Friday, September 14, 2007

Long Island Home Insurance in the News

Aaron Stein, Long Island Insurance BY AARON STEIN

It's been an interesting Summer in the homeowners insurance business here on Long Island, but it all seemed to come to a head a couple of weeks ago when Newsday started their series about Allstate and Liberty Mutual causing some trouble by non-renewing some people because they did not carry their car insurance with them along with their house insurance.

Regular readers of this blog have known about that for some time. In fact, everybody involved, including the New York State Insurance Department, agrees that Allstate even went so far as to discuss their plans with the previous administration of the Insurance Department even though they did not think it was required, and the plans were approved. (Author's note - apparently the State Insurance Department actually reads this blog, and I had a call from them today. It is their position that Allstate did NOT receive any kind of formal approval from the prior administration at the Insurance Department for their actions) Liberty Mutual had the same opinion that approval was not required, and so did not ask.

I am certainly the last person to be an advocate on behalf of Allstate, who has always been one of our biggest competitors in the home and auto insurance market here on Long Island. But this situation points up several issues that, while seeming to help on the surface, may not be good for the overall marketplace in the longer term.

For one thing, there are several major carriers (GEICO, Progressive, AIG, Unitrin Direct, and others) who are ONLY writing auto insurance, which is currently more profitable for them and carries virtually NO catastrophe risk exposure from hurricanes and other major weather events. Yes there may occasionally be a bad car accident that costs an insurance company several million dollars, but that pales in comparison with $65 Billion of insured losses from Katrina, which was estimated to wipe out all insurance company profits in that area from the last 20 years. Why isn't the State Insurance Deparment insisting that these carriers participate in the property market some way, whether by writing propery insurance or by putting contributions in a pool to back up those companies who do?

Next problem. Allstate had gotten this approved by the State Insurance Department before they started. Now they are being told that this doesn't count. One of the advantages companies always felt they had here in New York was that, even though we are a lawsuit and claim-happy bunch here in the New York area and on Long Island in particular, at least our insurance department was known for being firm and consistent, so that decisions could be made based on what they were told by the regulators. Now the insurance department is saying that's no longer the case, they can tell you one thing and change it completely a short while later. Lack of consistency is very dangerous in terms of encouraging new companies to come in to our market.

The third issue here is the government telling a private company in an open market place who they can and can not take or cancel as clients. I know this is no consolation if you are one of the people cancelled by Allstate, Liberty Mutual, State Farm or one of the many other carriers who are taking these actions. But our economy is based on capitalism, a free market, and supply and demand for the product involved. It may indeed be the place of government to step in and say that a company can't discriminate based on things like race, national origin, or other criteria that can be broadly grouped under the heading of 'prejudice'. But to start telling companies who they must insure based on what can be considered legitimate business criteria (such as not buying more coverage from them) is a very dangerous step in the wrong direction.

The fact is that you do not have a constitutional right to be offered an inexpensive homeowners insurance policy regardless of how exposed your home is to windstorms, or if it's in an earthquake zone, or next to a brush area that has major fires each time there is a thunderstorm, or any other criteria that can be shown to increase your risk of loss. You have the right to sell your house and purchase one somewhere else, or to shop around for the best price you can get for the coverage you want from companies who, based on our highly competitive free market, are willing to sell the coverage.

The FEMA Flood Insurance Program, available throughought Long Island and all over the country, is a good example of the opposite of what is being done here in the homeowners insurance market. FEMA has to take all people who apply and qualify. The government sets the rates and is considered the only entity large enough to insure the kind of catastrophe risk represented by flooding, which can affect thousands of people at the same time (as opposed to a fire or car accident, which might affect more than one person or property, but not likely a whole town or city)

But the FEMA program is way past bankrupt, and politicians who represent areas that do not get floods are sick of their constituents' tax dollars being diverted to pay for losses to homes in flood prone areas that get damaged again and again.

I don't claim to have the solutions here, but this is a complicated issue that should not be played out in news headlines about the big bad insurance companies picking on the masses without cause.

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Anonymous said...

I can't help but notice that Superintendent Dinallo's pandering to the media lately, ostensibly in an effort to help consumers, actually is detrimental to consumers.

Dinallo finds fault with insurers who, when deciding whose homeowner insurance policy to renew, base their selection in part on whether a customer has more than one policy with them.

Shouldn't customers that have multiple policies with one company stand out from those that only have one? It makes perfect sense. Repeat customers or multi-faceted customers of any organization almost always receive preferential treatment over the first time or limited customer -and that is as it should be. If you look across our economy you find evidence of this in every aspect of our daily transactions.

Fox example:

1. If I purchase cable television from a given company I pay x price, however, if I also purchase internet and phone I get a better deal.

2. If I buy a season ticket package to a sports venue I get a better price and more amenities than the person who buys tickets to only one event per year.

3. I happen to fly with one airline frequently, as a result I board the aircraft before the folks who rarely fly and I am made aware of discounted routes and seats that a non-member may not be aware of.

4. I get discounts at the grocery store that I frequent with a plastic ring on my car keys.

Companies always treat customers differently, as they should, and as we the consumer expect. It's called capitalism. When government tries to step in and tell companies how to treat their customers they almost always get it wrong.

By interfering in the insurance marketplace, I and other loyal consumers are being put at a disadvantage. I have all of my policies with one insurer and you bet I want preferential treatment!

I think the Superintendent missed the mark in his zeal for headlines and I wish more folks like me would speak up and stop it before someone else in government tries to deny me the benefits of capitalism.

Aaron J. Stein, CPCU, CFP said...

I made the exact same point to the person who called me from the State Insurance Department, that it's common in every industry to reward loyalty and multiple purchases. His comment - 'good point'. Well I guess that's something.

Jhon smith said...


Jhon smith said...

aaron really this is the good point...
keep it up...

ביטוח רכב said...
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