Is New York's coastal homeowners market--particularly onhurricane-exposed Long Island--really in crisis? Assessments varygreatly depending on the observer. Agents are not afraid to use theword "crisis," or at least "serious problem," to describeavailability and affordability in certain areas along the coast,while the New York Insurance Department and some major carrierssuch as Allstate view the market more as a "concern" with respectto affordability.

Meanwhile, at least one nonadmitted wholesaler who has recentlybegun offering coverage on Long Island describes the market thereas vibrant and competitive--at least among nonadmittedproviders.

There is general agreement that carriers in the region arecertainly more aware of their potential exposure, given theworst-case scenarios should a major hurricane sweep up the EastCoast and hammer the vulnerable, dense Long Island shore.

Explaining Allstate's recent moves to limit its exposure in NewYork, Brian Pozzi, the company's regional counsel, testified lastmonth before the New York Senate Insurance Committee that the 2004and 2005 hurricane seasons were a wake-up call in ways thatinsurers had not expected.

He pointed to concepts such as "demand surge," which is anincrease in the cost of necessary building supplies after adisaster, and he also cited additional living expenses.

Mr. Pozzi said that if a storm hits Long Island, thousands ofpeople would come to the area to rebuild communications lines,electricity lines, roads and other damaged infrastructure. Inaddition, thousands of residents would no longer have homes.

"Where would they all live?" Mr. Pozzi asked the senators. "Atwhat cost? It became readily apparent that for a company the sizeof Allstate, with the exposure that we have in the downstatecounties, we had to take measured actions to manage ourexposure."

But Mr. Pozzi also testified that Allstate's decision has notcaused a crisis in availability, and he noted that other companieshave been picking up the business that Allstate and othertraditional coastal insurers have dropped.

At the same hearing, New York Insurance Superintendent EricDinallo testified that companies are entering the market--even iftheir rates are higher--and he listed several willing to writehomeowners policies in New York's lower eight counties.

However, speaking to National Underwriter, Dick Poppa, presidentand chief executive officer of the Independent Insurance Agents andBrokers of New York, said his members have not seen much newcapacity at all on Long Island.

"We were dumbfounded by the list of new carriers that weresupposedly coming into the market," Mr. Poppa said. "We asked ourmembers [after the hearing], 'Are any of these companies writingbusiness with you guys?' and the answer was virtually just no."

Michael Moriarty, deputy superintendent for property and capitalmarkets at the New York department, said he has recently heardagents make claims similar to Mr. Poppa's.

"Companies have indicated to the department that they intend towrite in coastal areas. Whether they've initiated that or not, Ican't say," he said. "We intend to reach out to these companies andhave contact with them."

Speaking to the state of the coastal market overall, Mr. Poppasaid: "We believe that there is, in certain areas of Long Island, areal crisis."

Thomas Crowley, a past president of the Independent InsuranceAgents and Brokers of Suffolk County and an independent agent withMaran Corporate Risk Associates in Southhampton, N.Y., said: "Thecapacity issue right now is that most agents and brokers aredealing with a situation [on Long Island] where they're fortunateto have one or two carriers that will write anything, and thecommon theme seems to be a mile to salt water on the South Shoreand a half-mile to salt water on the North Shore."

Ellen Kiehl, assistant executive director for government andindustry affairs at the Professional Insurance Agents of New York,said a survey of the association's members in June showed that onLong Island, the situation worsens toward the East End. "All ofSuffolk County is tough," Ms. Kiehl said.

She added there is some capacity from the standard market, butit's "very limited in scope and not available to every homeownerand every agent. But we have heard of a few limited programs comingin to write selected and limited numbers of homes."

These programs, she explained, are generally looking forhigher-valued homes, or are exclusive to one agency. "It's not awide-open market, but some carriers that see an opportunity havecome in with a limited and targeted number of homeowners policiesthey want to sell," Ms. Kiehl said.

For those along the water on Long Island, Ms. Kiehl and otheragents said excess and surplus lines carriers are generally theonly option.

But Mr. Moriarty and the insurance department offer a differentview. "It's a big concern of ours," Mr. Moriarty said, "but wedon't think it's reached a crisis level inasmuch as there isavailability in the admitted market."

He explained that the real problem in the area is consumers areforced to pay more for coverage now, noting that in recent years,rates were low because the market was very competitive.

Mr. Moriarty added that he does not see too much business beingplaced in the E&S market. "While there has been an up-tick inthe placements with the nonadmitted market, it still represents avery small portion of the 1.7 million homes that are in coastalareas," he said.

Ms. Kiehl agreed the "absolute policy count" in this market isnot high but said PIANY tracks the number of excess lines policiesfrom month to month, "and it's running about twice what it was lastyear."

She explained that the numbers can be deceptive, citing anExcess Lines Association of New York report that broke downpolicies by ZIP code. Ms. Kiehl said there are "clusters" of excesslines policies--not evenly distributed across Long Island.

Tim Byrne, managing member of Coastal Agents Alliance--awholesaler based in New Jersey that has recently started writingrisks on Long Island on a nonadmitted basis--painted a verydifferent picture of the market than agents in the area.

"My analysis of the market is that there is a very competitive,vibrant coastal market in Long Island and New Jersey," he said. "Ithink there has to be a more honest discussion of what's going onalong the coast--which is, there is a market. It isn't anavailability crisis--it's that the brokers don't like the optionsthey have right now in the nonadmitted market."

While Mr. Byrne acknowledged the capacity he has seen in thecoastal market is coming from nonadmitted companies, he said thatis not necessarily a bad thing.

Coastal Agents Alliance, he said, uses a standard ISO form andacts essentially as an admitted carrier, adding that othernonadmitted insurers will enter the market and act similarly. "Themessage I like to tell brokers is, 'This isn't your father'sE&S market,'" Mr. Byrne said.

Mr. Moriarty said business placed with nonadmitted carriers"could be okay" if the policy forms they are using give homeownersthe protection they expect to get, and if the product iscompetitively priced.

"There are strong nonadmitted companies," he said, but noted therisks involved--including no insurance department review of ratesor policy forms, and no guaranty fund protection.

Although views on the extent of the problem vary, virtually allparties agree there needs to be some changes in New York's coastalhomeowners market. The department has put forth a proposal in whichinsurers must contribute funds to a catastrophe reserve pool to payfor future hurricane losses (discussed in detail in theaccompanying story on page 13).

Beyond that, agents are unanimous in calling for changes to theNew York Property Insurance Underwriting Association--the state'sinsurer of last resort. Currently, the program is renewed by thelegislature every year, although coverage has lapsed in the pastwhen the program has not been renewed before its expirationdate.

Agents would prefer the program be made permanent, but beyondthat, they would like to see companies write a wraparound thatoffers comprehensive coverage beyond the program's basic fire andwind coverage.

Thus far, carriers have been reluctant to do so. "We've talkedto a lot of insurance companies, and so far we're just not gettinganyone to take us up on it," Mr. Poppa said.

N. Stephen Ruchman, past president of PIANY and president ofRuchman Associates Inc., an independent agency in Rockville Centre,N.Y., said he would like to see a change in the state's "4 percentrule"--referring to the law that allows insurers to cancel no morethan 4 percent of the business on their book at one time.

However, he noted that companies avoid the intent of this ruleby cancelling more than 4 percent of policies in one region of thestate--such as Long Island--while writing more business in anotherregion, such as further upstate. "I would get rid of the 4 percentrule by state, and go 4 percent by territory instead," hesuggested.

Another potential solution highlights a possible disconnectbetween the industry and insurance department.

Mr. Poppa and Mr. Crowley said carriers should be able to "passthrough" reinsurance costs to consumers. Mr. Crowley said theuncertainty of reinsurance costs is hurting companies' ability togauge the market, adding that carriers need to pass on increases inreinsurance costs to consumers immediately to bring somestability.

But Mr. Moriarty said companies are already allowed to do this."Actually, we do allow the cost of reinsurance to be a factor inestablishing a rate," he said. "There is a bit of a disconnectthere."

Mr. Poppa clarified that "we would like for insurance companiesto have the flexibility to pass through reinsurance increasesdirectly without going through any kind of rate approvalprocess."