Vineyard Is Viewed as Costly ‘Red Spot’ for Home Insurers


Over the past decade, insurance companies have become increasingly skittish when it comes to writing policies for Island homeowners. For many, the risks - namely a catastrophic hurricane - outweigh the benefits. And for those who will do business here, their gamble comes at an increasing cost to Vineyard residents, who find themselves hit with new deductibles and higher rates.

"If you're on the Island, you're considered a red spot," said Robert Mone of Mone, Lawrence and Carlin Insurance Agency Inc.

"We're looking at a shrinking number of companies who are willing to write homeowners' insurance policies at all, and those that will are limiting the number they will write," said Steve Schwab of Martha's Vineyard Insurance.

The independent agents who work here represent off-Island companies that provide insurance. "They don't want to concentrate too much business in one place. It leaves them too vulnerable," said Mr. Mone, who writes for five private companies that provide homeowners' policies.

Other agents who represent multiple companies agree that voluntary market insurers been dropping off for about 10 years. Chris Goetcheus, spokesman for the Massachusetts Division of Insurance, said the insurance market runs in six or seven-year cycles. The state agency reviews company filings to make sure the rates and deductibles they seek are not unfairly high.

"We are about two and a half years into a hard market," Mr. Goetcheus said. "Insurance companies are more closely scrutinizing the risks they want to bear. It's true that availability might be less in a coastal region, but we don't recognize at this time a trend where people are being nonrenewed en masse."

The difficulty of insuring homes in coastal areas is not limited to the Island. The problem stretches from Maine to Florida, and locally to Nantucket and the Cape as well as the Vineyard.

Insurance companies began to reconsider where they did business after Hurricane Andrew, the most destructive hurricane of record in the United States. Andrew blasted through southern Florida and south-central Louisiana in August 1992. The storm left in its wake damage estimated at $26.5 billion, most of which was caused by wind: Before the instrumentation broke at many weather stations, gusts of up to 169 miles per hour were reported, with sustained winds of 142 miles per hour.

"Insurers didn't realize the extent of their exposure as a result of a storm of that magnitude," said Jack Golembeski, president of the Massachusetts Property Insurance Underwriting Association. The state legislated association, also known as the FAIR Plan, writes policies for eligible (often high-risk) applicants who are unable to find insurance in the voluntary market. The plan is comparable in price and coverage to those offered by private companies.

"In all coastal areas in North America, insurers have cut back dramatically," said Mr. Golembeski. He added that over the past two years, as private insurers have pulled out of the Cape and Islands market, the FAIR Plan has seen growth in its coastal policies.

In 2002 the FAIR Plan had a 14 per cent increase statewide in homeowners' policies from the year before.

For Martha's Vineyard in the same time period, the number of homeowners' policies increased by 51 per cent, climbing from 698 in 2001 to 1,057 in 2002.

The trend is the same for all the state's coastal areas: the number of Barnstable County policies rose by 17 per cent in 2002, and Nantucket County by 27 per cent.

Mr. Golembeski said he expects similar increases for all three communities this year. "The reason is that companies fear a major northeast hurricane. If we look back, there hasn't been a significant one in 50 years. They think it's due."

A category five hurricane hitting the Island may seem like a long shot, but as Mr. Mone said, "Computers don't have intuition. The analysis comes down scientifically versus practically."

Mr. Schwab explained: "Historically, companies would measure their exposure to catastrophe using historical data. They asked, ‘What has happened?' And in New England there wasn't a lot of perceived threat.

"Now with computer technology and weather forecasting and the rising value of homes, they're taking a look at probable maximum loss. They ask, ‘What would happen if?' "

In response to both the possible risk and to the reality of recovery after Hurricane Andrew, two things happened: Reinsurance companies increased their rates, and insurance companies introduced wind deductibles into their homeowners' policies.

Reinsurance is insurance that companies purchase on themselves to secure their stability. It spreads the risk - and therefore the money paid out - should catastrophe strike. A reinsurance company, for example, might pay for all damage beyond the first $5 million. And when a company writes for a coastal area such as the Island, it incurs higher reinsurance rates.

"The price a company pays for reinsurance determines whether it stays in the Cape and Islands market or pulls out," said Joe Gervais of Gervais Insurance. "And everyone who's left has a way of asking the homeowner to shoulder more of the burden."

Mr. Goetcheus said: "We have seen insurers filing homeowners' policies with us where they seek a wind deductible for homes 1,000 feet or less from the coastline. That is the new trend to guard against the catastrophic."

A deductible is the stipulated amount that the insured party will pay for damage, after which the insurer will pay for the remaining cost. By having a separate wind deductible - essentially a hurricane deductible, said Mr. Mone - insurance companies can require homeowners to pay for more of the damage, when it is caused by wind, than they would otherwise. The cost often runs higher than a traditional all-perils deductible. It can be either a flat rate or set as a percentage of the value of the home. The price might also fluctuate depending on a home's distance from the water's edge.

Despite the frustration of changes or nonrenewals when it comes time to review a homeowners' policy, the Island agents said there's no need to panic: Residents will always get the insurance they need.

Mr. Schwab said his agency hired an employee whose sole job is juggling homeowners' policies between insurers, matching residents with a company that will write here when their former provider does not renew. And there's always the FAIR Plan.

Said Mr. Gervais, "It's a problem, but it's a manageable problem. You have a problem when no one wants to insure something. This is still a competitive marketplace, and sooner or late, someone will drop the reinsurance premiums."

Said Mr. Goetcheus, "If someone were to file a rate request too far out of line, they would be making themselves less competitive. No one's going to jump out of the box."