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Bangor Daily News (Maine)
Dec 19, 2003
by ALAN ELLIOTT
Insurance carriers curb risk;
More home policies canceled, rates hikedStorm-beaten homeowners with property damaged by recent weather may want to think twice before filing an insurance claim.
Insurance carriers are in a frenzy to limit their risk and increase revenues, symptoms of what the industry calls a hard market. It means new property and casualty claims can trigger lofty rate hikes as well as company demands for home upgrades or repairs. Even conservative souls who allow policies to lapse or seek lower rates could find themselves suddenly uninsurable.
Seventy-four-year-old Winnifred Gomm, who paid premiums to the same carrier for years and never filed a claim, a year ago found herself scrambling to reinsure her home.
"They told me a month before it lapsed, so I had a month to find a new company," said the South Blue Hill resident.
Gomm's now-defunct policy with Commercial Union York Insurance Co. had cost $196 per year. A month of phone calls by her agent turned up only one willing insurer: Lloyd's of London. Her rates jumped 379 percent, to $939 per year.
Once dropped or rejected by one insurer, homeowners find it much more difficult to get coverage, according to Gomm's agent, Rob Clapp, of the Merle B. Grindle Agency in Blue Hill. Underwriters are asking tougher questions: Do you own a trampoline? A pit bull or a Rottweiler? Does your rental property have a wood stove or a fireplace? If the answer is yes to any of the above, Clapp said, "They won't take you."
Why the clampdown? Blame Wall Street, for starters.
The insurance business is as much about stock market investing as it is about insuring against loss. Premiums paid by policyholders generally go straight into stock and bond deals. In "soft markets," experienced during most of the 1990s, the industry gathers investment capital by assuming more risk and homeowners enjoy a rosy deal.
But when stocks head south, as has been the case since 2000, investment income withers. Carriers turn to policyholders to bolster their bottom lines. Rates go platinum and insurers harden their stance on risk.
"Jacking up the rates has a double function," said Douglas Heller, senior consumer advocate for the California-based Foundation for Taxpayer and Consumer Rights. "Those people that are buying the product are paying a much higher premium for their coverage. But it also serves as a deterrent: it keeps [companies] from selling more product and gaining more exposure."
The superintendent of the Maine Bureau of Insurance, Alessandro Iuppa, said the hard market routine for many carriers involves scouring their books to weed out higher-risk policies accumulated during soft markets.
"But it's not just a matter of them deciding to cancel or nonrenew you; there has to be a rational reason related to the risk," Iuppa said.
The rational reasons, in Gomm's case, included curling roof shingles, a chimney in need of repair and a dilapidated barn on the property. Gomm had the legal right to a hearing before the superintendent. But her fixed income wouldn't cover the requested repairs. Both she and Clapp thought the insurer would have won the appeal.
Gene Hollis, manager of the J.C. Milliken Agency office in Ellsworth, is a 20-year industry veteran who says he's seen hard markets before. But the past two years is the first time he's seen the effects extend to homeowner coverage. Hollis said his office has seen 10 percent to 30 percent rate hikes and believes Maine has been hit harder than most states.
"Days like today," he said on Monday, as wind and freezing rain pounded much of the state. "If you're a Mainer, you sit and think, 'This isn't harsh weather.' But this is harsh weather."
The Insurance Information Institute reports wind, hail, water damage and freezing accounted for almost 43 percent of the $25.55 billion in homeowner losses claimed during 2002. Fire, lightning and debris removal accounted for another 34 percent. Losses due to theft, by comparison, totaled less than 5 percent.
The market has been hardest on owners of coastal and island homes. An industry standard grading system produced by the New Jersey-based Insurance Services Office scores properties according to local fire protection and water supply. Little Deer Isle, Isle au Haut and Blue Hill are a few of many coastal areas tagged as highest-order fire risks, putting them atop an insurer's list of risks to avoid.
"Isle au Haut residents call and say, 'I'm complaining, my rate has gone up 20 percent,'" Clapp said. "I don't want to seem insensitive, but I tell them to be happy to have coverage at all, and don't let it cancel on you - not even for a day. If you do, they won't take you back."
Agents and industry observers agree the current market won't last. An improving stock market and strong industry revenues this year portend a softer outlook for 2004. In the meantime, agents say, homeowners should mind their policies carefully, keep ahead of maintenance and ante up for their own repairs wherever possible.
"I know it's not minor to some people to have a $1,500 loss," Hollis said. "But think long and hard before you make a claim."
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