Legions of consumers felt abandoned after private insurers stopped writing insurance on risky coastal properties. But many companies haven’t just given up on homeowners – they’ve given up those homeowners’ dollars, too, often in staggering amounts.
And those scraps are luring some companies back to the beach.
As of 2006, 2.6 million policies nationwide were in the hands of state-sponsored insurers like the Massachusetts FAIR plan, according to the Insurance Information Institute (III) – that’s 2.6 million policies that aren’t going to the private industry.
Not such a big deal for insurance giants like Allstate, which gave up writing on Massachusetts’ coast after it was deemed too hurricane-prone, but the ceded properties were a significant chunk for New England’s smaller and regional players.
A few companies simply accepted that they were going to shrink their business, some insurance professionals say. But for others, competition has been pushed into other areas, exacerbating the current soft market and crowding other niches of the property/casualty industry.
And now, that down market is helping send more insurers back to the very coastlines they’d left years before.
The pullback, for many insurers, was abrupt. The Andover Cos. opted not to renew 14,000 homeowners’ policies in 2004, said John Golembeski, president of the FAIR plan. Other insurers soon followed.
Testing the Waters
But Golembeski said the FAIR plan’s growth has slowed and started to reverse itself in recent months – and that means more private insurers are going, or at least gingerly tiptoeing, back to the coast. The III’s recent research shows similar reports from other states, backing up Golembeski’s local observation.
It’s no mystery as to why, said Michael Chapman, chief sales officer for large broker HUB International New England.
“They need the business,” he said. When companies abandoned so many policies in such a short time, it set them to fighting over a smaller number of potential customers in areas that are “safer,” such as inland states.
That increased competition aggravates an already-down market. Signs of the soft market are obvious by now: Prices are low, even for high-risk areas, Chapman said, and more companies are digging up new business however they can.
Companies used to write policies that excluded certain risks, such as identity theft, he said. Nowadays, those exclusions are disappearing.
Once-lonely product niches are getting crowded, partly from changing customer needs and partly because the cash isn’t flowing in other areas. Chapman remembers when the Chubb Group pretty much owned the market on technology insurance, but the past four or five years have brought about 10 strong new players into that market.
Francis A. Mancini, president and CEO of the Massachusetts Association of Insurance Agents, said while many insurers dug up business elsewhere, he’s seen smaller players simply downsize.
“I’ve talked to insurance company presidents who are very much satisfied with being a smaller company,” he said.
And “smaller” doesn’t mean “less profitable.” With fewer coastal properties, reinsurance costs shrink dramatically, and that helps the bottom line, he said.
Norfolk & Dedham Group has continued to write coastal insurance while others left, said CEO Jim Hegarty, but he’s starting to see pri-vate competition moving back into the market. While other companies return because they’re looking for new business or a variety of other factors, it helps that the FAIR plan has gotten more expensive for customers in the past few years.
Artificially low rates from the FAIR plan initially drew in many consumers who left their private insurers voluntarily, he said. But the FAIR plan’s rates have risen in the past few years, helping balance out the disparity that made the market too tough for private insurers.
“Now there’s less of a discount, the market is beginning to normalize,” he said.
