Insuring along coast gets harder Homeowners pay more for perceived risks

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ISLESFORD – Every summer for the past 15 years, Rob and Nora Leary have left their home in Greenwich, Conn., to vacation on the Cranberry Isles. Last November, they purchased a house in Islesford, affirming their affection for the island’s rustic privacy.

“We love the island,” Rob Leary said. “We feel so lucky to be able to buy a place.”

But Leary’s insurance company did not equate remoteness with luck. A few days after the closing, Leary’s longtime carrier, Allstate, decided it would not cover the summer home. Leary turned to the Swan Agency in Bar Harbor, where an agent referred him to Chubb, an insurance company specializing in high net worth individuals. Chubb initially agreed to underwrite the property, but then saw problems and canceled coverage a few months later, Leary said.

“They [Chubb] said it was related not to the value of the property, but it was related to the fire department,” Leary said. The volunteer fire department in Islesford did not meet Chubb’s requirements for safety. Nor did the home, which was without burglar or temperature-sensing alarms.

“We told them there is no burglary on the island, as far as we know, and there’s no heat, so the cold-temperature thing is going to go off all the time,” Leary said.

After installing a burglar alarm and convincing a Chubb representative to visit the island and see that the town’s firetruck could pump water from the ocean onto the house, Leary received coverage. When Leary went from Allstate to Chubb, he said, his premium increased 56 percent and his deductible went up by about 25 percent. Leary declined to disclose the actual price of his home insurance, but he did admit he raised his insured property value by 33 percent.

“Chubb was great … but they’re more expensive,” he said.

Leary is not alone in his struggle to obtain home insurance. Many of the state’s coastal and island homeowners are finding fewer companies willing to insure their homes. Most are able to find coverage, but it’s usually at a higher rate and comes with more property restrictions, according to Judith Shaw, a deputy superintendent at the Maine Bureau of Insurance.

“It is more an affordability issue than it is availability. People can find coverage. It’s just expensive,” Shaw said.

Homeowners’ insurance policies cover risks such as fire, windstorms and theft and usually account for the value of the property and its contents, according to Loretta Worters, vice president of the Insurance Information Institute, a New York firm that provides data on the insurance industry.

In recent years, insurance companies have faced tremendous losses due to major storms, Worters said. Over the past 20 years, hurricanes and tropical storms have accounted for almost 50 percent of home insurance claims, making insurance companies view coastal and island properties as big risks, Worters said.

Between 1990 and 2002, home insurers paid, on average, $1.17 in claims for every $1 they received in premiums, Worters said. In the first quarter of 2006, home insurers paid 91 cents in claims for every $1 of premium they received, Worters said.

The insurance industry changed after Hurricane Andrew struck southern Florida in 1992, causing $15.5 billion in damage and forcing several insurance companies to declare bankruptcy. In 2005, insurance companies paid $61.2 billion in damage claims caused by 28 major storms. And in recent years, reinsurance companies, which insure insurance companies, have raised their rates by 300 to 400 percent, Worters said. High payments to reinsurers and countless claims from customers with storm damage have overwhelmed most insurance companies, Worters said.

“With more homes being built along the coast – expensive homes – and storms getting more frequent and more severe, disaster losses along the coast are going to escalate,” Worters said.

Pete Smythe, president of Patrons Oxford Insurance in Auburn, said premiums are going up so that insurance companies can protect themselves from bankruptcy.

“It’s not realistic for us just writing in Maine to insure a thousand coastal properties,” Smythe said. “In the standpoint of hurricane exposure, you have a large number of properties that are exposed to the same event.”

Maine has the ninth-highest insured residential coastal property value in the nation, totaling $64.5 billion, according to Applied Insurance Research Worldwide, a Boston-based risk modeling firm.

Maine’s insured commercial and residential coastal property values represent 57.9 percent of the state’s total insured property values, according to AIR Worldwide data.

Among the top 10 insurers in Maine, storm-related deductibles range from 1 percent to 10 percent of the property’s insured value, Worters said. Other deductibles usually cost between 5 percent and 15 percent of the property’s insured value, Worters said.

While not distinguishing between coastal and inland properties, the average annual cost of U.S. homeowners insurance has risen from $416 in 1995 to $739 this year, with about two-thirds of that increase occurring in the last five years, Worters said.

For those seeking new policies, costs can be shocking. Blue Hill resident Winnifred Gomm, 77, lives about a quarter-mile from the coast and, until 2002, insured her home with Commercial Union York Insurance Co. for $196 a year. In 2002, Gomm received a notice that her policy would not be renewed. Gomm found insurance with Lloyd’s of London, but now pays $795 a year.

“They’ll insure anything, but it’s expensive,” Gomm said.

Insurance companies must file an application with the state Bureau of Insurance before withdrawing from a market or if they decide they are going to discontinue writing a particular line, Worters said. For example, Shaw said State Farm has said it will not underwrite any property within 2,500 feet of Maine’s coastline in 2007.

Rental and seasonal properties are considered more risky than year-round residential properties. Douglas McKay, a retired surgeon, lives in a home a skipping stone’s throw from the shore in Milbridge. McKay bought the property in 1991 and did not have difficulty finding insurance. A year-round resident since 2000, McKay has seen a gradual increase in his annual premium, and it shot up by 50 percent, from $600 to $900 a year, when he began to lease an apartment on his property, according to his insurance agent and niece Bonny Freeman of Allen, Freeman, McDonnell Agency in Brewer.

“The bank said I had to buy flood insurance when I first bought the house,” McKay said. “That was expensive too.”

Flood insurance is not part of a standard homeowner’s policy. Through the federal government’s national flood insurance program, a policy covering $250,000 in flood damage can cost $400 to $500 a year.

Insurance companies also are concerned about fire safety, and rely on a rating system developed by the Insurance Services Organization, which provides nationwide evaluations of communities. The ISO examines each city or town’s emergency communication system, fire department and water supply for firefighting purposes. Each community receives a ranking on a scale of 1 to 10, 1 being exemplary fire protection and 10 being below ISO’s minimum criteria.

All coastal and island communities work to maintain their ISO rating, and island communities such as Islesford, which has an ISO rating of 10, are paying special attention to their rating, according to Bruce Hensler, operations division deputy for Maine Fire Training and Education.

“For islands, it’s meant upgrading firetrucks and getting more trained members, and buying the equipment and safety outfits,” said Hensler.

Meanwhile, the Legislature has enacted a law that authorizes the state superintendent of insurance to establish a Fair Access Insurance Requirements plan if warranted by market conditions. FAIR plans provide basic property insurance to owners who are unable to obtain insurance from other carriers. FAIR policies can be significantly higher than voluntary market insurance rates. Twenty-seven states already have established FAIR plans.

Insurance agent Ken Salvatore, vice president of L.S. Robinson Co. in Southwest Harbor, said he can sympathize with insurance companies, but noted that most coastal and island residents take preventive measures to make their properties as safe as possible.

“It’s kind of ironic that the property [some insurance companies are] shying away from we’ve had the best loss ratios with,” Salvatore said. “With all our unprotected property, we’ve had some better loss ratios than on our protected property. People on the islands are very careful. There’s a heightened sense of awareness.”

For more information on the Maine Bureau of Insurance, visit www..state.me.us/pfr/ins/insindex.htm.