“Market hardening” is the insurance industry buzzword of the day. It refers to insurance companies taking steps to preserve their profitability, often by hiking premiums and imposing stricter terms for customers.
And when it comes to home insurance, it’s happening right here and right now.
“We are in the most significant property insurance hardening cycle we’ve seen in generations. We’re seeing rate increases anywhere from 20 to 40 percent across the board, and that’s if the carrier is even offering renewal terms,” said Brian Hallinan, an East Quogue insurance broker and vice president of the Denis A. Miller Insurance Agency.
It came as an enormous shock to many South Fork homeowners seeking to renew their policies, among them Michael Heller, a retired photojournalist who recently moved to Greece but still owns a house here. It was built in 1932 and remodeled in 1994; Mr. Heller could only find quotes for insurance that were three times what he’d been paying previously — coming out to around $650 per month.
“I haven’t figured out what to do yet,” he said.
Another homeowner, who alerted The Star to the difficulties many here are having, described seemingly endless calls for price quotes. He’d tried local agencies like Epic and Amaden Gay, then national companies like Allstate, State Farm, and Coastal, and finally an international underwriter called Lloyds of London, but struck out repeatedly. Speaking on condition of anonymity, he said his $3,500-per-year policy was poised to surpass $14,000 — an increase of more than 300 percent — before he finally found an $8,000 policy locally.
“I just had to keep looking and making those calls,” he said. “It was very stressful.”
Dermot P.J. Dolan, a principal and owner of the Hamptons Risk Management Insurance Agency in Bridgehampton, called the current conditions “the hardest market I’ve ever seen” in his 35 years in the business.
“Historically on the East End, we have always had challenges attracting and keeping insurance carriers out here because of the significant exposure to catastrophic loss,” he said in an interview. “It’s beautiful when we have a lovely life out here, but basically, we’re sticking 120 miles out into the Atlantic Ocean, and that brings negative consequences.”
Actuaries “look at maps, empirical evidence, and the increasing number and severity of storms along the Eastern Seaboard,” Mr. Dolan said.
“It has been many years since we were hit by a named storm where the winds were blowing strongly enough for long enough to get termed a hurricane,” he said. “Why is it important? When most people review their policies, there will be a separate deductible for hurricanes, as opposed to more minor wind losses. In many cases the lowest hurricane deductible is 5 percent of what your home is insured at. But if it’s a hurricane and it’s a named storm, in some cases the home is going to cost a million dollars to rebuild, then you’re looking for a $50,000 deductible. It makes a huge difference.”
Climate aside, another factor is inflation, which impacts the insurance industry just as much as everything else, Mr. Dolan said.
Basic solvency is an issue for the insurance companies that have had to pay out massive claims in recent years. There are some, Mr. Dolan said, that spend $1.20 or $1.30 for each $1 they take in. That’s not sustainable in any kind of market, not just insurance.
Mr. Hallinan described the squeeze also occurring because of increasing market competition. In the past 12 to 18 months, he said, several New York State-admitted carriers such as United Property Casualty, Adirondack Insurance, and Mountain Valley “have lost their financial stability ratings and shut down, while some other carriers have either stopped offering new business terms or tightened up their underwriting guidelines resulting in heavier carrier consolidation. This carrier consolidation has forced many policyholders into the excess and surplus lines programs based out of London.”
The market for insurance on the East End isn’t quite as dire as it is in other places, such as Florida, where thousands of people are still picking up the pieces from the two devastating hurricanes that struck its Gulf Coast and nearby areas recently.
But Mr. Hallinan attributed current market conditions to a trend he’d seen in his 10 years in the industry so far. “I don’t think a lot of the New York State-admitted carriers have been pricing their risk from an actuarily sound basis,” he said. “We would quote a home at $225 per square foot, now it starts at $450 per square foot. Companies were offering $1,800 policies a year for a house of $600,000 or $700,000. That’s not an actuarily sound profile.”
Turns out that’s a significant price point. Homeowners needing a last-ditch option can turn to the New York State Property Insurance Underwriters Association, but there’s a caveat: The maximum claim it will pay out for the rebuilding of a house is $600,000.
“What we’ve found, in our market, is that the material costs of building a home are so significantly higher out here that $600,000 is not going to rebuild the average home,” Mr. Dolan said. “That, divided by $450 per square foot, is a 1,300-square-foot home, and you don’t have that many 1,300-square-foot houses here.”
One may ask: What can be done? Should the government step in with some sort of bailout, as other major industries — banking, automobile manufacturing — have seen?
“I don’t know that that’s the right answer,” Mr. Hallinan said. I think the capital markets, the free markets, are going to figure out the right price. As carriers fold up and go out of business, other insurance companies will sometimes buy their books. . . . Other insurance carriers might see an opportunity to engage and pick up more aggregate risk in an area.”
Until then, Mr. Dolan and Mr. Hallinan said, homeowners should be patient and keep making the calls.
“Of course, it’s more intense as you come to the end of the calendar year. This is the crunch time of the year,” Mr. Dolan said. “This is a trend we are at the peak of, in my opinion. I hope we’ll see this ease in the new year.”
