Blow, Blow, Thou Bitter Wind....
Edmund Clarence Stedman (1833–1908)
Now do we admit that Cape Cod is an area uniquely vulnerable to wind damage? With the death of a beautiful lade from Dennisport, an active and charming member of Eastern Star and South Yarmouth Methodist Church while driving on Route 6A on Wednesday, we may have to admit that the insurance companies may have a point about wind exposure (see previous post HERE).
In December, the Cape Cod Republican Club held a pubic forum in Dennis which was not as well attended as it should have been, as all of the insurance industry ‘decision makers’ were there to talk about wind damage and the FAIR plan.
Chuck Robinson, arguably the largest agent on Cape with Rogers & Gray, said that the non-renewal issue is a moving target. Yet another company, Hingham Mutual, is leaving Barnstable County, and 7 out of 10 of these non-renewals are going into the FAIR Plan. Ironically, there is a good market for homes worth more than $1 million, so the trophy homes are not as affected as the $500,000 homes, and there is still a so-so market for homes under $400,000. Much of the problem centers around the traditional reliance of Massachusetts on small mutual carriers to write homeowner coverage. Those small companies are least able to shoulder a large risk, and could lose their favorable Moody/S&P ratings if they continue to write in Barnstable County. Robinson said there was little light at the end of the non-renewal tunnel.
Jack Golembeski is head of the Mass. FAIR Plan, and deserves a lot of credit for coming to Cape Cod to answer questions in an open public forum. He stressed that FAIR is the same coverage as a standard carrier, but it is a last resort that was never intended to be competitive, and it will always be more expensive. In response to audience questions, he went on to say that the FAIR Plan was a cooperative venture of Massachusetts carriers. After the FAIR Plan has exceeded its ability to pay claims, based on the premium money it has taken in, the excess is parceled out to all carriers in proportion to the amount of business they write, and they make up the difference (of course, by writing less business, they limit their exposure to excess claims, and also preserve the impact of a loss prone area on their Moody’s ratings.) Jim Trainor asked why the additional bureaucracy of the FAIR Plan was necessary, but Golembeski answered that FAIR was created in 1968 in response to inner city race riots, and difficulty of urban areas to get insurance there, and said in his opinion, without FAIR, there would be no insurance in some areas available at all - including Cape Cod. In response to another question, he stated categorically that the FAIR Plan was NOT a for-profit entity.
Frank Mancini is a spokesman for the Independent Insurance Agents of Massachusetts, and is very expert in the overall market. He said that the Gulf Coast is causing some problems by siphoning away the ability of carriers to get mandatory reinsurance. Florida created a catastrophe fund in 992 after Hurricane Andrew, and was able to respond in 2005. Mass. Division of Insurance is exploring the possibility of a regional catastrophe fund, but in his opinion, it would best be run as a Federal program, like National Flood Insurance.
Bill Doherty questioned the availability of coverage so close to the water, and why properties 3 – 4 miles away were still penalized. Robinson explained that rate requests are filed on a countywide basis, so there is no distinction in basic rates between a beachfront house and one on top of hill miles away. Golembeski said that there was a recent SJC decision made in Chatham, which said that property owners did not have an absolute right to build in a flood plain, even with insurance, and that this common sense decision was encouraging.
Dick Neitz asked if auto deregulation would help bring more companies into Mass. and help increase the market. Frank Mancini answered that in his opinion, it would do very little. The companies most likely to come, like Geico and Progressive, don’t write homeowners now, and the State Farms and Nationwides would view us as too unprofitable to move in. In fact, Allstate has left Florida over the losses there. There was law which stated that if a company offered auto insurance anywhere, and wanted to do business by writing homeowners in Massachusetts, then it must also offer auto here in our bizarre no-fault system. That law was repealed, but homeowner insurers who also wrote auto stayed away anyways.
Mike Lee asked where the hurricane computer models come from. Jack Golembeski explained that 5 companies model damage, and no matter how extreme they may seem, the models for the Gulf Coast even before this year were 20% to 30% ‘light’ in the estimate of damage.
When asked what could be done, Golembeski said he would like to see building codes updated and enforced. For instance, hurricane clips, wich are supports inside of attics for roof lines, are easy to install on existing houses, and would be a siple addition to the building code. They can prevent wind damage to roofs.
Two other questioners stand out. Doug Bennet, from Nantucket, made a statement that the reaction of insurance companies was excessive, because colder Atlantic waters would prevent a hurricane from reaching Cape Cod. This week proved that winds far below hurricane speeds can have devastating consequences.
The other questioner that stood out was a man who said that he didn't see any potential for wind damage - he lived in Brewster, on the north side away from the water, and his house was surrounded by trees - old pines and firs - which protected it. HE didn't have a wind exposure, and resented being shoved into the FAIR Plan. After the December wind storm, Porcupine saw a house in his neighborhood whcih is similarly situated. It is a small ranch, and it had a 40 foot Douglas fir in the front year. the tree had been uprooted by the wind, and had cracked the roof line of the cottage.
I wonder how the gentleman from Brewster fared in these last two storms.