Fear Of Northeast Katrina Guts Region's Home Insurance Coverage

NYT reports that insurance companies are convinced that a hurricane is going to hit the Northeast. A Katrina level one. They’re systematically denying all new home insurance policies. Also, they’re canceling policies for long-standing clients. Well not exactly canceling, per se, nonrenewed. When the policy expires, people are getting letters informing their policy has been nonrenewed. Sounds so much nicer that way. People have been able to get insurance with other companies, both major and smaller, but the rates and deductibles are higher, even though the water and wind still has yet to be.

Hurricane Fears Cost Homeowners Coverage [NYT] (Thanks to Molly!)
(Photo: critical_matt)

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  1. ogman says:

    These companies don’t want “government interference” and yet they keep doing things that will eventually force just that.

  2. robotprom says:

    they’re getting treated like Floridians, even without having moved to Florida.

  3. FDCPAGuy says:

    yet another reason to live in the midwest… oh wait… tornados.

  4. Iron_Dragon_2.0 says:

    Why isn’t this illegal yet? No insurance company should be able to milk you for 20 years then end your policy when something you got the insurance for in the first place might happen.

  5. bravo369 says:

    ok…seriously…how is the insurance industry even legal. If there was no such thing as insurance and someone proposed it today with all the policies, i think BBB or the government would have a lot to say. cmon. they’ll take our money to protect us in the unlikely case of some obscure event but god forbid they protect us from what we really need protecting for

  6. mgiampapa says:

    I work for a re insurer, and they are constantly updating their models used to calculate risk. If you old policy from 20 years ago was written based on poor information or if the model has changed significantly to elevate your risk, you will be charged more plain and simple.

    What’s not to understand? If you move from nice safe suburbia to a gang infested inner city you expect your car insurance to change don’t you?

    You are insuring your home or other property against risk, and if the risk changes don’t expect your insurance policy to stay the same.

  7. webothlikesoup says:

    I submitted this to the Consumerist tip line a month ago when Allstate said they wouldn’t write me a new policy for my new house(they reversed themselves and said they would write new policies for current policy holders). Guess it takes the NY Times for you to post anything about it . . .

  8. BoC says:

    “I’m sorry, but you used our services, therefore we can’t supply our service to you any longer. I’m sure you understand.”

    How stupid does that sound when applied anywhere else? Kinda reminds me of a Dilbert cartoon; clerk wouldn’t sell Dilbert some small part because then the store would be out of that part.

    Okay, not the best analogy, still…

  9. kimsama says:

    @webothlikesoup: I know what you mean. I’ve sent things in and have only seen the same issue months later after the NY Times covers it. It’s a shame, Consumerist could be getting the scoop (plus it’s not fun to read the same stories twice in a day).

  10. ry81984 says:

    Why cancel all of their insurance? Why not just put a clause in the contract saying they will not cover any damage from or related to a hurricane?

  11. bohemian says:

    FEMA announced that they are drastically expanding the areas of South Dakota that will be considered floodplains. They are telling everyone to buy FEMA insurance now BEFORE they release the map showing what areas are in the floodplain. If you do that they will grandfather you in at the cheaper rate. But you have zero way of knowing if you will be included in the floodplain. So they are scaremongering half the state into hedging their bets and probably buying insurance they don’t need in case they might be on that map.
    There is already debate about validity of the mystery map. Oh and this will make people’s regular insurance go up and make their home value plummet. On top of the $1000 a year FEMA wants to insure your house.

  12. Ben Popken says:

    @webothlikesoup: Sorry about that, we get a lot of emails and sometimes some slip through the cracks. If you shoot me an email (ben@consumerist.com) with the address you used to send your original complaint I’ll look for it.

  13. XTC46 says:

    @bohemian: at worst you lose 1k for the year if you are not in a new flood plain(just cancel if you aren’t), at best you save a bunch over the next several years. I guess it depends on how much more you will pay.

  14. MercuryPDX says:

    @ry81984: If that were to happen, I can see the insurance companies getting creative (in a Rube Goldberg way) to come up with reasons to not pay.

  15. FLConsumer says:

    I wouldn’t have as much of an issue about this EXCEPT that the insurance cos are making tons of profits AND refuse to pay out when they should be. I’m sorry Mr. Insurance man, but your industry is based on calculated LOSSES. You WILL have to take a loss here & there, and I’m talking about the ones caused by your mismanagement of funds.

    Insurance is just legalised corporate gambling.

    Down here in FL, there are many areas where a hurricane hasn’t hit since the 1920s, yet NO insurance company will cover the property. Even if it’s built like Fort Knox, they still won’t touch it. No real problem with that, EXCEPT, people are often required to get insurance for mortgages. The state of FL has set up their own insurance co, but they’re terrible. Quite a few small business owners I know have pooled their money together to self-insure their buildings because it’s CHEAPER to rebuild their entire building every 4-5 years than pay insurance premiums.

  16. FLConsumer says:

    @ry81984: They are doing that….and increasing the rates on non-hurricane coverage higher than their comprehensive insurance before.

  17. XTC46 says:

    @FLConsumer: yes it is a business of calculated losses. which is why they aren’t giving insurance to people who the have calculated the risk of loss to be too high. Just because an are hasn’t been hit with a hurricane in a while doesn’t mean it wont be.

  18. huadpe says:

    @bravo369: Ok, having studied the economics behind this, there is a valid reason for insurance (not for alot of the scummy and fradulent stuff, just insurance that pays out when required.)

    Pretty much, people are progressively more risk averse as the proportion of their assets increases.

    Say for example that you are given a 51/100 chance to double a bet of $20. If you are risk neutral, you’d agree because (51/100)($40)>($20).

    Suppose you were offered the same bet with a minimum of $30,000 (also assuming you had that much money, but not much more.) You probably wouldn’t take it, because most people feel much worse about losing their whole 401k than they’d feel good about doubling it.

    Now consider your house. Assuming a value of $250,000, and a 3% chance of getting a big hurricane, your house is worth $7500 risk neutral. Assuming you’re 20% risk averse at $250,000 then it’s worth $9000 to you for insurance. The gap between $7500 and $9000 is the insurer’s profit. Insurers (and banks) are always risk neutral.

    The valid reason for bank and insurance properties is that they allow individuals to be risk averse and have the economy overall be risk neutral.

  19. huadpe says:

    The above stream of example numbers should read that INSURING your house is worth $7500 risk neutral.

  20. endless says:

    @FDCPAGuy:

    tornadoes affect a relatively tiny area compared to hurricanes. Historically the east coast is fairly likely to get hit by a hurricane.

  21. WraithSama says:

    @xtc46:

    “Just because an are hasn’t been hit with a hurricane in a while doesn’t mean it wont be.”

    By that logic, an insurance company could deny coverage on any location for any reason. After all, just because your house hasn’t burnt down yet doesn’t mean it won’t in the future. Should your insurance company therefore drop your insurance or refuse to pay out if your house were to burn down? It’s always a calculated risk, but isn’t the entire point of carrying insurance to be the risk-bearer?

    If I had paid the monthly insurance premium on my house for 20 years only to have it pulled because of the pure conjecture that a big hurricane is “overdue”, I’d certainly be pissed. Insurance companies get away with far too much.

  22. backbroken says:

    Honestly, I feel sorry for these insurance companies. I can’t blame them for raising rates and denying coverage since they hardly ever turn a profit. Right?….Right??

    Seriously, I’ve never understood why insurance companies feel that they must turn a profit on EVERY SINGLE FREAKING CUSTOMER. It’s insurance so there is a bit of a gamble involved. Get over it. In the long run and on the whole you will (and always have) made a tremendous profit.

    Think about it. You basically run a freaking casino in which the state forces all of us to play (assuming you want to drive a car.) Just count your blessings and stop trying to win every single spin of the roulette wheel.

  23. RumorsDaily says:

    Insurance companies aren’t required to operate. This doesn’t bother me. Of course, I don’t buy homeowners insurance, so maybe that’s why.

  24. theblackdog says:

    I think I talked to my insurance company about this when I was changing my renters insurance, but I am going to check the paperwork again to see if they have any clauses with hurricanes.

  25. Chairman-Meow says:

    I live within a mile of the ocean up here in Massachusetts. My insurance company told me that they were going to cancel my flood insurance recently due to increased risk from Hurricanes.

    You see, according to my insurance company I suddenly now live in a flood-zone.

    Mind you that our house is 130 above sea level.

    I guess that I will be in a flood zone once the Polar caps melt from global warming but there is no way I could possibly flood from the ocean coming through the front door. If it did, flooding would be the least of our problems.

  26. webothlikesoup says:

    @Ben Popken: It’s OK, Ben. I still love you. Tell the Gawker Media Mafia you need more people . . .

  27. ElizabethD says:

    It’s crazy here in Rhode Island. We have a gazillion miles of coastland considering we also have the smallest land mass of any state in the U.S. (look at us on a map), so everyone is affected by this. Our house was built in 1904 and has survived the hurricanes of ’38 and ’54, not to mention Bob and Gloria more recently. Our flood insurance rates are breathtaking.. and yes, we shopped around and negotiated long and hard with our longtime insurer to get the best possible rate. Cost of living (house prices and property taxes especially) is so high here anyway; this is the last straw that is driving many residents to the less expensive South.

  28. nursetim says:

    @Front_Towards_Enemy:
    There is that 0.5 degree increase the last 100 years to consider.

  29. remthewanderer says:

    I guess buying my first home just got a little harder. Gotta love NJ!

  30. Mr. Gunn says:

    Everyone should be able to get homeowners insurance(including flood and wind), for some price, just like everyone should be able to get health insurance, for some price. The reasons for government involvement are largely the same.

    No calls for the NorthEast to be abandoned because it’s hurricane prone?

  31. Myron says:

    An insurance company is not obligated to offer you a policy. If they do offer you a policy, you are not obligated to buy it. Also, they fact that you have paid premiums for 20 years has nothing to do with the cost or availability of insurance tomorrow. You bought insurance for twenty years and were covered for twenty years. Neither you nor the insurance company has to renew the policy just because you have had insurance with the same company for twenty years.

    FRONT_TOWARDS_ENEMY: If you are certain your property can’t flood why did you buy flood insurance in the first place? If you are certain your property can’t flood why do you can if your insurance company drops your flood policy.

  32. Keter says:

    No one should be required to have insurance. Everyone should be expected to know and manage their own risks, and be responsible for the consequences of their decisions and actions. If someone chooses to live in an area prone to hurricanes or tornadoes, they know the risks.

    46 years, zero insurance claims, tens of thousands of dollars I very much needed for other purposes going to legislated pickpockets. Thank you government for holding me up yet another way.

    Insurance is not an “industry” – an industry creates a product with actual value. Insurance is a grotesquely bloated tick sucking on the wallets of every responsible citizen, and occasionally rewarding irresponsible ones.

  33. Nearly every northeastern state is currently working on incorporating some wind protection into their building code. Not as stringent as in Florida, but still.

    Are these two events unrelated? I’m willing to bet not, but I don’t know which is cause and which is effect. Your insurance would likely be much lower if your house was constructed, say, next year when these wind codes were enacted.

    For the curious, Massachusett’s proposed changes are here:
    [www.mass.gov]

  34. mzs says:

    @FDCPAGuy: Yeah I wish, I lost flood insurance a year back. I checked, the least expensive way to get it was by tripling what I would have to pay. I don’t live in a flood plain, the house I live in did not flood during the floods in the 90s, it is just that so many insurance companies got hammered over the years that they do not offer it for reasonable prices anymore. Also it was widely being scammed by people taking things down in the basement they no longer wanted and saying it was flooded. I keep promising myself that I will buy a battery backed-up sump pump…