N.Y. Coast Insurance Market Can Fix Itself, Insurers Say

BRENTWOOD, N.Y.--New York lawmakers investigating coastal insurance availability and cost were told by insurance groups that the market if left alone can solve any problems.

Among other solutions to deal with insurance pricing and scarcity issues that were offered by witnesses before the State Senate Insurance Committee were: setting up a catastrophe reserve fund and establishing a government-backed national catastrophe fund.

New York Insurance Superintendent Eric R. Dinallo, who said he would not declare the New York coastal market a "crisis," explained in his testimony that some coastal consumers are experiencing "sticker shock" as rates rise and some of the companies that traditionally offer cheaper insurance options in lower New York reduce their exposure.

That sticker shock, Mr. Dinallo acknowledged, could translate into significant increases in rates for many consumers in coastal areas.

He also said factors such as overexposure in coastal areas by some insurers, legitimate concerns about the risks associated with hurricanes and increased reinsurance costs have led to rising rates and market adjustments.

But Mr. Dinallo suggested that reinsurance pricing may come down, and primary insurance market prices may be reduced, if no major hurricanes make landfall in the United States over the next year or two.

He cautioned against taking well-intentioned legislative measures to fix pricing that may end up adversely affecting capacity, such as changing the way rates are set in New York from a "file and use" system to a "prior approval" one.

Mr. Dinallo advanced several solutions for creating a healthier homeowners market in New York, including his proposed regulation requiring insurers to create special a catastrophe reserve.

As outlined by the department late last week, insurance companies would have to set aside capital in order to pay for future hurricane losses.

If funds are set aside specifically to pay for catastrophes, and the funds are allowed to accumulate over the years, then insurers would not have to raise rates in the wake of a disaster, Mr. Dinallo said.

The Independent Insurance Agents and Brokers of New York (IIABNY) supported the idea of a national catastrophe fund, as did representatives from Allstate and State Farm, but the national fund concept was met with caution by the Professional Insurance Agents of New York (PIANY) and opposed by Liberty Mutual.

Stephen Zogby, chairman of IIABNY, also called for more market-based solutions, and he asked the department to standardize the triggers for activation of windstorm deductible clauses. Mr. Zogby explained that different insurers use different triggers for the deductibles, and the wide variety of triggers is confusing to consumers.

Another proposed solution discussed at the hearing involved regulations that would make it more difficult for insurers to nonrenew more than 4 percent of the policies in a rating zone by requiring them to file a withdrawal plan that needs regulatory approval. Under current law the 4 percent requirement only applies to an insurer's entire book of business in the state.

Stephen Ruchman, past president of PIANY, said under current law insurers are dropping more than 4 percent of their book in lower New York markets but staying under the statewide 4 percent threshold by writing more homeowners policies upstate.

Under a bill that was passed earlier this year in the state Assembly and supported by PIANY, insurers would not be able to nonrenew more than 4 percent of its business in a given rating territory in the state.

Brian Pozzi, regional counsel for Allstate, opposed this plan because, he said, insurers thinking of entering the market in lower New York to make up for those that are reducing exposure there may be discouraged if they feel they would be trapped in the region by the 4 percent rule.

Mr. Dinallo, too, said insurers may feel ensnared, and that if there is a regional limit passed by the Legislature, it should be at a higher percentage.

Virtually all of the participants advocated making permanent the New York Property Insurance Underwriting Association (NYPIUA), which is the state's insurer of last resort. Currently, NYPIUA is reauthorized periodically by the Legislature, and in the past, coverage has lapsed when the program has not been renewed before its expiration date.

Additionally, IIABNY and PIANY called for the program to offer more comprehensive coverage. The agents explained that because NYPIUA's current coverage options are so limited, they have placed their customers in the excess and surplus market instead, which has its own set of risks but provides coverage that is more comprehensive than NYPIUA.