Agency Focusing On Homeowners' Policies

Robert Denny may be the duck flying in the opposite direction, but he has set out to alleviate a serious problem plaguing some local homeowners.

The chairman of East Hampton's Edward Cook Insurance Agency, Mr. Denny has decided to make a major commitment to a business that many big players are hurrying to get out of - writing homeowners insurance on water-bound Long Island.

The veteran insurance man has set up a new division, Capital Mutual, to handle what he hopes may be as much as 15 to 20 percent of the market that such giants as Aetna and Allstate have backed away from in the past four years.

The latest carriers to abandon the field are Nationwide and Geico, both of which have recently announced cutbacks in homeowners policies in New York State.

Scary Projections

The insurance crunch on the East Coast, particularly for homeowners living within a mile of water, began in 1992, soon after Hurricane Andrew decimated areas of south Florida.

Several small insurers went broke. Some companies "didn't know what they were writing in Florida," said Mr. Denny. Among more solid risks, they had insured a plethora of prefabricated trailers and houses built "cheaper and lesser."

Afterward, said the insurance man, major companies tried to limit future losses by building computer "catastrophe" models that projected hurricane exposure in coastal areas. These simulations, he said, were not just "inaccurate" but "worse than a worst-case situation." They scared "both insurers and reinsurers."

Mr. Denny, who is an adviser to the National Flood Insurance Program - the Federally subsidized flood insurance that is not included in homeowners' policies - said he had learned "exactly how damage occurs" during major storms.

Locally, he said, most claims stem from wind damage - downed trees, broken windows, and such - "God's way of cleaning up the place." Building codes east of the Shinnecock Canal are stringent, said Mr. Denny, and the result is that "houses are well built and maintained."

Capital Mutual, he said flatly, has "no restrictions near the water." Coverage is available through what Mr. Denny called "individualized underwriting," which takes into account the type of house, its age and elevation, and what body of water it is near.

The cost depends upon all these factors and more.

Newly Capitalized

Mr. Denny's new company, said its president, is a cooperative venture modeled on a New Jersey firm called Proformance, which reportedly writes about $30 million a year in premiums. The business was organized, Mr. Denny said, under the same umbrella as Proformance: the National Atlantic Holding Company.

After it was established, Mr. Denny sought agents statewide to invest in the purchase of the 100-year-old Capital Mutual Insurance Company of Sand Lake, N.Y., near Albany. Capital Mutual, he said, was in need of a cash infusion - its surplus, a critical asset, was nearly depleted.

With new capital of $2 million from National Atlantic, and with about 20 agents ("50 other agents are interested") putting up something over $1.5 million, Capital Mutual's new management was up and running by mid-October.

Other than Cook, the company has only three agents on Long Island, in Islip, Valley Stream, and Port Washington.

"We want to build franchise value in a loosely defined area," Mr. Denny explained, an approach far different from firms like Hartford and Aetna, which have more than 150 agents on Long Island alone.

The agent/owners serve on the firm's underwriting and claims committees. A "peer review" committee is authorized to expel an agent for lack of professional behavior, such as misrepresenting the condition of a property or a prospect's claims history.

Passing On Savings

It is that claims history that often makes the difference in being accepted or rejected for insurance. Insurance premiums are designed to cover "the big claims" such as fire and storm damage, explained the company president.

Companies look back over a prospect's three-to-five-year history and try to avoid writing policies for those who file repeated small claims, he said. Those policyholders generally end up having to pay higher premiums.

Indeed, Mr. Denny recommended that homeowners maintain a minimum $1,000 deductible for property insurance and avoid filing claims for less than that amount.

Capital Mutual will be "competitive," said Mr. Denny, adding that the company expects to save on costs and pass the savings on to customers, who should find themselves paying lower premiums.

Larger companies have layers of bureaucracy, big offices, and marketing expenses, he said, which Capital does not.

Also, said Mr. Denny, because of its relationship with its parent holding company, Capital Mutual has been able to negotiate a "more reasonably priced" reinsurance package.

Right now, the company has a C-plus rating from Best's, the most respected insurance rater. The rating has a lot to do with the company's available surplus, and it will take time for the new management to establish a better risk record and thereby bring it up.

Another concern that ranks insurance carriers, Demotech, has awarded Capital Mutual an A rating.

Capitol Mutual's policies have been accepted for second mortgages. The Federal Government is among those second lenders, which include FANNIE MAE (the Federal National Mortgage Association), among others, said Mr. Denny.

Like most companies, Capital Mutual will aim to provide a full complement of "personal" insurance to its client, including coverage, besides homeowners, for automobiles, boats, jewelry, rental property, and excess liability.

"The best deal is a package deal," said the insurance man. The Edward Cook Agency claims to write some 5,000 personal-insurance policies on the East End.