THE COASTAL INSURANCE CHALLENGE
Writing insurance in the Coastal areas of the United States always seems to present more of a challenge to a great number of agencies than writing similar policies in non coastal areas. Is this because it is, by nature, harder to write and quote a policy in these Coastal Zones?
I think most agents would agree that this is not the case. Is it more of the fear of the unknown then? Probably so. Then what is the challenge and how should an agent address this challenge?
Being located on a barrier island off of the coast of New Jersey, we have faced this challenge since 1946. We suggest you break this dilemma into 3 distinct categories and address each one within your agency to come up with a plan to write coastal Business. The three categories are : 1. Differentiate 2. Educate 3. Communicate.
1. Start off by differentiating the exposures and risks in a coastal area. Ask your team to identify what the exposures are that need to be insured. Several exposures and coverages you need to pay particular attention to are Flood, Wind, Occupancy, Replacement Cost, availabilty of markets, and specific wind deductibles.
But wait a minute you say…there is flooding and wind damage throughout the United States? So why is it different in a Coastal Zone? These areas are often hit with wind and flood at the same time so special attention is needed to ensure your client has the proper coverage and understanding of what each policy covers.. The insurance and reinsurance markets themselves dictate that coastal exposures be treated differently.
After Hurricanes Katrina, Charlie and others in 2004 and 2005, we have all heard about the problems arising out of underinsured or uninsured homeowners who thought their homeowner policy covered flood damage. Hopefully this type of problem does not exist within the agency force but that does not mean we should not take every step to ensure our customers are aware of this. If you are not already, advise your clients if they are in a Flood zone and the need for Flood Insurance. Make it easy for them to determine what zone they are in. Wind and flood have been addressed pretty heavily the past few years so let’s key into some different exposures.
What about Occupancy? Is the property being used as a primary home, secondary or Seasonal residence, or as a rental property. It makes a significant difference in the availability of polices if the owners are only using the property and not renting the home. This may seem like Basic 101 Insurance but we can assure you these are not basic to the consumer. They will count on you as their Agent to not only provide the proper policy and coverages but to let them know what they need different for their Coastal home.
Most Homeowners do not understand the problem Insurance Companies have with a rental property as opposed to an owner occupied property.
We have found there to be a major problem in the Replacement Cost methods and calculations of Coastal Properties. The price of these homes has gone up dramatically over the past 5-10 years with the major value of the property being in the land. Insureds think their properties have to be insured to the price they paid or to the amount of the mortgage which often results in overinsurance. Homeowners do not have to obtain insurance for more than the value of the dwelling. Lenders cannot require coverage in the amount of the mortgage if that amount is higher than the building is worth. Be proactive for your customers to make sure their lenders will conform. Make a physical inspection and replacement cost estimator for every home insured to eliminate the possibility of overinsurance and save your customer some premium dollar.
The availability of markets has shifted considerably from admitted/standard markets to non-admitted markets especially in light of the recent influx of cancellations by Standard Markets. Explain to your customers the difference in admitted vs non-admitted carriers. The coverages offered from non-admitted carriers are usually less than the coverages in a policy from a Standard Carrier. This has also been accompanied by a major shift in deductibles with wind deductibles being considerably higher than those in non coastal areas. The typical $500-$1,000 deductible for a home insured for $500,000 is replaced by a 2-5% Wind/Named Storm Deductible which could result in deductibles up to $25,000.
2. This brings us to Education. You have to educate more than just your CSR’s and Producers. You have to more importantly educate your customers. Let them know about all of these changes in the coastal insurance market place. Consumers have to be aware of the exposures that are more common with a coastal property. When asked, most consumers think the main problem is obtaining Flood Insurance because it is either not available or is too expensive. The major problem is Wind Coverage. In today’s marketplace, it is not uncommon for the Homeowner or Dwelling Policy with the wind coverage to cost significantly more than a flood policy. We have to educate them about the importance of Flood zones and Flood Elevations. Proper flood zone determinations and elevations can make for a significant drop in Flood Premiums.
There are different types of flood policies available from The National Flood Insurance Program (NFIP). Preferred policies for homes not in high hazard areas have much lower premiums. It may be hard to raise an existing building but oftentimes adding venting to the 1st floor enclosed areas can make a difference. There are even subsidies available through NFIP for your clients to raise the elevation of their home. There are also many ways to mitigate potential losses by upgrading the structure with tie down straps, hurricane shutters, garage door reinforcements to name a few. You should make sure your customers are aware of all of these options.
3. Perhaps most important in facing the Coastal Challenge is to Communicate. It is of no use to the consumer if the only people who are aware of the coverages needed, the exposures to be protected, and the coastal issues are your CSR’s and Producers. Acknowledge right up front, and as often as possible, that there are challenges to writing a Coastal Insurance Policy.
Let EVERYONE know that Coastal Insurance is an issue. Whether it is in a face to face meeting, in a newsletter, on your website, in the newspaper, or via direct mail, make it known there is a Problem and YOU Have The Solution. Outline the procedures in obtaining a policy so your customer knows what to expect. This should include an estimation of cost. Set the expectations right up front and then deliver on the estimations you outlined. Most people will thank you in the long run for setting the expectations and then delivering on your words.
As aforementioned, many companies are now cancelling policies in Coastal Areas due to capacity issues and the concerns of the reinsurance markets. Consumers do not understand this nor can they relate to this. They have been with XYZ Company for several years with little or no claims and now they are being cancelled. Be proactive in this climate and advise your clients what is happening in the marketplace. Let them hear the news from you before they receive a cancellation notice in the mail. Be empathetic with your customers and let them know you are there to assist them. Take the time to explain the whole situation to them and make sure they understand they are not being singled out.
I am sure that there are many different ways agents across the Country have handled this Coastal Dilemma but we have found these methods to work pretty well over the years.
Dave Wyrsch Sr, owner of The Van Dyk Group at the New Jersey Shore is past president of IIABNJ, former recipent of the National Flood Insurance Program Agent of the year award, and member of the National Flood Insurance Producer Council.