Property insurance companies have become convinced that a hurricane like the 1938 hurricane, or Hurricanes Andrew, Katrina or Sandy could force them into insolvency, like Florida insurance companies after Hurricane Andrew or Hawaii insurance companies after Hurricane Ineki. The recent hurricanes have not only validated recent hurricane risk models used to justify insurance rate increases, they suggest even higher rates are warranted. But it's not a matter of simply raising prices – writing property insurance on Cape Cod is a risk an increasing number of companies are no longer willing to take. They just can't quantify the likely cost of a major storm and price coverage accordingly – remember, Sandy was “only” a Category 1 storm. We could very conceivably be hit by a Category 3. Some companies actually believe they have a duty to their policyholders and stockholders not to write Cape Cod property insurance.
With so many companies leaving or restricting writings, the remaining companies are being forced (in their view) to react. They do not see it as an opportunity to gain more business and write more premium. They see it as being forced to take business other companies don't want and further expose themselves to financial ruin. They have been raising premiums, limiting the number of new policies their agents may write, restricting new and renewal business near the water, and imposing wind deductibles – a special dollar amount or percentage of dwelling insurance deductible applied to wind losses. Our clients have been surprisingly tolerant of these measures. However, in the case of wind deductibles, this may be largely due to a lack of awareness of this coverage restriction, despite our efforts to point it out.
There is a state sponsored insurance pool, the Massachusetts Property Insurance Underwriting Association (MPIUA or “FAIR Plan”). More and more Cape Cod property insurance is being placed with the MPIUA. This is not the solution. If the MPIUA suffers catastrophic losses, it makes an assessment against all of the companies licensed in the state. So, the companies are still ultimately exposed to catastrophe, and this is actually a disincentive to writing property insurance in Massachusetts.
What's the solution?
There have always been catastrophes and there always will be. Hurricanes, tornados, floods, earthquakes, wildfires, and even terrorism are facts of life. Government, with the collective resources of the people, is routinely called upon to help with catastrophe mitigation, albeit often in a delayed, haphazard, piecemeal or ineffective fashion. There has been talk of creating a Massachusetts “wind pool”. There are already effective federal programs for flood insurance and terrorism.
Ultimately, the scope of the federal programs should be expanded to cover all uninsurable catastrophes . The goal should not be to replace the efficient private insurance system with government bureaucracy, or force insurance companies to pay clearly excluded unfunded claims, but only to limit the magnitude of the losses to which private companies are exposed, with public society underwriting the privately unmanageable risk. If it's determined after a major catastrophe that it's in the public interest that claims for excluded coverages, like flood and mold damage in Louisiana, should be paid, fund the payments and let insurance companies administer the settlements along with the contractually covered claims.
What can you do?
First, please be patient with us – we're on your side , and we're doing our best to help you maintain essential coverage for a reasonable premium. This is a difficult time for us, too.
In past years, when premiums with one company rose, or a company changed its underwriting appetite, we usually had the option of simply placing coverage with another company. We have rewritten countless policies over the years to help our clients avoid rate increases or to take advantage of rate decreases. We have lost that option.
More importantly- let state and federal officials know that you expect them to take the proactive steps that must be taken to ameliorate this growing crisis in the private insurance system. They're going to have to respond to future catastrophes anyway - why not in a thoughtful, organized, thorough, proactive and cost-effective manner?
Thank you for your understanding.
Jane & Ron RemyOwners