Coastal-property insurance is complicated and expensive. Risks and issues that hardly matter elsewhere are factors that must be considered at the shore.
Sheldon Hansen, an insurance agent with more than 30 years experience and a principal of Brouwer Hansen and Izdebski Associates in Toms River, will help industry members sort out the risks and details at a seminar Monday at the Northeast’s largest annual gathering of insurance professionals in Atlantic City.
Hansen, 62, of Forked River, Lacey Township, said everyone thinks first about wind storms such as hurricanes when considering coastal insurance, but routine characteristics of shore properties pose many other potential risks.
“Many coastal properties are seasonal, and there is more risk because they’re left unoccupied for a period,” he said, which can lead to mold, pipes freezing, vandalism and more.
Many properties are rented out, but even those that aren’t are often used by people who aren’t the owners.
“We all end up letting relatives or friends use the home, and if you’re an insurance company, that’s more of a risk,” Hansen said.
Seasonal commercial properties tend to be “run full-bore for seven days a week” with less attention to maintenance, he said. With a short season to make money, repairs are put off — which increases risk.
And risk rises throughout shore towns in the off season.
“On Long Beach Island, many towns are nearly abandoned at the end of the season. The town fire department is decimated, so if you have an event, who shows up?” he said.
Hansen said that with the number of residents falling to about a 10th of summer’s level, there are fewer people to watch properties and notice something wrong.
“So if you’re an insurance company and you had a choice between a house in central New Jersey and one on the shore, which would you insure?” he said.
That matters because there is not only a limit to the number of properties a company can insure, but a regulatory limit on the profits than can be made from each line of business, he said.
The result is property insurance that is more expensive and provides less coverage.
“Take my home, which is on a lagoon. I have a $31,000 wind deductible. I pay the first $31,000 in damages caused by a wind storm,” Hansen said. “That’s a big number. And my premium is double what I’d pay for the exact same coverage inland.”
Insuring for wind damage changed dramatically after Hurricane Katrina in 2005, he said, as a result of about 3,500 lawsuits against State Farm seeking coverage for damage caused by water (ordinarily covered only by national flood insurance).
The courts ruled that while the damage was caused by a tidal surge, the “proximate cause” of the surge was a wind storm, so insurance companies had to pay, he said.
“We never anticipated having to cover such losses, and they amounted to about $40 billion,” he said.
No surprise, then, that many companies quit covering properties first within 1,000 feet of the shore, then 2,000 feet and now within a mile.
That pushed a lot of coastal properties out of the voluntary market regulated by the state and into the excess and surplus markets, which aren’t regulated.
William J. McMahon III, president of the McMahon Agency in Ocean City and a director for the Professional Insurance Agents of New Jersey, said he and other agents worked with the state to get enough concessions for regulated insurance companies so they can write policies for coastal properties.
“There are still choices available. There are companies leaving the coastal market, but others are coming in and replacing them too,” said McMahon, 37, who lives in Upper Township.
He said insurers have a certain capacity for shore properties, “and when that gets filled, they stop writing on the barrier islands and it could be years before they come back.”
Overall, McMahon said, he thinks the state has done a good job of working with insurance carriers to make the policies as affordable as possible without chasing companies away from the coast altogether.
Industry professionals who take Hansen’s seminar from 2 to 2:45 p.m. Monday at the conference in the Trump Taj Mahal Casino Resort will get much more depth on coastal insurance issues and continuing education credits as well.
Hansen said they’ll also get a booklet listing all of the companies in New York — a leader in insurance — that will insure coastal properties and detailing how close to the shoreline they’ll write policies.
The 2010 Joint Annual Conference of the Professional Insurance Agents is being held today through Tuesday and is open to industry professionals only.
