Coastal insurance: LI's cost, coverage worries

Oyster Bay homeowner Susan Kelly has seen her Oyster Bay homeowner Susan Kelly has seen her insurance premiums increase by 40 percent since 2008. Many Long Islanders have seen similar trends in recent years as increasingly wild weather affects coastal regions. (Aug. 28, 2012) Photo Credit: Danielle Finkelstein

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The seventh anniversary last week of Hurricane Katrina's landfall -- and the drenching of Louisiana by Isaac last week -- serve as reminders to Long Islanders why their homeowners insurance premiums have risen sharply in recent years -- and why some homeowners have been dropped by their carriers.

Insurers were shocked by Katrina, which made landfall Aug. 29, 2005, caused massive flooding in New Orleans when levees failed, cost them $45.5 billion, pretax, and led many to try to reduce their exposures in coastal regions.

J. Robert Hunter, the Consumer Federation of America's insurance expert, said that experience was preceded 13 years earlier by Hurricane Andrew, which in 1992 devastated portions of South Florida. The industry, he said, "had miscalculated, underestimated, potential losses."

More recently, Hurricane Irene, which crossed Long Island as a tropical storm last Aug. 28, largely spared Nassau-Suffolk from major damage but it affected 14 states and resulted in $4.3 billion in insured damages, says the New York-based Insurance Information Institute.

Insurers, through their trade associations, argue they must raise premiums or even leave markets that become too expensive, or where they can't charge enough, because weather has become increasingly vicious around the country -- including hurricanes and storms of other types -- and because of statistical probabilities of more costly storms, which can lead to billions in claims.

'Overcapitalized'

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Consumer advocates like Hunter, a former Texas insurance commissioner and a federal insurance administrator under Presidents Gerald Ford and Jimmy Carter, contends that insurers are flush with cash, overstating the risks and hollowing out their coverage -- to the profit of their bottom lines. "In the last 20 years, insurers have been so successful at shifting costs to consumers and taxpayers that they are currently overcapitalized and cannot justify higher homeowners' rates," Hunter wrote in a report earlier this year for the Consumer Federation.

Rates have doubled for many Long Island homeowners in the past decade, say local agents. Since 2007, more than 200,000 homeowner insurance policies have not been renewed in New York City and Nassau, Suffolk and Westchester counties, the state says. That's about 14 percent of the total policies in effect in those counties.

"If you could find a company that has been writing homeowners insurance on Long Island with no change in what they're doing, it would be like finding a needle in a haystack," said Thomas J. Crowley, a partner at Maran Corporate Risk Associates in Southampton and the chairman of the Independent Insurance Agents and Brokers of New York.

Homeowner Susan Kelly of Oyster Bay, a widow with five children, says her premiums have risen by 40 percent since 2008, to $3,037 this year. "I have never made a claim, but I don't get rewarded for it," she said. "They're going to raise the premiums no matter what."

A 5 percent deductible is common

James Sutton, whose East Islip insurance agency works with 14 home insurance companies, says most homeowner policies on Long Island now have hurricane and wind deductibles that, when triggered,equal five percent of a home’s insured coverage.

Crowley says that, generally, the farther east the house, the bigger the increases in premiums.

Hunter says the industry's capital -- about $570 billion as of March 31, according to the Insurance Information Institute, is excessive, and would cover the insurance industry's 10 top catastrophes, including Andrew, Katrina and the 9/11 terrorist attacks, with money to spare, even if they all occurred in one year.

For homeowners, he says, that means rates probably are 25 percent higher than they need to be.

But at the insurance institute, president Robert Harwig says, "I can tell you, for one thing, that U.S. policyholders sleep much better at night knowing that their insurers are not going to go the way of their banks."

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