N.H. coastal insurance seen more stable than Mass.
While residents along New Hampshire’s Seacoast may see some fluctuation in their insurance premiums in 2006, they need not worry about falling victim to the same skyrocketing reinsurance costs wreaking havoc on Cape Cod, according to state insurance officials. "There are no firm numbers yet," said David Withers, the state’s chief property and casualty actuary. "Every year we see some changes in the market when the companies see the new reinsurance costs and I wouldn’t be surprised if the overall reinsurance costs will be looking at some increase." Reinsurance purchased by a homeowner’s insurance company provides a financial buffer in cases where claim payouts exceed the homeowner’s insurance company’s financial capabilities. "Insurers will buy reinsurance to cover claim payouts," said State Insurance Commissioner Roger Sevigny, who explained that insurance companies set attachment points or payout caps for individual occurrences. Reinsurance kicks in when these caps are exceeded. While the state Insurance Department does not regulate reinsurance providers it does monitor consumer providers ensuring that they are adequately covered in the event of catastrophic claims. Costs associated with reinsurance are set in accordance to risk findings determined by actuarial models for a given region. "Actuaries do models for all sorts of things from what types of people will have accidents to the probability of storm damage from hurricanes or nor’easters," Sevigny said. In the case of Cape Cod -- where 54 percent ($662.4 billion) of the state’s entire $1.2 trillion in insured property is considered coastal, according to the Insurance Information Institute in New York -- the models predicted high loss in the event of a serious storm causing reinsurance companies to raise their costs and prompting the region’s largest providers to significantly reduce their coastal coverage. Residents of New Hampshire, however, will continue to reap the benefits of being relatively spared from catastrophic occurrences and having a smaller coastal population. Of the total $196 billion in insured property in New Hampshire, $45.6 billion, or 23 percent, is considered coastal. "Insurance pricing is based on local experience," Sevigny said. "The risk of catastrophic events in New Hampshire is not as high and that makes our market generally pretty good." In 2005, insurance rates in New Hampshire actually decreased by 2 percent, according to Withers. The decline was in response to a softening reinsurance market, in 2004. Ironically, 2004 brought a 7 percent increase, possibly reflecting the effects of the September 11th terrorist attacks in 2001. These two years alone demonstrate the lag-affect in the industry and offer credence to Wither’s expectations that Granite State property owners may in fact see some increase. If reinsurance rates do escalate significantly, however, insurance providers have a couple of choices, according to Sevigny. "They can either pass the increase on to the consumer, or they can decide they don’t want to compete in that particular market anymore and just get out." This, in fact, was the path chosen by two of the largest insurance providers on the Cape -- Hingham Mutual Group and The Andover Group. Together the two will discontinue coverage to more than 20,000 Cape Cod policyholders early next year. New Hampshire may fare well with larger providers that choose to continue offering coverage because of the low risk of catastrophe associated with the state by building a proportionate amount of the increase into premiums offered in higher risk states. - TRACIE STONE