Saturday, March 17, 2007

The Homeowners Insurance Adventure Continues

These days, the insurance industry, especially in catastrophe hurricane exposed areas like Long Island, is changing very quickly. This is very different from not too long ago. Insurance companies and their employees tend to be very conservative, resisting changes sometimes for years before caving in. Agents tend to be the same, because our job is to protect against risk of loss, as opposed to many other business and personal models, where taking risks is part of the fun.

These days, change is fast and drastic. I have not posted here in about a month and a half, but in that time, several more carriers have stopped or severely cut back on writing home insurance on Long Island, especially within a half mile of the water. The latest one I heard about was State Farm, who stopped writing new policies within 2500 feet of the Bay. Adirondack Insurance recently severely limited their new policies in all of Suffolk County regardless of distance to water, and New York Central Mutual is not only limiting new policies, but they recently became part of the group that is actually canceling people.

Allstate continues to cancel thousands of policyholders, though they have made some efforts to bring other companies to the table so that their Long Island agents still have something to sell. There are almost no new players coming in to the New York market, except for some 'excess lines' carriers such as Lloyd's of London and Lexington Insurance Company. These carriers write policies at a much higher price, but at least they make coverage available.

If it turns out you are forced to seek insurance from one of these non-standard companies, be sure the agent you are dealing with has experience with them, especially with waterfront home insurance issues, and knows what to look for. We have seen policies that COMPLETELY EXCLUDE wind damage! What is the point of having insurance if you are not covered for a hurricane, which is just a big windstorm with a name? Some of these policies also carry exclusions for pets, underground oil tanks, and other unusual clauses. We have also seen policies that offer 'actual cash value' coverage on the structure itself, which takes depreciation based on age, as opposed to a 'regular' homeowners insurance policy which insured at replacement cost.

Of course, these policies still do not cover flood damage even though they may cost 2-3 times more than what was considered normal for Long Island home insurance only a couple of years ago. Flood insurance continues to be available through your local agent via the FEMA National Flood Insurance Program, and excess flood insurance is available from a number of companies, when the $250,000 maximum building coverage through the FEMA program is not enough.

Remember also that if your policy is through an excess and surplus insurance company, you are NOT protected by the New York State Guaranty Fund. That fund provides up to $1,000,000 in coverage if an insurance carrier defaults or becomes insolvent. Lloyd's prides itself on never having defaulted on a claim in over 100 of years of existence. And Lexington is part of AIG, the world's largest insurer. Still, the fact is they are not subject to regulation by the New York State insurance department, nor backed by the Guaranty Fund.

Another solution that is being used is the New York Fair Plan, otherwise known as NY Property or NYPIUA. That is a state-run operation that was designed to provide basic fire insurance for properties in blighted areas or which have other problems. But the policies provide NO liability insurance, no theft coverage, no coverage for burst pipes, and have many other restrictions. Again, in some cases, this may be your only practical option, but you need to be aware of just what you are buying. We have come across insurance offices here on Long Island telling their clients that they are getting a homeowners policy from NY Property, and nothing could be further from the truth.

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