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Since 1991, the insurance marketplace for homes on Cape Cod and other coastally-oriented areas has been getting more and more difficult. This trend has continued with major changes by most, if not all insurance companies, beginning in late 2003 and early 2004.
What
Happened?
Insurance companies purchase “reinsurance” from “reinsurance
companies” that are based in the U.S., Bermuda, the United Kingdom
and other areas. Reinsurance is purchased by insurance companies for several
reasons, one of which is to share their risk and reduce financial exposure
in the event of a catastrophic loss such as a hurricane. The late 1980s
and early 1990s saw numerous hurricanes that, for the first time, caused
over $1 Billion in damages, the most prominent being Hurricane Andrew.
The science used in mapping techniques and weather prediction have improved by leaps and bounds in just the past decade. GPS technology is now being regularly installed in automobiles and has been widely used in boats over the past several years. Weather patterns are becoming better understood as is the expected impact of a major storm or hurricane.
Development in areas such as Cape Cod has obviously expanded, but in two ways. First, there are more houses than there used to be. Second, houses being built are not only larger, but more costly to build on a square-foot basis. Insurance companies’ automatic increases in the amount of insurance on a given home have not kept pace with the increased cost of construction on Cape Cod.
The
cost to insurance companies of reinsurance has increased dramatically
for the following reason:
1. anticipated increase in the number of major storms;
2. the better predictability of where a hurricane can strike and the amount
of damage it can do, and
3. higher construction costs for replacement values of homes.
While Cape Cod has traditionally been very profitable to insurance companies based on historic losses compared to premiums collected, the burden of the increased cost of reinsurance has made insuring property on Cape Cod, if not unprofitable, certainly less profitable.
Insurance
companies are, therefore, trying to reduce their overall exposure on Cape
Cod by instituting a combination of measures which may include:
1. stop providing new insurance for certain types of properties or occupancies
2. non-renew existing policies which do not meet certain underwriting
criteria;
3. introduce particular wind or hurricane deductibles wherein the property
owner shares in a great portion of the loss.
Underwriting
Criteria
When considering insuring a property, insurance companies take into consideration
many factors such as priorinsurance claims, age and condition of the house,
presence of liability exposures such as pools, trampolines and certain
types of dogs. However, before even considering those exposures, there
are two other exposures that are even more defining, occupancy, rental
and location.
Occupancy
falls into three general categories: primary, secondary, seasonal.
Your primary house is the one in which you live most of the time, probably
where you are registered to vote and the address you use when paying income
taxes. This is “home.”
A secondary house is one which is used generally throughout the year by you, your family and friends. It is typically not unoccupied continuously for more than three months each year.
A seasonal house is one which, like a secondary house, is used as a vacation home or getaway by you, your family and friends. It will be unoccupied continuously for more than three months each year. A primary home owned by “snowbirds” who go south for the winter may or may not be considered seasonal, but would be subject to stricter underwriting scrutiny.
Primary houses are the most desirable to insure; seasonal ones are the least desirable.
Rental, or holding for rental, is allowed on an “occasional” basis under the homeowner policy. A home occasionally rented is one which is principally occupied by the insured as a primary, secondary, or seasonal house, but occasionally rented to others. Depending on insurer, occasional rental may be allowed for up to four, six, eight, ten or twelve weeks each year. If a home is generally rented to others and occasionally occupied by the owner, then it does not qualify for the traditional homeowner policy, but could be insured on a “dwelling fire” policy which is geared for rental properties. A house not rented at all is more desirable to insure than one rented for ten or twelve weeks.
Location, location, location. Not only is location important as to value and desirability, but also for insurance purposes. The closer a home is to the shore, the less desirable it is to insure and the more likely the policy insuring it will have a higher wind or hurricane deductible.
What
to do?
Once a purchase and sale agreement is reached, a Buyer must get the insurance
process going promptly. In many instances, Buyers of secondary or seasonal
properties will first talk to their agent at home. That’s fine,
but they cannot delay and they need to find out in short order if their
agent can provide them with the insurance. Most out-of-state insurers
will not write on Cape Cod, especially direct writers such as State Farm,
Nationwide, and Allstate. Most in-state insurers prohibit their off-Cape
agents from writing on Cape Cod.
If a secondary or seasonal home, often the Buyers’ “at-home” agent can refer them to an agent representing the same company on Cape Cod.
If the at-home agent can’t assure the Buyer that they can get the home insured, then the Buyer must contact a Cape Cod agent as soon as possible. If the house is going to be a primary home, then chances are the Buyers should be dealing with a Cape Cod agent anyway. If the house is going to be a secondary or seasonal house, then the Buyers should be prepared for the following questions:
1.
If the dwelling is secondary or seasonal, describe how and when the dwelling
is used, and by whom?
a. For how long is the house continuously unoccupied?
2. If the dwelling is secondary or seasonal, list the name of the individual
who is responsible for the property when it is unoccupied: who is the
caretaker?
What are their responsibilities; how often do they check, and when?
3. If the heat is maintained:
d. Is the heat maintained to a minimum of 60 degrees? YES or NO
e. Is there automatic fuel delivery? YES or NO
By whom?
f. Is there a full-time, low-temp monitoring system? YES or NO
Describe system:
g. Is there a heating system maintenance contract? YES or NO
With whom?
4. If the heat is not maintained, is the water system drained? YES or
NO
Who is in charge of draining the system?
Complete and honest answers are a must. If a Buyer misrepresents the occupancy
of the property and/or how it is being watched and a loss occurs, the
insurer will be able to deny the claim.
Finally, timing. Most agents will want at least four weeks of lead time to get the insurance in place for the closing. Not only are agents presently working with new clients, but chances are they are also rewriting insurance for some of their existing clients which can be as involved and time consuming as writing a new policy for a new client.
*Information provided courtesy of Craig S. Vokey, Proprietor, MARK T. VOKEY INSURANCE AGENCY
Cape Cod based Insurance Agencies:
Craig
S. Vokey, Proprietor
28 Village Landing, PO Box 1247
West Chatham, MA 02669
Phone: (508) 945-3535 Fax: (508) 945-9368
mtvia@cape.com www.vokeyinsurance.com
Hudson
Eldridge Insurance Agency
265 Orleans Road
North Chatham, MA 02650
(508) 945-0446
www.hudsoneldridgeins.com
Bryden
& Sullivan Insurance Agencies
88 Falmouth Road - Rte. 28
Hyannis, MA
(508) 775-6060
www.brydenandsullivan.com
Drake,
Swan & Crocker Insurance Agency, Inc.
21-25 Route 134
South Dennis, MA
(508) 398-0344
www.dscinsurance.com
Rogers
& Gray Insurance Agency, Inc.
434 Route 134
South Dennis, MA
(508) 398-7980
www.RogersGray.com
Olde
Cape Cod Insurance Agency, Inc.
435 Main Street
Hyannis, MA
1 (800) 439-2027 Murray & MacDonald Insurance Services, Inc.
(800) 800-8990
www.mmisi.com
Cape
Wide Insurance Agency, Inc.
1 (800) 292-5244
(508) 945-5244
www.capewideinsurance.com
cwi@capewideins.com
Edward
J. Mcgrath Insurance Agency, Inc.
420 Route 134
South Dennis, MA
1-866-760-4111
www.insurancei.com
kevin@insurancei.com
Barnstable County Mutual Insurance
108 Hallet (aka Main St.)
Yarmouth Port, MA
(508) 362-4567
www.thebarnstable.com
