Writing insurance in the coastal areas of the United States always seems to present more of a challenge to 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 areas?

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 the coast of New Jersey, we have faced this challenge since 1946. We suggest you break this dilemma into three distinct categories--differentiation, education and communication--and address each one within your agency to come up with a plan to write coastal business.
Differentiating your agency
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. Exposures and coverages that you need to pay particular attention to are flood, wind, occupancy, replacement cost, availability of markets, and specific wind deductibles.
Although flooding and wind damage happen throughout the United States, getting coverage in coastal zones is more challenging because these areas are often hit with wind and flood at the same time. 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 are 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's 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. Always 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.
Occupancy is another consideration. Is the property being used as a primary home, secondary or seasonal residence, or as a rental property? It makes a significant difference in policy availability if only the owners are using the property and not renting out to other residents. Although this may seem like a subject for Basic Insurance 101, we can assure you these are not basic to the consumer. They count on you as their agent to not only provide the proper policy and coverages, but to let them know how this coverage differs for their coastal home. Most homeowners do not understand the problem insurance companies have with a rental versus owner-occupied property.
We have also found there to be a major problem in the replacement cost methods and calculations of coastal properties. The prices of these homes have gone up dramatically over the past five to ten years, with most of this increased valuation in the land inself. 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 dollars.
Market availability has shifted considerably from admitted/standard markets to nonadmitted markets, especially in light of the recent influx of homeowner cancellations by the standard markets. This trend has been accompanied by a major shift in deductibles, with wind deductibles in coastal areas being considerably higher than those inland. The typical $500-$1,000 deductible for a home insured for $500,000 is replaced by a 2 to 5 percent wind/named storm deductible, which could result in deductibles up to $25,000. Explain to your customers the difference in admitted versus non-admitted carriers, and that the coverages offered from non-admitted carriers are usually less than the coverages in a policy from a standard carrier.
Educating your customers
As an agent, you're responsible for educating more than just your CSRs and producers--you also have to educate your customers. Let them know about all of these changes in the coastal insurance marketplace. Consumers have to be aware of the exposures that are more common with a coastal property. Most consumers think the main problem is obtaining flood insurance, which is either unavailable or too expensive, while 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.
It's your responsibility as an agent to educate your customers about the importance of flood zones and flood elevations. Proper flood zone determinations and elevations can make for a significant decrease 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 often adding venting to the first floor enclosed areas can make a difference in cost. There are even subsidies available through NFIP for your clients to raise the elevation of their home. Other ways that can help mitigate potential losses include upgrading the structure with tie-down straps, hurricane shutters and garage door reinforcements, just to name a few. It is important to make sure your customers are aware of all these options.
Communicating with your customers
Perhaps most important in facing the coastal challenge is to communicate with your customers. It doesn't do the consumer any good if the only people who are aware of the coverages needed, the exposures to be protected, and the coastal issues are your CSRs and producers. Acknowledge right up front, and as often as possible, that there are challenges to writing a coastal insurance policy. Whether it's in a face-to-face meeting, newsletter, on your Web site, in the newspaper on in direct mail, let everyone know that coastal insurance 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 you know, 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 empathetic with your customers and let them know you are there to assist them. Take the time to explain the situation to them and make sure they understand they are not being singled out. Be proactive in this climate and advise your clients about what is happening in the marketplace. It's important to let them hear the news from you before they receive a cancellation notice in the mail. At a Glance:
Coastal population in 1960:
187 people per square mile Coastal population in 1994:
273 people per square mile Coastal population in 2015 (projected):
327 people per square mile Coastal population in 1960:
187 people per square mile Population densities highest along the East Coast, especially in the Northeast
Number of coastal countiesin the U.S.: 673
o 285 in the Atlantic
o 142 in Gulf of Mexico
o 88 in the Pacific
o 158 in the Great Lakes Countries located inland from coastal watersheds account for 83% of the land area Coastal areas make up 17% of the contiguous U.S. land area Home to more than 53% of the nation's population 14 of the 20 largest U.S. cities are located in the coastal zone Increasing by 3,600 people every day Projected population increase between now and 2015: 27 million Growth hotspots by county:
o Los Angeles, CA
o San Diego, CA
o Harris, TX
o Orange, CA
o Riverside, CA Source: National Oceanic and Atmospheric Administration (NOAA)

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The Coastal Coverage Challenge

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