Delaware Warns Consumers of Coastal Coverage Woes; Ups FAIR Plan Limits

Delaware Insurance Commissioner Matt Denn warned consumers about some expected restrictions from homeowners insurance companies for coastal area homes, although he said he does not believe they will be as severe as other states.

Denn also announced changes to the Delaware FAIR Plan – a pool for homeowners who cannot obtain insurance elsewhere – to accommodate expected new customers as a result of industry actions. Among the changes, the FAIR Plan will double the insurance limits it provides from its current $250,000 for house and contents to $500,000 for house and contents.

“We want to let Delawareans in the coastal region of our state know that Delaware’s coastline, like coastlines up and down the Atlantic, is going to be facing some difficulties with respect to homeowners insurance in the coming months,” Denn said. “But we are addressing the situation in a responsible, forward-looking way, so that these changes in the homeowners market have as little impact as possible on our homeowners and businesses.”

Denn was joined in his announcement by Dewey Beach Mayor Dell Tush, Phil McGinnis of the Delaware Association of Realtors and Mary Rowland of the Independent Insurance Agents of Delaware, who each underscored the importance of access to homeowners insurance in coastal areas.

Nationally, insurance companies have been not renewing homeowners policies in the coastal areas or have been putting new restrictions on policies. These actions are being taken by companies seeking to reduce their potential losses from future hurricanes and coastal storms following financial payouts from hurricanes Katrina and Rita. After those storms, more than 600,000 homeowners policies were cancelled or not renewed in Florida and Louisiana and more than 80,000 coastal policies were cancelled in Massachusetts and New York.

Insurance company actions in Delaware are not as dramatic as in other states, but a survey of the companies indicates there will be some changes in their coastal business, according to Denn.

“One of our major companies, which already declines to insure homes within 1,000 feet of the coast, is expanding that zone to 2,500 feet. Another major insurer is placing a cap on the amount of new coastal homeowners insurance its agents can sell each month. A third one plans to stop new sales of homeowners insurance to homes within two miles of the coast,” Denn said.

Denn said that coastal homeowners seeking new policies may end up purchasing a policy in the Delaware FAIR Plan, which is operated jointly by insurance companies as a “last-resort” source of homeowners insurance. At Denn’s request, the Delaware FAIR Plan recently made a number of changes to its policies to accommodate expected new business.

“Most importantly, we have required that the FAIR plan double the amount of coverage that can be purchased, from $250,000 for the house and contents to $500,000 for the house and contents. That puts us in line with the FAIR plans of other Atlantic coast states, and it means that people who can’t find insurance from in-state carriers will be able to buy more of their coverage from the FAIR plan and less of it from the very expensive out-of-state ‘excess lines’ carriers,” Denn said.

Denn also asked the FAIR Plan to make it easier for homeowners to obtain coverage when storms hit other states. “We have also required that the FAIR plan eliminate a significant part of its ‘storm blackout’ rules that make it harder for homeowners to get into the FAIR plan during storms elsewhere in the country,” he said.

He has also called upon the FAIR Plan to be “much more aggressive” about informing policyholders and insurance agents about its availability, and that it also covers vacation homes and manufactured homes.

“I’m pleased the commissioner has succeeded in getting the coverage limits increased,” said Mayor Tush, whose own insurance for her ocean block home in Dewey is through the FAIR Plan. “Otherwise, the cost can be astronomical.”

“It’s important for insurance companies to remain stable by reevaluating their risk and making adjustment, but it’s also important for the commissioner to recognize this issue early and address these coastal issues,” Rowland said.

“The inability to find homeowners insurance affects homes in all price ranges and is not just centered on high-priced resort properties,” McGinnis said. “Affordable housing is affected as well.”

Additional actions announced by Denn:

Coastal homeowners who lose their coverage and need to discuss options should call the Insurance Commissioner’s consumer hotline at 1-800-282-8611;

Commissioner Denn will meet with legislators in November to discuss the need for any legislative action to address the coastal insurance situation; and

The Department of Insurance will continue to fight a lawsuit brought by the insurance industry seeking to overturn a regulation that bans companies from not renewing homeowners policies after one or two small weather-related claims.

Source: Commissioner Denn’s Office