What is Coastal Property Insurance? An Agent’s Guide

Buying a coastal property comes with the beauty and freedom of a stunning ocean view. It also comes with the potential for risks standard homes don’t face. For insurance agents serving customers with these properties, it’s important to understand the unique factors that impact coastal communities.

Owning a coastal property often puts homeowners in the market for high net worth insurance. This insurance product is created to protect valuable properties, including houses purchased overseas. One of the products is coastal property insurance.

At Novatae, we offer a bespoke approach to insurance coverage by working closely with agents and retailers to provide customized packages. Here, we’ll delve deeper into the topic of coastal property insurance, what it covers, why homeowners need it, and factors impacting cost.

What Is Coastal Property Insurance?

Coastal property insurance is a special insurance product designed to protect homeowners living near the coastline. Buying a house near the ocean has its advantages and drawbacks. One of the major problems faced in these areas is inclement weather and the potential damage it causes to coastal buildings.

Along with standard coverage for fire, wind, theft, vandalism, lightning, hail, and falling objects, coastal property insurance protects against extreme weather. Some policies included under the umbrella of coastal coverage are:

• Storm surges
• Flooding
• Hurricanes
• Tropical storms

These policies also cover other windstorms and the damage associated with coastal weather. Depending on where the house is located, your client may need some or all of these risks covered.

Unique Risks for Coastal Homes

More than 25 million Americans call the coastline home. Rising sea levels and unpredictable weather put these properties at higher risk of flooding and damage. Some of the issues insurance agents must consider when building coverage include:

Storm Surge and Flooding

Flooding is a very real risk for coastal properties -- from rising water levels due to climate change to immense waves caused by storm surges. Flood waters can damage the exterior of a property, including the foundation. It can also seep into the basement and damage upper levels as water rises.

Storm surges are unpredictable as weather patterns blow in from the ocean. Having the right coverage in place to protect your clients against the risks involved could save them from extensive expenses in the event of property damage.

Hurricanes and Tropical Storms

According to FEMA, coastal properties along the Atlantic, Gulf of Mexico, the U.S. Virgin Islands, Puerto Rico, Hawaii, Alaska, the Northern Mariana Islands, American Samoa, and Guam are all at risk of hurricanes and tropical storms. From 1950 to 2021, more than 123 hurricanes made contact with the continental U.S. The impact of these storms can be devastating.

Protecting your clients against tropical storms and hurricanes involves several forms of coverage. There’s a lot to consider, from flooding and wind damage to falling trees and flying debris to extended coverage of other buildings on your property. Hurricane damage can impact the outside and inside of a property, along with valuables.

Wind Damage

Houses inland still deal with some wind damage, but the wind is slowed by other buildings, valleys and hills, trees, and other blockades. There’s nothing to block strong winds on the coast, leaving properties open to high-speed winds and the damage they cause. Wind speeds pick up when the weather worsens. For example, according to the National Hurricane Center, you can expect wind to climb as high as 39 to 73 mph during a tropical storm.

Coastal properties benefit from extended policies covering wind damage, including policies for hurricanes, tropical storms, and storm surges, as outlined above. Homeowners may also want to place additional coverage on extended buildings on the property, docks, boats, and vehicles.

Coinsurance and Hurricane Repair Costs

In many cases, especially with policies through surplus lines carriers, there is often a coinsurance clause. This can result in lower payouts if the insured value of the property is below a certain percentage of its replacement cost. For example, if a homeowner’s property is only insured for 50% of its replacement value but has an 80% coinsurance requirement, the settlement could be dramatically reduced.

In addition, the cost of repairs after a hurricane or major storm can be significantly inflated due to shortages of supplies and contractors. This is especially true in regions hit by natural disasters, where repair costs can be double what they would be under normal conditions. Agents should be mindful of these factors when helping clients choose adequate coverage.

States That Need Coastal Insurance

Not all states have coastal properties, which makes this niche coverage applicable only to certain customers. If you have clients in the following states, you may want to offer coastal property insurance:

New York

Coastal regions in New York experience coastal erosion, where the land nearest the waterline shrinks back over time due to natural wearing away by wind and surf. According to the New York government, properties near the southern shore are at the highest risk of being impacted by this geological process. Storm surges are another real threat, although tropical storms and hurricanes rarely reach the shore.

Florida

Storm erosion, tropical storms, and hurricanes are risks impacting coastal communities in Florida. With more than 8,400 miles of low-elevation shore, homes here are also affected by rising sea levels, which brings flooding.

Texas

Coastland in the state of Texas is prone to storm surges and flooding, often caused by tropical storms and nearby hurricanes. Its position in the Gulf of Mexico and 367 miles of coastline make it a target for hurricane-like weather rolling in off the ocean.

North Carolina

The coastal real estate in North Carolina resides mainly along the narrow strips of land called the barrier islands. This region is beautiful but sees a lot of risk in the way of coastal storms and coastal erosion.

Louisiana

Louisiana also sees a lot of coastal erosion, leading to massive loss of land, particularly near New Orleans. Tropical cyclones are attracted to the area because of its nearness to the Gulf Coast.

Whether you’re protecting clients against the ongoing battle of depleting coastland near properties, or the storms that intrude on the areas, coastal property insurance is invaluable.

Clients Who Need Coastal Property Insurance

Coastal property insurance is beneficial to anyone living near a body of water where risks of damage increase due to rising tides, erosion, storm surges, and other inclement weather. Typically coastal property owners are in the market for an umbrella of insurance products geared at individuals with high net worth. Some people who may apply for these products include:

Homeowners

Property owners may require coastal coverage for primary and vacation homes.

Real Estate Investors

Investment properties can become a burden if the risks are higher than the reward. Covering coastal property investments with the appropriate insurance keeps them safe from unnecessary loss.

Property Managers

Those managing multiple properties along coastal communities would do well to invest in coastal property insurance. The more properties they own, the more risk there is for potential damage.

In short, anyone in a coastal property, no matter the property type may benefit from the appropriate insurance products.

Scope of Coverage

Coastal property insurance protects the main dwelling and any structural damage it may occur. It also extends to other structures on the property, including sheds, boat houses, garages, and more.

Along with building structure coverage, you can expect:

• Liability: Liability insurance protects coastal property owners from liability claims due to harm to people or their belongings while on the property.
• Personal Property: Personal property coverage extends to the belongings in the coastal property.
• Living Expenses: Some coastal property insurance may also cover lodging expenses while a coastal property is being repaired following damage.

Not all coastal coverage protects against all risks or covers all these areas of damage. Work with your insurance broker to customize the product your customer most needs based on their individual situation.

Be Aware of These Exclusions

Even though coastal property insurance is a product customized to clients living along the coastline, it doesn’t cover all risks. Some of the exclusions these products have are:

• Neglect: If a homeowner is neglectful of a property and it falls into disrepair this isn’t covered.
• Intentional damage: like neglect, any damage caused by a property owner on purpose isn’t included in coastal property insurance coverage.
• Vacant homes: While coastal property insurance covers vacation properties, it doesn’t include properties that are vacant. Often, there are limitations to how long a home can be vacant to remain covered. Clients may also be able to add additional coverage to protect during these periods at a higher deductible.

Clients hoping to include non-standard coverage in their coastal protection can add-on or look for more customized products. Working with a wholesale insurance broker can help you overcome exclusions.

Factors Impacting Cost

The overall cost of coastal property insurance depends on factors such as:

• Property age and location: Properties in areas known for storm surges and coastal damage cost more to insure because they are more likely to require ongoing assistance. Older properties as well, are more costly to repair and often more prone to damage than newer homes.
• Building materials: Some structures hold up better to surf and wind than others. Coastal protection may be more costly for homes built with less durable materials.
• Mitigation measures: Property owners who have mitigation measures (protection plans) in place to reduce the risk of catastrophe during a storm or coastal event may pay less for coverage than those who don’t.

For other impacts that may factor into the cost of coastal insurance, speak to your broker. Your customers may be able to reduce costs by making their properties more favorable to insurers.

Insurance Issues Unique to the Coast

Coastal property insurance is useful but comes with its own disadvantages, including:

• High Deductibles: Deductibles are higher for coastal properties because they are often in the path of destructive storms and natural disasters.
• High Premiums: Coastal regions face higher premiums because of the increased risk and repetitive damage to these locations.
• Limited Insurance Options: Coastal property insurance isn’t included in standard property protection. It’s also not offered by all insurance companies. Where limited options are available, it’s best to work with a wholesaler where this type of insurance is concerned.
• Specialized Risk Assessments: Coastal properties need to be assessed on a case-by-case basis depending on where they reside, how old the building is, the materials it is made up of, protective practices already in place, and more.

Your wholesale insurance broker can walk you through these issues and sometimes find ways to work with clients to maintain affordability.

Coastal Property Insurance With Novatae

Coastal properties require an individualized approach to insurance due to risks not encountered by inland properties. From storm surges and land erosion to tropical cyclones and hurricanes, there’s lots to protect against.

Novatae is a wholesale insurance provider working with insurance agents across the country. When clients require a unique form of insurance coverage or a bundle of insurance products, a wholesaler can help find products to fit these niches. For more information on coastal property insurance, reach out to our team of specialty insurance experts.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.