The Insurance Crisis Comes to Pennsylvania and New Jersey

My thanks to a slabbed reader living in the Northeast for the heads up to this Press of Atlantic City story which appeared online Monday. The insurance crisis that began in 2004/2005 is leaving no one behind from Brownsville Texas to Bar Harbor Maine. The Good Neighbor again takes the PR hit.

For us here in Mississippi the head buried in the sand, we serve insurers attitude exhibited by the New Jersey Department of Banking and Insurance is very reminiscent of our own George Dale from not that long ago.  Our advice at slabbed is to hold the politicians accountable – you should not have to beg to have a public body hear citizen complaints. Without further commentary on my part here is the article and welcome to the coastal insurance party guys.

If you call a State Farm Insurance Company agent in Ventnor after office hours, you get a tape-recorded message saying, “Like a good neighbor, we are there for you 24/7.”

Don’t try and sell the “good neighbor” bit to Mary Nugent, of Pennsylvania, who has a home in Longport.

After paying premiums to State Farm for 25 years with no claims, Nugent got a letter from the company last week saying it will not renew her policy as part of a program “to reduce our exposure to catastrophic property losses.” The state Department of Banking and Insurance approved their “block nonrenewal plan.”

“Since your property is located on a barrier island, your policy is being nonrenewed” and will expire June 9, the letter said.

“You can’t take the cream-of-the-crop (policies) and say, ‘If we have to take a risk,we’re not going to do it. We want all profit all the time,'” Nugent said. That got Nugent mad, and not only because she has to hunt down a new insurance policy at, most likely, a much higher price.

The Oberon Avenue bungalow has been in her family for 100 years, and it has never taken in water, Nugent said. Meanwhile, her friends who live on the Delaware River in Bucks County, Pa., which has been subject to flooding, are getting renewed.

Officials say Nugent and other State Farm customers in New Jersey shore communities are the latest victims in a trend that has been going on for years.

The insurance industry took a $40 billion hit when Hurricane Katrina hit the Gulf Coast in September 2005. To avoid another huge loss, the companies started “non-renewing” policies in hurricane-prone southern states. But New Jersey and New York started feeling the pinch only in about the last year.

Sandra Ricciardi, of Margate, said her homeowners insurance was dropped, and her aunt, who lives nearby, was just told over the phone that her policy would be non-renewed.

Ricciardi said she got insurance through Lloyd’s of London, and pays a lot of money for minimal coverage. Her aunt will probably have to do the same.

“They’re the only ones who will take you in the area here,” Ricciardi said.

State Farm spokeswoman Arlene Lester defended her company’s policy as a business decision, which went into effect in December as the company tried to assess its exposure to large losses in case of a major storm. State Farm is not targeting individuals, but properties within a certain distance of the coastline.

About 2 percent of State Farm policyholders will be non-renewed over a five-year period, Lester said.

“We feel it’s very unfortunate for people who have received cancellations,” Lester said. “We are trying to provide the best coverage that we can for all the policyholders that we have.”

State Farm is not the first company to non-renew properties at the shore, but the decision has a stronger impact because the company is so large, said Tom Heist IV, of the Heist Insurance Agency in Ocean City and Margate.

The Encompass Group started non-renewing his customers’ policies about nine months ago, Heist said. His agency wrote to all its clients about the situation and offered help finding a new insurer. Many ended up with Lloyd’s of London.

Insurers typically lose 5 to 10 percent of customers a year through attrition, which he believes is the better way to go, Heist said. When a large number of customers are dumped into the market at once, companies that might otherwise write a few new policies don’t write any.

Heist said state Sen. Jeff Van Drew, D-Cape May, Cumberland, Atlantic, set up a meeting for a group of agents with the Department of Banking and Insurance. Their response was, “The public is not complaining,” he said.

Government help?

Marshall McKnight, a spokesman for the state Department of Banking and Insurance said there is “plenty of coverage for people on barrier islands” if they shop around.

People looking for coverage can find a list of insurers at the department’s Web site, www.njdobi.org, McKnight said. The new policy may be more or less expensive, depending on the level of risk.

“Risk is a part of the pricing,” McKnight said. “If there’s a risk along the coast, the premium is going to cost more.”

Tom Suthard, a staffer for Assemblymen Vince Polistina and John Amodeo, both R-Atlantic, said his office is trying to arrange a public hearing with the Department of Banking and Insurance so homeowners can have their say.

“We’ve had many calls about this,” said Beth Schroeder, a staffer for state Sen. James Whelan, D-Atlantic.

Whelan’s office provides constituents with a list of insurance carriers it is aware are still writing policies, Schroeder said.

The problem with passing a law requiring companies to write policies at the shore if they do business in New Jersey is that carriers could leave the state altogether, Schroeder said. It could result in a return to the auto-insurance fiasco of several years ago, in which only a few companies did business in the state and premiums went sky-high.

Whelan said his family experienced the issue first-hand when his insurance company declined to renew a policy on their Atlantic City home. They found a company that would write a homeowners policy if they also took that firm’s car insurance, at a much higher premium.

“I don’t like writing a bigger check,” but he can afford it, Whelan said.

Whelan said he feels for people on fixed incomes who are hard-pressed to pay drastically increased premiums in an area that hasn’t seen a major storm since 1962. Cape Hatteras in North Carolina bulges out of the Atlantic Coast, shielding New Jersey from the hurricanes.

“I don’t know if the geography has changed, but the economics have changed,” Whelan said. “I wish there was an easy answer.”

Ripple effect?

Mary Nugent said she fears the insurance companies’ decisions could affect other industries. If people can’t get homeowers insurance, they can’t get a mortgage, and they can’t buy a home.

“They could shut down the whole economy on a barrier island,” Nugent said.

Area real-estate agents say that isn’t happening – yet.

Joe DiLorenzo, a broker for Premier Properties Real Estate in Longport said he has not seen a major problem preventing home sales.

“It would affect people if large companies are not writing” policies, DiLorenzo said.

DiLorenzo said he advises clients to go to lenders and insurers based in southern New Jersey, as they understand the area and its risks better than out-of-state companies do.

Kim Lovecchio, a real-estate agent with Prudential Fox & Roach in Ventnor, said she has not heard of an agent losing a sale because the buyer couldn’t get insurance.

“It’s a challenge getting insurance here” for home buyers, Lovecchio said. “We keep our fingers crossed, and we go crazy. We make phone calls and they make phone calls until we find someone who can do it.”