Soaring Insurance Costs Will Require Luxury Vacation Rental Owners to be More Efficient
Aug. 29, 2006. As we receive the reports of the first hurricane activity of 2006, vacation rental owners are facing the bills for the record hurricane activity in 2005. In many of the most desirable vacation destinations, the cost of home insurance has gone up dramatically. As reported in an article in the Sept. 4 edition of Fortune magazine, “All along the Gulf Coast and Eastern seaboard, most major home and commercial insurers, including Allstate (Charts), Nationwide (Charts), State Farm, and St. Paul Travelers (Charts), are variously increasing premiums, ratcheting up deductibles, narrowing terms of coverage, and turning away new customers. In 18 states, from southern Texas to the northern tip of Maine, insurance companies are scrambling to reduce the risk of major hurricane-related payouts.�
The Fortune article by John Simons, which is reprinted in CNNMoney.Com, reports that for the 43 percent of the U.S. population who live and do business in these states, rates are likely to rise between 20 percent and 100 percent over the next year, according to the Insurance Information Institute. (In the rest of the country, premiums are expected to rise about 4 percent.)
As might be expected Florida, the number one tourist destination on the East cost, has been hit the hardest. It is close to a full-blown insurance crisis, with Allstate canceling 95,000 homeowner's policies in Florida. The company plans not to renew 120,000 policies by November and is writing no new policies in the state.
However, insurers are also reducing risks and raising rate in states that have not recently had a hurricane, such as in the Northeast, where the last hurricane was in 1938.Concerned that the Northeast is overdue for a major hurricane, Hingham Mutual Insurance, citing higher storm damage projections and rising reinsurance rates, said recently it will not renew some 6,500 homeowner policies this year on Cape Cod, Martha's Vineyard, and two coastal Massachusetts counties.
While this development is certainly unwelcome to vacation rental owners of coastal properties, there is little that they can do except opt for higher deductibles and self insure as much as possible. Since higher insurance premiums will increase the carrying cost of vacation properties, owners will have to look at ways to offset the cost. Some will be tempted to merely raise their rates. We do not recommend this strategy.
A better way is to do the sorts of things that we regularly suggest in this blog and more specifically in our members-only newsletter that is available to VRO members. The August edition deals with the things that you should do to increase occupancy in the off-peak season. Two or three more bookings in a time that you are normally vacant may be enough to offset your higher insurance premiums.
