STEPHEN RYAN
Examining the problem

Growing increasingly concerned over the unavailability of homeowners’ insurance and its effect on homebuyers and real estate transactions on Cape Cod, Realtors are meeting with insurers, insurance agents and lenders this week to discuss coverage and cost issues.

The meeting comes as several property insurance companies have scaled back coverage on the Cape and the Islands over the last year and as the state’s largest home insurer is poised to start notifying thousands of policyholders next month that their insurance policies won’t be renewed.

As a result, an increasing number of homeowners and prospective homebuyers on Cape Cod have had to turn to what’s considered the state’s insurer of last resort – the Massachusetts Property Insurance Underwriting Association – for coverage under the FAIR plan. The FAIR (Fair Access to Insurance Requirements) plan was established by the state Legislature to provide basic property insurance to owners who aren’t able to obtain insurance through the voluntary private insurance market.

Some local Realtors, however, say consumers are concerned because premium costs under the FAIR plan are significantly higher and the plan offers maximum coverage of up to $1 million – not enough for many of the multimillion-dollar waterfront properties on the Cape.

Leaders of the Massachusetts Association of Realtors and the Cape Cod & Islands Association of Realtors will be meeting with the MPIUA president, various lenders and regional insurance agents on Wednesday in West Yarmouth.

“We want to work with them to make sure our homeowners get the kind of coverage they need to live and work out here on the Cape,” said Keith W. Bradley, president of the Cape Realtor association.

In recent months, the unavailability of insurance has affected home sale transactions on the Cape. In some cases, homebuyers have had to scramble to get insurance and delay real estate closings.

Bradley recalls a recent case involving the sale of a $1.3 million antique home in Chatham that was held up because the homebuyers discovered they couldn’t get insurance coverage. “It certainly has become an issue,” said Bradley, a broker-associate with The Real Estate Co. in Chatham.

In order to avoid such delays, he noted, local real estate companies are adding contingency clauses for insurance in the purchase-and-sale agreements and urging homebuyers to get an insurance binder as soon as a purchase agreement is signed.

“These two practices are becoming standard in order to protect the buyer in the transaction and also the seller as well,” said Bradley.

FAIR Game

Some homebuyers who have sought coverage under the FAIR plan also have faced problems. There have been situations where homebuyers or insurance agents have not completed policy applications properly and have not received binders in time for a property closing, according to Stephen Ryan, legal counsel for MAR.

That’s part of the reason why Wednesday’s meeting was scheduled, explained Ryan. “We want to find out if there are things that Realtors can be doing to make the system work better … things they can understand to make the process go smoother.”

Currently, about 12,000 homeowners on the Cape are covered under the FAIR plan. While the cost of coverage varies, the average premium for FAIR plan coverage on the Cape is about $1,100. In contrast, premiums for traditional insurance coverage on the Cape can be a few hundred dollars lower, according to local real estate agents.

“We have seen a significant increase in the volume of applications from Cape Cod,” said MPIUA President John K. Golembeski, noting that applications for FAIR plan coverage from the Cape and Islands have increased more than 50 percent over the last year.

Ryan said he has been encouraged by efforts of the FAIR plan to help consumers and the real estate community on the Cape. The FAIR plan is in the process of establishing a separate unit, for example, to respond to real estate agents who call seeking evidence of insurance for a property closing to proceed, explained Golembeski.

In addition, Golembski said FAIR plan employees are screening applications and expediting the processing of applications associated with a real estate sale.

Despite such efforts, Realtors are concerned about whether the FAIR plan will have the resources and capacity to provide coverage if the problem becomes more widespread – that is, if additional property insurers stop renewing the policies of homeowners living in other shoreline communities and regions in Massachusetts.

“What we’re trying to do is understand the dimension of the problem,” said Ryan. “Is this a situation where thousands of more people find themselves in the FAIR plan?”

In response to those concerns, Golembeski stressed that the FAIR plan, which is backed by all the insurance companies that do business in the state, is prepared to offer coverage if the need arises.

“We’re here to make sure that any property owner in Massachusetts is able to secure homeowners’ insurance, dwelling fire or commercial fire insurance if they are unable to find it in the voluntary market,” he said.

Wednesday’s meeting comes about two months after the state Division of Insurance announced that it had been notified by the Andover Cos., the largest property insurer in the Bay State, that it planned to stop offering coverage to Cape Cod in May. The insurer covers about 14,000 homes on the Cape.

The Cape isn’t the only region that is seeing property insurers flee. Coastal regions in the East and other parts of the country have watched property insurers cut coverage because new storm models are predicting greater losses if a natural disaster, such as a hurricane or tropical storm, occurs.

Such models are used by financing rating agencies to determine adequate surplus levels that insurers need to maintain, according to the Division of Insurance. That has forced many insurers to purchase greater amounts of reinsurance, which is basically insurance that covers insurance companies.

But the cost of reinsurance, which is not regulated at the state or federal level, has escalated dramatically, leaving insurance companies – particularly smaller, regionally based carriers – to decide whether to continuing paying high reinsurance costs or just stop covering an area.

And there’s nothing in state law that prevents a company from deciding not to provide insurance in an area or region, according to the Division of Insurance.

To alleviate concerns over the high costs of reinsurance, the Division of Insurance is exploring the idea of creating an alternative reinsurance mechanism like the one used by the state of Florida. In 1993, Florida lawmakers created the Florida Residential Property and Casualty Joint Underwriting Association, in which several companies combined to provide policies for the uninsured. The association established the Hurricane Catastrophe Fund to provide billions of dollars in disaster reinsurance for insurance companies.

In the meantime, MAR leaders want to make sure that Realtors get all the information they can to keep real estate transactions moving forward.

“Our members are really the ones who are on the front line on this issue,” said Ryan, “because if you can’t get insurance, you can’t get a mortgage.”