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Sandy's Impact on Insurance Rates, Policies Already Being Felt: NJ Agents


Posted on 22 Apr 2013 by Neilson

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Sandy rates upRates are going up. Policy language is getting stricter. Some insurers are pulling back from the coast. But they're not leaving the Garden State.

Nearly six months after Hurricane Sandy slammed into the Jersey Shore, the impact of the superstorm on property insurance is starting to become clearer, industry professionals say.

The most obvious change is the price of some private insurance. Insurance brokers say have seen some flood-prone properties get hit with double-digit percentage point rate hikes. But less obvious is the fact that insurers are also re-tooling their policies to limit exposures, earn more money for extra coverage and create greater clarity about what is and is not covered.

The devastation of Sandy - and Tropical Storm Irene before it - has forced the insurance industry to take hard look at its exposure to catastrophe-prone areas in the Northeast. Both storms were estimated to cost private insurers tens of billions dollars in a region where hurricane-like storms generally had been thought of as unlikely. In New Jersey alone, Sandy caused more than $6 billion of insured losses as nearly 550,000 insurance claims have been filed, according to Gary Kerney, assistant vice president of Property Claim Services at ISO, which tracks catastrophe data.

"The focus on the Northeast has been massively heightened by underwriters who always knew that a [catastrophe] like Sandy could happen, but no one really focused on it," said Duncan Ellis, the U.S. property practice leader for Marsh, the global insurance broker and risk-management firm.

Taking Shape

While the post-Sandy insurance landscape is still taking shape, a few distinct changes are becoming apparent. Rates had been on the rise before the Oct. 29 storm and will continue their ascent. "Sandy gives more momentum to that going forward," said Bob Hartwig, president and economist with the Insurance Information Institute, an industry-funded organization.

Some of the sharpest rate increases are being made on properties along the shore, according to Keith Taege, an insurance agent with the Van Dyk Group on Long Beach Island. Some surplus-line carriers, which insure properties that standard insurers such as State Farm do not, immediately raised rates by 25 percent after Sandy, Taege said. They were able to do so because their rates do not have to be approved by the state insurance department.

Among standard home insurers, rate increases since Sandy have been more modest - largely in the range of 3 to 7 percent, according to data from the state Department of Banking and Insurance. However, officials from the department note that rates are not necessarily going up because of Sandy.

Policy Language

Standard insurers are starting to cut back on some coverages, said Christopher Grasso, personal lines manager for Liberty Insurance Associates in Millstone Township. For example, some insurers no longer include sewer back-up and sump-pump failures in the inexpensive "bundled" endorsements they sell. The protection still can be bought, but a la carte and at a higher price, he noted.

Grasso also said some home insurers have announced since Sandy they are pulling back further from the shoreline. One insurer, he said, now will not write new business on properties within a mile of the shore and that aren't elevated at least 10 feet.

Commercial properties in flood-prone zones also are facing 10 percent jumps in their renewal rates, said Lewy Scanlon, real estate practice leader for Conner Strong & Buckelew, an insurance broker. That's unless they were decimated by Sandy: many of these businesses are seeing rate increases of 20 to 30 percent, he added.

Businesses outside these areas likely will see more modest increases. But insurers are spending more time underwriting contracts and fine-tuning key terms, such as what constitutes a flood, noted Ellis of Marsh. Among other things, insurers are starting to define a storm surge as flooding, rather than a phenomena caused by a "named storm," such as Sandy or Irene.

Some of this is done to limit ambiguity, and therefore disputes, about what events are insured. "Underwriters are more focused on improving terms and conditions and getting what we call ‘contract certainty,' where the client knows what they bought and the insurer knows what they sold," Ellis said.

But these tweaks can also help an insurer manage potential losses from a particular property, something the companies' rating agencies play close attention to, Ellis added.

Bright Spot

One bright spot to the post-Sandy environment is the fact that insurance is still widely available, which is not always the case after a major catastrophe, industry officials note. "Not one of my clients has been non-renewed because of the storm," Grasso said.

One gauge that the state uses to monitor the availability of insurance in New Jersey has shown steady improvements, said Marshall McKnight, a spokesman for the insurance department. Enrollment in the state's FAIR Plan - the insurance program for homes and business properties that cannot get coverage anywhere else - has continued to decline, even after the storm.

At the end of 1998, for example, there were 81,343 properties enrolled in the FAIR Plan. At the close of 2011, the plan insured 18,707 properties. A year later, just 17,523 were covered. By March 31, that number dropped to 17,265.

"I personally think after a year or so the marketplace will settle down," Taege of the Van Dyk Group said. And it could become competitive again, he added, if coastal properties are rebuilt stronger and more resilient than they had been before the storm.