NYPIUA, availability, valuation
scrutinized by Assembly panel

Left to right: Assemblyman Harvey Weisenberg, PIANY President N. Stephen Ruchman and Assemblyman Pete Grannis

How do YOUR companies set a value on a home? If you can’t answer in 10 words or less—you’re not alone. Suddenly, the valuation process is under scrutiny, thanks to an Aug. 31, 2004 New York Times article by Joseph Treaster. Treaster reports on a California couple whose home turned out to be woefully underinsured when it was destroyed by fire.

Valuation practices jockeyed for top billing with the familiar aggravations of finding coastal property insurance when the Assembly Insurance Committee conducted a recent public hearing. PIANY presented results of a one-day poll on the availability issue and strongly advocated that the New York Property Insurance Underwriting Association be made a permanent legal entity.

PIANY President N. Stephen Ruchman testified at the hearing in the Long Island community of Long Beach on Oct. 22, 2004. On the minds of Assembly Insurance Committee Chairman Alexander “Pete” Grannis and local Assemblyman Harvey Weisenberg: “The availability, cost and adequacy of property insurance in coastal communities.”

Availability. Gearing up for the hearing at a week’s notice, Ruchman asked his fellow Long Island PIANY members to help by answering a one-day survey. Thirty agencies responded in time to be counted.

Of these, 23 (77 percent) reported that insurance generally is not available for coastal homeowners, and 26 (87 percent) said the same for commercial buildings. In comments, respondents clarified that they usually can resort to NYPIUA or the excess line market for coverage that is less comprehensive (NYPIUA) or much more expensive (excess lines) than in standard property insurance markets. Some mentioned the availability of a homeowners solution involving a NYPIUA fire policy and a “wraparound” form from a standard homeowners company, available through the Coastal Market Assistance Program, which is administered by NYPIUA.

Despite testimony by NYPIUA and the Insurance Department citing relatively flat NYPIUA writings and an apparent increase in voluntary market homeowners policies, local agents and residents testified to continuing problems, especially close to the shoreline and in the Eastern portions of Long Island.

NYPIUA. Ruchman and most of the other witnesses urged that the Assembly, Senate and Governor’s office make it a top priority in the coming session to resolve their differences and make NYPIUA permanent. Chairman Grannis asked for the Insurance Department’s help in this regard, suggesting that they help achieve a consensus and propose a Department program bill.

Witnesses from the real estate industry and advocates for low-cost housing also stressed the problems caused by NYPIUA’s periodic shut-downs when lawmakers fail to agree to the terms of an extension for its authority. “Property closings cannot move forward without insurance,” Assemblyman Weisenberg pointed out.

Valuations. Spurred by the implications in the Treaster article that companies and agents intentionally under-value properties, industry witnesses were grilled about how values are set, the difference between “guaranteed replacement cost” and “replacement cost” coverage, and how values are kept up-to-date. PIANY, which had summarized the Treaster article in its Sept. 9 weekly e-newsletter, cited in its testimony some member comments suggesting that valuation problems differ by region, and that arriving at a proper value can be a difficult, contested process.

Ruchman countered the hearing’s apparent suspicion that agents and companies intentionally under-value homes to remain competitive. He pointed out that in setting values, the interests of the company, the agent and the homeowner all coincide, since it is in everyone’s interest to provide fully adequate coverage. He said some methods actually seem to produce excessive values, leading to rejection by the policyholder. Ruchman and Weisenberg also discussed the hardship caused to senior citizens and others whose older homes would cost a great deal to replace, and must pay premiums compatible with full coverage.

The panel heard from the owner of a historic home. The witness said USAA set the value of the home based on an inspection. The home burned, and the amount was not sufficient to cover repairs. This testimony led to a discussion of the legal issues involved in setting values. Speaking for the American Insurance Association, Eric Goldberg said: “The agent can provide guidance, but the policyholder has the ultimate legal responsibility.”

Based on the interest expressed by the panel in the process of setting accurate values and in possible misunderstandings of coverage terms by consumers, the industry probably can expect to see legislative proposals on these topics in the upcoming session.

You can read PIANY’s testimony here.