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PCI: NY Coastal Insurance Proposal Could Create Instability

Posted on 27 Sep 2010

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The Property Casualty Insurers Association of America (PCI) is expressing strong concern that the New York Insurance Department's proposed regulatory changes for coastal homeowners insurance could create instability in a healthy, stable market.

The department issued a news release outlining various proposals relating to coastal homeowners insurance in New York in an effort to “fix the roof before it starts raining”. The proposals would standardize triggers for windstorm deductibles, significantly restrict insurers’ ability to make marketplace adjustments based on risk exposure and explore the viability of creating a catastrophe fund.

“New York’s coastal insurance market is currently very stable,” said Kristina Baldwin, PCI assistant vice president for government affairs. “Trying to fix a problem which doesn’t exist may create unintended problems and lead to market instability. We are concerned that these proposals could create marketplace conditions that negatively affect both the availability and affordability of coastal homeowners insurance for consumers. These are important issues and we need to ensure that we work together on sound long-term strategies that protect consumers by providing market stability.”

Among the department’s proposed changes is the standardization of windstorm deductibles. Windstorm deductibles were originally authorized by the department in the 90s to address availability problems which existed at that time. The department allowed flexibility in crafting such deductibles so as to maximize their effectiveness in increasing policies written in high risk areas and consumer choice.

“Limiting this flexibility by standardizing the trigger will likely make windstorm deductibles a less effective tool in enabling insurers to write more policies in high risk areas,” said Baldwin. “The proposal outlined in the release could create availability issues and reduce consumer choice.”

The department also proposes to greatly restrict the ability of insurers to cancel or nonrenew policies.

“While this provision may sound good initially, this supposed quick fix would actually lead to more market problems and consumer complaints,” said Baldwin. “These proposed restrictions could make New York a less attractive market in which to do business and leave consumers with fewer choices. When making decisions about where to write policies and deploy capital, insurance companies may be deterred from writing policies in New York if they know that they will not be able to respond prudently to their exposure to risk. In the interest of solvency in the event of a major catastrophe, insurers must be able to manage their risk and this proposal would greatly reduce the ability of insurers to do so.”

The department also indicates that it plans to consider the creation of a catastrophe pool. As outlined in the release, PCI believes that a catastrophe pool is unnecessary in New York State.

“In the current environment it is inappropriate and unwise for the government to mandate a catastrophe pool,” said Baldwin. “Government intrusion into the private market should be limited to instances in which market problems require action. In this case, there are no problems. Insurers buy reinsurance to ensure that they are able to pay claims in the event of a catastrophe. Reinsurance is available and the reinsurance market is stable and healthy. In addition, a catastrophe pool would likely involve the inequitable subsidization of coastal area policyholders by upstate policyholders and may also result in auto policyholders subsidizing coastal homeowners policyholders. All of this seems highly ill-advised given that we have a healthy homeowners insurance market in New York State.”

PCI is pleased that the department plans to call a meeting of the Temporary Panel on Homeowners Insurance Coverage to continue consideration of these issues and is encouraging the department to explore measures that will stimulate competition in coastal markets and attract additional capital to the state.