by Patricia Daddona - published by The Day - May 17, 2007
More than 4,000 home insurance customers with the Middlesex Mutual Assurance Co. in towns from Old Saybrook to Ledyard will be getting rate increases of 85 percent.
Middlesex is one of four insurance companies for which sizeable rate increases have been approved under new state Insurance Commissioner Thomas Sullivan.
Coastal homeowners typically are charged rates at the high end of a range of increases. At Middlesex, for instance, other homeowners could have a 3 percent decrease or an increase of just 2 or 9 percent, but those in the shoreline towns of Stonington, New London and Old Lyme will have 85 percent hikes.
Kevin Reardon of the Reardon Agency in Waterford and John Scott of the Bailey Agency in Groton said this is just the beginning.
“If every single insurer takes exponential rate increases, where are homeowners going to go?” asked Reardon. “Once one insurance company does it, they're all going to do it. Regrettably, it's going to be a position where the homeowner has no resort.”
“The cost to us increased more than 100 percent” for reinsurance, said Chris Anderson, a spokesman for Middlesex. “We do buy the highest level of reinsurance catastrophic protection because we care about our clients. I think that's reflected in the fact that we are rated by A.M. Best as A+, a superior rating.”
Judy Jackson, chief executive officer of the Norwich-based New London County Mutual Insurance Co., gave reasons why her company will raise its rates as much as 64 percent, with 43 percent the norm in New London County.
“For two years now,” Jackson said, “we've lost money on virtually every coastal policy we write because of the expensive catastrophe
reinsurance. What industry goes forward and continues to lose money? You can't keep doing that. We were forced to either raise rates or shed enormous amounts of business.”
In an interview Wednesday, Sullivan confirmed that those are the types of issues forcing rates up. He pointed out that of the 100 carriers in Connecticut, only Allstate has refused to insure new customers. A healthy market is one that thrives on competition, not government intervention, he said.
“Markets are very cyclical,” Sullivan said. “While these increases may be painful, if markets are open and competitive, you will see cycles of increase but also cycles of stability. As long as we have ... more players, not less, eventually competition will catch up with rate increases.”
Among the reasons his staff is approving high rate increases, he said, are:
• Forecasting models have changed and show New England as overdue for a major hurricane.
• Re-insurers, the companies that insure the insurers, are charging those insurers more to stay in business.
• Credit rating agencies have increased the surplus requirements of all of the companies by as much as 20 or 30 percent or more. In order to maintain their ratings, the companies have to set aside more of their surplus.
Scott, the Groton insurance agent, said coastal homeowners are shopping briskly for better-priced insurance, but agents are getting “heartburn” trying to make the best deal for their customers.
“Each company is defining 'coastal' very differently, and that's where the department did not do a good job” when writing guidelines for coastal insurance last year under former Commissioner Susan Cogswell, said Scott. Cogswell is now a deputy commissioner.
“We do get angry phone calls just about every day from people who justifiably feel they aren't shoreline people. Someone in Ledyard wouldn't expect to get a letter saying they have to have a high deductible,” he said. “We're ending up having to move the business to another insurer, which is what (the insurers) wanted.”
Coastal bands are the distance from bodies of water within which more stringent requirements like hurricane deductibles can be imposed. Under Cogswell's guidelines, coastal bands extend to 2,600 feet from the water, about half a mile.
Sullivan maintains that the guidelines in place are adequate.
“There should be no ambiguity as to what we define as coastal,” he said. “I'm not aware of companies who are not following the guidelines.”
Sullivan also warned against seeking quick fixes to the market fluctuations through lawmakers or statewide policy changes, as Florida, a state more prone to hurricanes than Connecticut, has done. Taxpayers in Florida will pay dearly when the state, acting as a re-insurer, has to cover major losses, he said.
“It's better to have more competitors in your market and let the market determine prices,” he said.
The insurance department has a responsibility to balance the needs of the consumer with the solvency of the market, Sullivan added. For instance, a homeowner with an insurer who goes bankrupt has liability coverage of $400,000 through a “guaranteed fund,” but if that home is worth $500,000 the consumer has to cover the difference, Sullivan said.
Sullivan is using a New York model to develop a new program within the FAIR Plan, a market of last resort, which would give consumers who couldn't find coverage a company that could write policy for them. Details are still being worked out, he said.
Jackson had another suggestion: Homeowners should take measures to protect their property where possible.
“That'll help with future insurance costs,” she said, “and it'll help them have a place to go home to after a hurricane hits.”
Sullivan urged consumers to use the department's hotline for coastal coverage: 866-870-4305.
Patron's Mutual: 40 percent to 81 percent increase
New London County Mutual: no change to 64 percent increase
The Merit Plan: 17.5 percent increase statewide
Source: Connecticut Insurance Department
