Coastal Options: Residual Market Not the Only Way to Weather the Storm

IIABA Close to Announcing New Nationwide High Risk Homeowners Program

Independent agents with coastal properties, there may be a life preserver thrown your way soon.

The Independent Insurance Agents and Brokers of America (IIABA) is hoping to close a deal this spring that will provide agencies with a nationwide admitted market for coastal exposures, as well as other high risk homeowners and earthquake exposures, Insurance Journal has learned.

Officials hope it can be in place by the end of spring, when home closings tend to spike.

If that happens, agents from Maine to Florida who continue to struggle to find property coverages for homes and businesses near the coast will have another important private market option.

If that happens, Ryann Elliott, director of specialty markets and marketing at IIABA, will have yet another program to oversee in the growing Big I Markets program she manages. (www.iiaba.org)

And if that happens, agents will have one more stop to try before heading off into the residual market or surplus market for their coastal risks.

Elliott hopes to encourage agents to exhaust private market solutions to the coastal problem rather than have them automatically head to the residual market.

“I urge agents to be diligent in searching for coverage. If the first market you try doesn’t work, find another,” said the agent for other agents.

“Align yourself with quality,” she advised, suggesting repeated efforts to find an admitted market will have a better result for the client and agent in the long run.

She recommended that agents look to their peers for cooperation. “Your best partner may be the fellow independent agent right beside you or down the street,” she added. “You can still keep your client relationship and get the coverage you need from others.”

The Internet can be a powerful tool for locating markets, she added, noting her own Big I Markets online program and other sites that offer market search capabilities and ideas. One of the purposes of Big I Markets is to automate and standardize the access to specialty lines so agents who may not deal in these products every day can do so in a way that is secure and very “E&O aware,” as Elliott puts it.

If the high-risk homeowners program comes through as hoped, it will a be big addition to the menu of programs the IIABA has available to help agents solve their market problems. Big I Markets already has a host of specialty lines and personal lines programs accessible online, including an affluent homeowners package which can be written on properties that are at least 2,500 feet from the ocean and a competitive program for community banks.

Big I Markets also has an arrangement with Selective Insurance Co. to make agents’ access to the National Flood Insurance Program easy and service on these accounts dependable. It even includes a commission rewards program. Flood coverage in excess of NFIP limits is also available.

Elliott is concerned that there is no end in sight for the coastal insurance problems agents are facing. “Coastal is always gong to be a tough risk. And the next hurricane will probably reinforce companies’ concerns.

“But don’t give up … align yourself with quality,” she advised agents, adding that coastal insureds must be made to understand that homeowners premiums will be higher than they’ve ever been.

She wants agents to stop and think about errors and omissions complications down the road if they sell on price but come up short on the coverage.

Of course, for properties or coverages that no standard carrier will accept, agents can turn to surplus lines.

Surplus lines powerhouse Lexington Insurance Company (www.lexingtoninsurance.com) has one of the more popular surplus homeowners programs that is available for coastal properties. Its coastal homeowners product is part of its LexElite series of insurance products available from a number of east coast wholesalers.

Lexington, a division of AIG, can go where standard regional or other carriers won’t because it is national and because it can charge higher rates and impose higher windstorm deductibles.

While the pricing and wind deductibles are higher with LexElite than homeowners and agents may be accustomed to from their standard carriers, John Moran, assistant vice president for personal lines at Lexington, believes agents are wise to consider a surplus lines product like his LexElite “a highly attractive option” over residual market solutions.

“Our rating is an advantage; we are triple A rated. And we match up competitively on commissions,” he said, noting his company is beginning to see an upsurge in inquiries and homeowners applications.

While a product like LexElite provides complete coverage that may be a one-stop solution, there are other ways surplus lines can be used to meet insureds’ needs. Experienced surplus brokers can help agents fill gaps, locate missing coverages and add extra layers with highly-specialized products.

For example, International Catastrophe Insurance Managers, known as ICAT, is a fast-growing company that specializes in one coverage and one coverage only: catastrophe-peril coverage for commercial properties.

ICAT’s earthquake and hurricane policies are provided nationwide through XL Specialty Insurance Co., an A+ XV rated, fully licensed and admitted company in 49 states, as well as Indian Harbor Insurance Company and XL Select Insurance Company, which collectively have approved nonadmitted status in 50 states. ICAT has in-force premium in excess of $90 million.

Boulder, Colorado-based ICAT writes wind coverage but only on properties that are located within the first two contiguous counties in from the coastline, except in Florida and Hawaii where it writes the entire states.
“We are what we are; that is what we do,” explained John Beck, eastern regional executive officer. “The key is that we have to line up with a company that has excluded the wind.” That can be an admitted company or a surplus company.

Agents can contact an ICAT wholesale or retail agent on the east coast. Distributor information at is available at: www.icat.com.

Another potential solution for some agents is a market assistance plan, or MAP. MAPs can be found in Virginia, New York and New Jersey.

A MAP locates insurers that are willing to voluntarily provide coverage; unlike the more popular residual markets, Fair Plans, a MAP does not itself issue policies.

In New Jersey, insurers representing 70 percent of the state’s homeowners market participate in the MAP. New York’s coastal MAP has convinced insurers to voluntarily write more than 4,000 policies in storm or flood-prone areas.

Beyond the MAPS, there are of course, Fair Plans, with which many agents are familiar. In the east, Maryland, Delaware, North Carolina, New York, New Jersey, Massachusetts, Rhode Island and Connecticut all have Fair Plans. Florida has perhaps the most comprehensive residual market plan, called the Citizens’ Property Insurance Corporation (CPIC). The CPIC offers homeowners, commercial and high risk windstorm coverage policies in coastal areas of the state.

Beach Plans are still another form of residual market. Whereas Fair Plans tend to be statewide, Beach Plans tend to serve coastal zip codes only. They exist in the Carolinas, Alabama, Texas, Louisiana and Mississippi.

While some surplus products provide complete coverage, it is also possible to work with surplus brokers to fill gaps and add layers with certain highly-specialized coverages and products.