Is New York's coastal homeowners market--particularly on hurricane-exposed Long Island--really in crisis? Assessments vary greatly depending on the observer. Agents are not afraid to use the word "crisis," or at least "serious problem," to describe availability and affordability in certain areas along the coast, while the New York Insurance Department and some major carriers such as Allstate view the market more as a "concern" with respect to affordability.

Meanwhile, at least one nonadmitted wholesaler who has recently begun offering coverage on Long Island describes the market there as vibrant and competitive--at least among nonadmitted providers.

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

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

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

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

"Where would they all live?" Mr. Pozzi asked the senators. "At what cost? It became readily apparent that for a company the size of Allstate, with the exposure that we have in the downstate counties, we had to take measured actions to manage our exposure."

But Mr. Pozzi also testified that Allstate's decision has not caused a crisis in availability, and he noted that other companies have been picking up the business that Allstate and other traditional coastal insurers have dropped.

At the same hearing, New York Insurance Superintendent Eric Dinallo testified that companies are entering the market--even if their rates are higher--and he listed several willing to write homeowners policies in New York's lower eight counties.

However, speaking to National Underwriter, Dick Poppa, president and chief executive officer of the Independent Insurance Agents and Brokers of New York, said his members have not seen much new capacity at all on Long Island.

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

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

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

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

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

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

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

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

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

But Mr. Moriarty and the insurance department offer a different view. "It's a big concern of ours," Mr. Moriarty said, "but we don't think it's reached a crisis level inasmuch as there is availability in the admitted market."

He explained that the real problem in the area is consumers are forced 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 being placed in the E&S market. "While there has been an up-tick in the placements with the nonadmitted market, it still represents a very small portion of the 1.7 million homes that are in coastal areas," he said.

Ms. Kiehl agreed the "absolute policy count" in this market is not high but said PIANY tracks the number of excess lines policies from month to month, "and it's running about twice what it was last year."

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

Tim Byrne, managing member of Coastal Agents Alliance--a wholesaler based in New Jersey that has recently started writing risks on Long Island on a nonadmitted basis--painted a very different 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. "I think there has to be a more honest discussion of what's going on along the coast--which is, there is a market. It isn't an availability crisis--it's that the brokers don't like the options they have right now in the nonadmitted market."

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

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

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

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

Although views on the extent of the problem vary, virtually all parties agree there needs to be some changes in New York's coastal homeowners market. The department has put forth a proposal in which insurers must contribute funds to a catastrophe reserve pool to pay for future hurricane losses (discussed in detail in the accompanying story on page 13).

Beyond that, agents are unanimous in calling for changes to the New York Property Insurance Underwriting Association--the state's insurer of last resort. Currently, the program is renewed by the legislature every year, although coverage has lapsed in the past when the program has not been renewed before its expiration date.

Agents would prefer the program be made permanent, but beyond that, they would like to see companies write a wraparound that offers comprehensive coverage beyond the program's basic fire and wind coverage.

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

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

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

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

Mr. Poppa and Mr. Crowley said carriers should be able to "pass through" reinsurance costs to consumers. Mr. Crowley said the uncertainty of reinsurance costs is hurting companies' ability to gauge the market, adding that carriers need to pass on increases in reinsurance costs to consumers immediately to bring some stability.

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

Mr. Poppa clarified that "we would like for insurance companies to have the flexibility to pass through reinsurance increases directly without going through any kind of rate approval process."

Special Reports /

N.Y. Agents Fear Hurricane Threat May Blow Roof Off Homeowners Mkt.

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