This Blog is for the large special community that loves the Beach and is willing to take the risks associated with owning a home by the water. Beach Front Homeowners have real problems that require special actions including a strategy to handle storms (Boarding Up, Storm Windows), Winter Water Leaks, Winter Burglaries, Fire Response Issues and the difficulty in finding solid insurance protection at a reasonable cost.
My hope is to provide a venue to talk about problems, solutions and exchange good advice on handling our problems. And over time establish a list of reliable professionals that can help us manage our homes. We all need insurance, craftsmanto work on the constant wear and tear on a Beach home, Fire and Security Systems, plumbing issues like shut off valves, finding a reliable Winter Caretakers to look in on our homes and other solid experienced vendors that understand that Beach Homes are not like other inland houses. Hopefully over time we can find solutions through sharing our experiences.Some Insurance Guidance for My Fellow West Hampton Dunes Residents,
I have been coming out to Westhampton Dunes since I was a small boy. I have been in the Insurance industry forever, own an insurance agency and have helped friends in the community with insurance for their beach homes. Many friends in Westhampton Dunes seem to be anxious about whether their homes are properly protected and ask me questions down on the beach. So I thought I would write this letter and share some of my experiences with the hope of maybe reducing some anxiety and possibly eliminating some problems for my Westhampton Dunes neighbors. Some insurance issues to consider.1. Is there solid insurance at a cost that isn’t totally cost prohibitive?
Generally you can find a reasonable solution to Beach homeowner’s insurance problems, but usually it requires some compromises. The Truth is that insuring a Beach home usually involves a difficult Risk/Reward decision (a Cost vs. Quality decision). Quality Homeowners and Excess Flood insurance is available for Beach homes, but the quality protection is simply more expensive. Each owner will have to make a decision as to whether they need to purchase the stronger more trust worthy insurance.2. Major Insurance Companies don’t insure Beach homes? - Yes and No
Chubb, Ace, AIG, Travelers, Hartford, Firemen’s Fund prefer not to write insurance protection for beach properties. They do write some houses as a concession, but only if you have significant other properties in “Safe” locations. So the first thing to do is approach these large quality companies to see if they may be willing to add the Beach property (my experience is that they try real hard not to do it).3. Many West Hampton Dunes homeowners are insured by New York Property Insurance Underwriters Association (“NYPIUA”). What is it and do they pay claims?
All insurance companies eventually pay claims. The real question is how much do they pay and how long until they pay it. In the case of NYPIUA, they are an association formed by NY State to cover locations not serviced by standard insurance companies (like Beach Front Properties). The Association is a small organization that is undercapitalized without enough funds to cover claims in the event of a significant event like a severe Hurricane. The Association is supported by the other insurance companies doing business in the State of NY. If they require additional Funds, they need to have a capital call against the other insurance companies.
It is good that NYPIUA has this support, however if we have a major Hurricane, all those other insurance companies will have plenty of claims issues and in reality, it will take a long time for NYPIUA to finally settle claims. The NYPIUA offers relatively inexpensive insurance, if somewhat limited coverage. I am not knocking NYPUIA and I place a lot of insurance with them. I just make sure that people understand what they are getting and possible claims issues in the event of a major weather event. NYPUIA is often the only affordable solution for insuring your beach homes.4. What are the insurance alternatives for our homes and are they affordable?
Admitted Insurance Companies: There are a number of “Quality Admitted” insurance companies that will write ocean front homes. They are more expensive than NYPIUA but still reasonable (as a percentage they are much more expensive but it usually it works out to a few thousand dollars more for better insurance). Currently, there are a few middle sized companies that will offer a solid “Homeowners policy” for beach homes. The coverage is good and the claims handling is solid. The pricing for this insurance is reasonable given the risk, but much more than NYPIUA.
For example, I obtained quotes on a home that would cost $750,000 to rebuild and NYPIUA provided “Dwelling” coverage with limited protection for a cost of $2,130 vs. the Standard Insurance Company quote of $4,100 for full Homeowners Coverage. There are major coverage difference between a mere Dwelling policy and a full Homeowners policy (so basically the quality insurance cost an additional $1,970).
Remember each beach property is different and pricing varies, especially depending on whether you are in the better “AE” Flood zone or the higher risk “VE” Flood Zone.
Non-Admitted Insurance Companies - NY State allows Non-Admitted Insurance Companies to write difficult risks that Admitted Companies avoid, like Beach homes. “Non-Admitted” carriers that will write insurance on Beach properties include Lexington, Scottsdale, Lloyds of London and a few others. Most of these companies are Subsidiaries of large Insurance companies and have assets to cover claims. They are usually but not always more expensive.
- A Warning Note:Non Admitted Carriers are a good option but understand that NYS Insurance Department permits them to totally customize coverage, so be sure to understand what is covered and what isn’t (For example, often liability is excluded, which may be OK, if liability is covered under another Homeowners policy covering your primary residence).
5. Is All Insurance about the same in terms of Coverage and Protection? Absolutely Not!
The important thing to check is how your policy establishes value for your damaged or destroyed things. There are two major ways policies value things, Replacement Value and Actual Cash Value (ACV). Will your home and contents be replaced no matter the cost or will you receive some percentage of their original value because they are depreciated under an ACV calculation (big difference). Only the best policies provide true “Replacement” coverage and often the policy provides only modified Replacement coverage (usually up to 125% of the stated value in your policy).
Example: Your home has a fire. The policy valued your home at $500,000. It costs $900,000 to rebuild.
- Replacement Value pays the whole $900,000
- Modified Replacement Value will pay 125% of Stated Value in the policy or $625,000 (Note: your policy may use the words “Replacement Value” but the definitions may limit “Replacement Value” to 125% of stated value in the policy, that is why I call it Modified Replacement Value).
- Actual Cash Value (ACV) will pay the depreciated value of your claimed property. For example, appliances, furniture and even a Roof will be discounted based on their age. ACV should be avoided if possible.
- Note: Federal Flood adjusts claims for Non-Primary Homes on an ACV basis. Let’s hope we don’t have any Flood claims.
6. So who offers True Replacement Value, Modified Replacement Value and ACV Valuations?
The High End insurance companies like Chubb, Ace, Chartis and a few others automatically provide true replacement value. Many others provide modified replacement value with an option to purchase true replacements value for additional premium. Note: NYPIUA valuation is dependent on what option your broker elects. You can have one valuation for the home and for contents. It is essential with NYPUIA to be sure you purchase the highest level of coverage (which still leaves some coverage gaps).7. Is Excess Flood Insurance prohibitively expensive? Not Anymore
Excess Flood has gotten much less expensive lately (especially if you are in an AE Flood Zone, which is about half of West Hampton Dunes). In the past, a general rule was that Excess Flood cost about $1,000 per $100,000 of coverage. Well that has come way down. Recently I got $500,000 of Excess Flood for $2,100. So the general rule is now about $450 per $100,000 of coverage. So a million dollars of Excess Flood should cost around $4,500 in premium (Note: Rates change significantly depending on your Flood Zone Designation).
Warning: If your Mortgage requires Excess Flood Insurance, the forced insurance from the Mortgage company is usually twice as expensive as what can be purchased in the market (you pay $9,000 vs. $4,500 for the same protection).8. Is there anything I can do to reduce my Insurance Costs?
Yes: You can reduce your insurance costs by taking actions to reduce your risk profile and exposure from major storm damage.
- Fire - They look for a Central Alarm Systems (they love Sprinkled Homes)
- Wind Damage– Electronic Shudders or Pre Cut Window Panels providing protection from Hurricane Wind Damage
- Water Damage – They look for a shut off valve and a contracted Caretaker that regularly monitors the home in the winter when it is vacant.
9. Does the Insurance Environment change for Beach Properties?
Many insurance companies write Beach homes for a little while and then they get too many homes, too much risk, get scared and stop writing insurance on the Beach. I try to keep up with the appetite of the insurance companies and keep an eye out for new companies open to writing Beach homes. I will try to regularly send out information on Beach insurance and let you know about changes in the market.
I hope this information provides a little more understanding of our challenges insuring our homes at the beach. There is a lot more information that is important (Breakaway Construction Requirements, Fuel tanks, Flood Zones and other fun stuff). I am setting up a blog on “Insuring Beach Homes” at our website theelsgroup.com. So anyone interested can keep up on insurance issues for beach homes (it is hard to believe but I actually find this stuff fun and interesting).
Feel free to call me if you need some advice or have any questions.
Warm Regards and hope to see you on the Beach,