LA wildfires could drive up Long Island home insurance costs
The Los Angeles wildfires are projected to be the costliest in U.S. history, and local insurance brokers said Long Island homeowners will eventually feel the impact in their insurance premiums.
As of Thursday evening, five people had died, more than 29,000 acres had burned and more than 5,000 structures had been destroyed in the fires, according to the California Department of Forestry and Fire Protection.
A JPMorgan analyst said Thursday the estimated insured losses from the fires would exceed $20 billion, The Wall Street Journal reported.
Catastrophes of that magnitude increase insurers’ costs and lead them to charge more in the future, three Long Island insurance brokers told Newsday.
That’s because the cost of reinsurance — the coverage insurers buy to protect themselves from high claims — has been rising in the past decade following a series of natural disasters in the U.S., said James Sutton, broker and owner of the James F. Sutton Agency in East Islip.
In the global market for reinsurance, massive losses in one area can affect the cost of insurance elsewhere.
A major catastrophe can lead to "companies withdrawing from the marketplace or curtailing their insurance writings, and it's also higher prices that are coming in,” Sutton said. That adds to Long Island’s own home insurance challenges, which stem from its hurricane risk.
Sutton said premium increases of 10% to 30% have been typical for homeowners renewing their policies recently.
Long Islanders are already facing a tight home insurance market, which one broker described as the “worst in years” in September after several insurers announced they would no longer offer policies in New York because of financial challenges or strategic moves away from home insurance.
While the region faces different climate risks from California, the losses incurred from the fires will also likely affect the ability to find a willing insurer here, said David Levine, president of Newbrook Insurance Agency in Port Jefferson Station.
“Anything that will impact reinsurance is going to have an impact on availability,” Levine said. “The market’s still very tight for homeowners. This for sure is not going to help.”
Brokers said it could take six months to more than a year before the effects of the Los Angeles wildfires are priced into home insurance, as companies seek premium increases from state regulators that reflect potentially higher reinsurance costs and policy renewals.
California’s insurance market is on the verge of collapse because state regulators didn't allow carriers to adequately raise premiums to reflect risk after a series of wildfires, said David Clausen, CEO of Coastal Insurance Solutions in Rocky Point.
“The one thing we have in our favor compared to California is that insurance is largely competitive still in Long Island and New York,” Clausen said. “Although there’s strain, healthy amounts of capacity and competition remain.”
New York places restrictions on how insurers can end coverage for high-risk homeowners. State law allows insurers to cancel homeowners or tenants insurance policies within the first 60 days they are in effect if they provide specific reasons for the cancellation.
After the 60-day period, insurers cannot cancel or decline to renew a policy for three years, except for certain reasons including nonpayment of premium, fraud or physical changes to the property.
State law requires insurers to provide 45 to 60 days’ notice of a decision not to renew a policy after the initial three-year period ends.
Homeowners concerned about their future insurance costs can protect themselves by maintaining their roofs as well as plumbing and heating systems. Those are some of the issues insurers are flagging when they choose not to offer them coverage, Sutton said.
“To get insurance today, you have to maintain your home,” Sutton said.
The Los Angeles wildfires are projected to be the costliest in U.S. history, and local insurance brokers said Long Island homeowners will eventually feel the impact in their insurance premiums.
As of Thursday evening, five people had died, more than 29,000 acres had burned and more than 5,000 structures had been destroyed in the fires, according to the California Department of Forestry and Fire Protection.
A JPMorgan analyst said Thursday the estimated insured losses from the fires would exceed $20 billion, The Wall Street Journal reported.
Catastrophes of that magnitude increase insurers’ costs and lead them to charge more in the future, three Long Island insurance brokers told Newsday.
WHAT NEWSDAY FOUND
- The Los Angeles wildfires, projected to be in the costliest in U.S. history, are expected to result in home insurance premium increases nationwide, including on Long Island, local brokers said.
- Catastrophes like the fires increase the cost of reinsurance, the amount insurers must pay to protect against high claims, and premiums tend to rise as a result.
- Brokers said the economic toll of the fires could make it harder to find a home insurer in places like Long Island, which faces insurance risk from hurricanes.
That’s because the cost of reinsurance — the coverage insurers buy to protect themselves from high claims — has been rising in the past decade following a series of natural disasters in the U.S., said James Sutton, broker and owner of the James F. Sutton Agency in East Islip.
In the global market for reinsurance, massive losses in one area can affect the cost of insurance elsewhere.
A major catastrophe can lead to "companies withdrawing from the marketplace or curtailing their insurance writings, and it's also higher prices that are coming in,” Sutton said. That adds to Long Island’s own home insurance challenges, which stem from its hurricane risk.
Sutton said premium increases of 10% to 30% have been typical for homeowners renewing their policies recently.
Tight market on LI
Long Islanders are already facing a tight home insurance market, which one broker described as the “worst in years” in September after several insurers announced they would no longer offer policies in New York because of financial challenges or strategic moves away from home insurance.
While the region faces different climate risks from California, the losses incurred from the fires will also likely affect the ability to find a willing insurer here, said David Levine, president of Newbrook Insurance Agency in Port Jefferson Station.
“Anything that will impact reinsurance is going to have an impact on availability,” Levine said. “The market’s still very tight for homeowners. This for sure is not going to help.”
Brokers said it could take six months to more than a year before the effects of the Los Angeles wildfires are priced into home insurance, as companies seek premium increases from state regulators that reflect potentially higher reinsurance costs and policy renewals.
California’s insurance market is on the verge of collapse because state regulators didn't allow carriers to adequately raise premiums to reflect risk after a series of wildfires, said David Clausen, CEO of Coastal Insurance Solutions in Rocky Point.
“The one thing we have in our favor compared to California is that insurance is largely competitive still in Long Island and New York,” Clausen said. “Although there’s strain, healthy amounts of capacity and competition remain.”
New York places restrictions on how insurers can end coverage for high-risk homeowners. State law allows insurers to cancel homeowners or tenants insurance policies within the first 60 days they are in effect if they provide specific reasons for the cancellation.
After the 60-day period, insurers cannot cancel or decline to renew a policy for three years, except for certain reasons including nonpayment of premium, fraud or physical changes to the property.
State law requires insurers to provide 45 to 60 days’ notice of a decision not to renew a policy after the initial three-year period ends.
Homeowners concerned about their future insurance costs can protect themselves by maintaining their roofs as well as plumbing and heating systems. Those are some of the issues insurers are flagging when they choose not to offer them coverage, Sutton said.
“To get insurance today, you have to maintain your home,” Sutton said.
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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