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Homeowners Insurance & Coastal risks

dreamstime_s_35526294If you live near the ocean you are no doubt aware of the hardship of finding affordable homeowners insurance.  Most insurance companies have retreated from insuring homes near the coast and even nonrenewed the homeowner policies they once insured there.

Where can you find insurance?

Your New Bedford insurance agent can help you find an insurance company that is willing to provide a policy for you.  There is almost always an insurance company to insure a “coastal risk”. However, finding one with competitive pricing is another matter. Yet there are still some insurance companies that given the right parameters of the insurance needed and upkeep of the home in question, can still provide a competitively priced homeowners policy.  Under certain circumstances, Borden Insurance Agency Inc in New Bedford can provide a homeowners insurance policy with a highly rated insurance company for both small and very large homes that are less than a mile from the ocean.

Exactly what is ‘The Coast’?

Defining what is “coastal” varies from one company to the next. Typically most insurance company will not insure a home less than one mile from the ocean. That can mean the open coastline or in some cases, tidal water. The risk or danger referred to by “coast or coastal” is often misunderstood to mean flooding from the ocean. Homeowners insurance does not cover loss by flooding. The danger referred to is damage from wind. The wind from a tropical storm or hurricane coming up the coast from tropical waters, is stronger on the coast where it is unabated.  The resulting wind damage is more severe.

Why Has Home rates gone up near the coast? 

Years ago, after hurricane Bob, 1991 and Andrew in 1992, insurance companies found that the losses they experienced from wind damage to the homes they insured were greater than anticipated. Their reinsurance companies increased their rates accordingly.  As a matter of background information, “reinsurance” is what insurance companies buy for catastrophes such as the widespread damage caused by hurricanes. “Reinsurance” is insurance for insurance companies.  Once an insurance companies pays out a certain limit of claims for a particular hurricane, they turn to their reinsurance policy to pay the rest.

Computer Models

The cost of reinsurance has increased, especially since new scientific “computer models” developed more than ten years ago.  The models revealed that there was more exposure to property damage from Category 3 or higher hurricanes, than previously thought.  The increase of residential development especially in coastal northeast over the last 20-30 years, presented a higher exposure to the reinsurance companies.  The resulting increase in this exposure caused a dramatic increase in reinsurance costs. This increased cost of reinsurance is charged to the insurance companies that provide the homeowner policies.  Inevitably, the higher cost is passed along to all the policyholders. Not only is there higher premiums but it has also resulted in higher wind deductibles, the cancellation of policies and the moratorium on new policies for homes on the coast.

Hurricane Deductibles

Deductibles for wind damage come in various forms with homeowners policies. Some are wind and hail deductibles. Others are less broad such as Named Storm or even Hurricane-only deductibles. It is very important for a homeowner to review their policy.  A call to your New Bedford insurance agent from time to time is recommended.  Remember, the deductible is that portion of a claim for which a homeowner is responsible to pay out of pocket.  Should there be a catastrophic hurricane or tropical storm in our area, checking your policy periodically could prevent the “sticker price” shock of your wind deductible.  Borden Insurance Agency Inc.  can review your policy and advise you what your individual policy will or will not pay in the event of a destructive storm.  It is not unusual to see a policy with a 3% or even 5% wind or hurricane dedutible. These can be catastrophic to a family’s finances. The “percent” is referring to a percentage of the Dwelling limit on your homeowners policy. A 5% hurricane deductible on a $300,000 house equals a deductible of $15,000.  Many people could not afford a $15,000 expense for repairs to their home. Even if the government steps in to give financial disaster relief, it may only come in the form of low interest loans. Therefore, to review and plan ahead for the contingency of a large uncovered wind loss is strongly recommended.