Friday, April 21, 2006

The Homeowners Insurance Market Shrinks...

So to continue where the last post left off, what are the insurance carriers doing about this situation of increasing storm frequency and severity combined with the tremendous run-up in home values of the past few years? Well, Allstate Insurance Company fired the first shot, completely closing down for new homeowners insurance policies on Long Island. In their original news release, they said they would be keeping those customers they already have. But shortly after, they announced that they would be non-renewing (canceling) the number allowed by law, up to 4% of their customers. Unfortunately, the current law is that the 4% is based on the number of homes they write statewide, not just in a particular area. This means that they could actually cancel a much larger percentage here on Long Island as long as they don't cancel many people from other parts of the state.

Last week, MetLife Auto and Home announced that they are going to stop writing homes that are not at least five miles from tidal waters on Long Island, which takes in a pretty large slice considering we are only 20 miles wide at the widest point.

Nationwide followed next with what they are calling 'managed growth', and exactly what action they are taking depends on whether you are in the relatively sheltered areas of Nassau and Queens counties, or in the more highly exposed sections of Suffolk starting in Brookhaven.

This is only going to get worse because the companies that remain can't absorb all this business at their current rates. Part of that issue has to do with reinsurance, which basically is when the insurance companies buy insurance themselves, through giant carriers that spread billions of dollars of risk around to help stabilize the market. The problem is that the reinsurance carriers have raised their rates because of the recent storms and the predictions that we will be having more of them. But the regular insurance carriers are not allowed to pass those costs on to their policy holders. There are valid reasons for this which are beyond the scope of our discussion, but still it is making it very difficult for insurance companies to price their policies and offer coverages in high hazard regions like ours.