Board when Town Councilman William Edwards, the owner of a bay front home in Mattituck fell victim to the situation. "His insurance was canceled and he had to go with another company at a much higher premium," Townsend explained. "So he was hit like a lot of other homeowners out here."
Townsend referred matters to Tom Crowley and the IIAB. Crowley addressed the East End Supervisors and Mayors Association this fall. The group is calling for more political involvement from consumers and encouraged the East End Supervisors and Mayors Association to draft a complaint form. The form can be filled out by homeowners who have had their insurance canceled and sent to either IIAB or to Eric Dinallo, Superintendent of the New York State Insurance Department.
A Difficult Time
"One of the key components missing here, Crowley said, "is consumer involvement. This is not a legislative issue, it is a regulatory issue."
"It's a difficult problem to address," Townsend agreed, echoing Crowley's sentiments. "We had hearings down here on Long Island this fall. The State Insurance Department did not view this as a crisis, because it only affects the downstate region here on the Island."
According to New York Insurance Department statistics, more than 9,000 homeowners in Suffolk County and an estimated 6,500 homeowners in Nassau did not have their policies renewed between March 2006 and August 2007.
Low lying waterfront properties are at high risk of storm damage.
"I have a hard time believing those figures," Townsend said. "I've had over 100 cancellations in my little office."
The cancellation of homeowners insurance in coastal areas is well known to residents of Florida, the Gulf Coast and other waterfront areas in the country, but is a relatively new phenomenon to Long Island.
According to statistics used by insurance companies, Long Island now ranks third nationwide in terms of the value of property that would have to be replaced or repaired to honor claims in the event of a major coastal storm such as a category four or five hurricane.
"When insurance companies take a look at this region they take the population density and the value of the homes in our coastal areas into account," Crowley said. "Then they project what a direct hit by a category four or five storm would do to this area. Katrina would pale in comparison," Crowley added. "These insurance companies feel they are overexposed here."
The last major hurricane to hit Long Island on a catastrophic level was the Hurricane of 1938, although recent hurricanes including Hurricane Bob in 1991 casued considerable local damage.
Insurance companies expect a major storm to hit Long Island between 2008 and 2009 based on computer generated weather models. According to Robert Hunter, director of insurance for the Consumer Federation of America, insurance companies have condensed their projections of risk, narrowing the range to a four or five year time frame rather than a probability range of 20 years into the future which had been previously utilized.
According to the Insurance Information Institute, a trade organization that provides information to the insurance industry, profits are up, with insurance companies showing a reported record profit of $43 billion in 2005, the year Katrina hit the Gulf Coast.
"The little guy is getting killed," Townsend said. "But you also have to take a look at what is going on with the re-insurance. Insurance companies are insured by re-insurers," Townsend explained. "These re-insurers are now raising their rates to the insurance companies, which makes it more expensive for them to do business in these coastal areas."
"Insurance is all about risk," Townsend commented. "A good risk is someone who doesn't need insurance, not someone who does."