Writing insurance in the coastal areas of the United Statesalways seems to present more of a challenge to agencies thanwriting similar policies in non-coastal areas. Is this because itis by nature harder to write and quote a policy in theseareas?

I think most agents would agree that this is not the case. Is itmore of the fear of the unknown, then? Probably so. Then what isthe challenge and how should an agent address this challenge?
Being located on a barrier island off the coast of New Jersey, wehave faced this challenge since 1946. We suggest you break thisdilemma into three distinct categories--differentiation, educationand communication--and address each one within your agency to comeup with a plan to write coastal business.
Differentiating your agency
Start off by differentiating the exposures and risks in a coastalarea. Ask your team to identify what the exposures are that need tobe insured. Exposures and coverages that you need to pay particularattention to are flood, wind, occupancy, replacement cost,availability of markets, and specific wind deductibles.
Although flooding and wind damage happen throughout the UnitedStates, getting coverage in coastal zones is more challengingbecause these areas are often hit with wind and flood at the sametime. Special attention is needed to ensure your client has theproper coverage and understanding of what each policy covers. Theinsurance and reinsurance markets themselves dictate that coastalexposures are treated differently.
After Hurricanes Katrina, Charlie and others in 2004 and 2005, wehave all heard about the problems arising out of underinsured oruninsured homeowners who thought their homeowner's policy coveredflood damage. Hopefully, this type of problem does not exist withinthe agency force, but that does not mean we should not take everystep to ensure our customers are aware of this. Always advise yourclients if they are in a flood zone and the need for floodinsurance. Make it easy for them to determine what zone they arein.
Occupancy is another consideration. Is the property being used as aprimary home, secondary or seasonal residence, or as a rentalproperty? It makes a significant difference in policy availabilityif only the owners are using the property and not renting out toother residents. Although this may seem like a subject for BasicInsurance 101, we can assure you these are not basic to theconsumer. They count on you as their agent to not only provide theproper policy and coverages, but to let them know how this coveragediffers for their coastal home. Most homeowners do not understandthe problem insurance companies have with a rental versusowner-occupied property.
We have also found there to be a major problem in the replacementcost methods and calculations of coastal properties. The prices ofthese homes have gone up dramatically over the past five to tenyears, with most of this increased valuation in the land inself.Insureds think their properties have to be insured to the pricethey paid or to the amount of the mortgage, which often results inoverinsurance. Homeowners do not have to obtain insurance for morethan the value of the dwelling. Lenders cannot require coverage inthe amount of the mortgage if that amount is higher than thebuilding is worth. Be proactive for your customers to make suretheir lenders will conform. Make a physical inspection andreplacement cost estimator for every home insured to eliminate thepossibility of overinsurance and save your customer some premiumdollars.
Market availability has shifted considerably from admitted/standardmarkets to nonadmitted markets, especially in light of the recentinflux of homeowner cancellations by the standard markets. Thistrend has been accompanied by a major shift in deductibles, withwind deductibles in coastal areas being considerably higher thanthose inland. The typical $500-$1,000 deductible for a home insuredfor $500,000 is replaced by a 2 to 5 percent wind/named stormdeductible, which could result in deductibles up to $25,000.Explain to your customers the difference in admitted versusnon-admitted carriers, and that the coverages offered fromnon-admitted carriers are usually less than the coverages in apolicy from a standard carrier.
Educating your customers
As an agent, you'reresponsible for educating more than just your CSRs andproducers--you also have to educate your customers. Let them knowabout all of these changes in the coastal insurance marketplace.Consumers have to be aware of the exposures that are more commonwith a coastal property. Most consumers think the main problem isobtaining flood insurance, which is either unavailable or tooexpensive, while the major problem is wind coverage. In today'smarketplace, it is not uncommon for the homeowner or dwellingpolicy with the wind coverage to cost significantly more than aflood policy.
It's your responsibility as an agent to educate your customersabout the importance of flood zones and flood elevations. Properflood zone determinations and elevations can make for a significantdecrease in flood premiums. There are different types of floodpolicies available from the National Flood Insurance Program(NFIP). Preferred policies for homes not in high hazard areas havemuch lower premiums. It may be hard to raise an existing building,but often adding venting to the first floor enclosed areas can makea difference in cost. There are even subsidies available throughNFIP for your clients to raise the elevation of their home. Otherways that can help mitigate potential losses include upgrading thestructure with tie-down straps, hurricane shutters and garage doorreinforcements, just to name a few. It is important to make sureyour customers are aware of all these options.
Communicating with your customers
Perhaps most important in facing the coastal challenge is tocommunicate with your customers. It doesn't do the consumer anygood if the only people who are aware of the coverages needed, theexposures to be protected, and the coastal issues are your CSRs andproducers. Acknowledge right up front, and as often as possible,that there are challenges to writing a coastal insurance policy.Whether it's in a face-to-face meeting, newsletter, on your Website, in the newspaper on in direct mail, let everyone know thatcoastal insurance is a problem, and you have the solution.
Outline the procedures in obtaining a policy so your customer knowswhat to expect. This should include an estimation of cost. Set theexpectations right up front and then deliver on the estimations yououtlined. Most people will thank you in the long run for settingthe expectations and then delivering on your words.
As you know, many companies are now cancelling policies in coastalareas due to capacity issues and the concerns of the reinsurancemarkets. Consumers do not understand this nor can they relate tothis. They have been with XYZ Company for several years with littleor no claims, and now they are being cancelled. Be empathetic withyour customers and let them know you are there to assist them. Takethe time to explain the situation to them and make sure theyunderstand they are not being singled out. Be proactive in thisclimate and advise your clients about what is happening in themarketplace. It's important to let them hear the news from youbefore they receive a cancellation notice in the mail. At aGlance:
Coastal population in 1960:
187 people per square mile Coastal population in1994:
273 people per square mile Coastalpopulation in 2015 (projected):
327 people persquare mile Coastal population in 1960:
187 people per square mile Population densities highestalong the East Coast, especially in the Northeast
Number of coastal countiesin the U.S.: 673
o 285 in the Atlantic
o 142 in Gulf of Mexico
o 88 in the Pacific
o 158 in the Great Lakes Countries located inland from coastalwatersheds account for 83% of the land area Coastal areas make up17% of the contiguous U.S. land area Home to more than 53% of thenation's population 14 of the 20 largest U.S. cities are located inthe coastal zone Increasing by 3,600 people every day Projectedpopulation increase between now and 2015: 27 million Growthhotspots by county:
o Los Angeles, CA
o San Diego, CA
o Harris, TX
o Orange, CA
o Riverside, CA Source: National Oceanic and AtmosphericAdministration (NOAA)