Home insurance protest grows

High premiums, non-renewal plague homeowners

By Janet Hefler - May 3, 2007

Over the last several years, Islanders have faced a shrinking pool of insurance companies willing to insure their homes. Many who received letters of "non-renewal" had paid their premiums to the same company for years and never filed a claim. Others whose insurers remained in the market saw their premiums double in a few years' time.

Paula and Mike Aschettino of Eastham faced the same experiences on the Cape. In 2003, they received a letter of non-renewal for their homeowner's insurance policy with Hingham Mutual, which had a premium of about $1,800 a year. Although they were grateful when their insurance agent found them a policy with Commerce Insurance, it cost them $3,200.

After reading about yet another insurance company pulling out of the Cape Cod market last fall, Ms. Aschettino launched a grassroots protest against soaring homeowner's insurance costs and insurers who drop customers in Massachusetts coastal communities and on the Cape and Islands.

She formed a group, the Citizens For Homeowners Insurance Reform (CFHIR), which now has more than 950 members. Last Thursday Ms. Aschettino held a forum at the Tisbury Senior Center to discuss insurance problems experienced by Vineyarders and what they can do about them.

Projections of future hurricanes and other catastrophic storms hitting the New England coast are causing a domino effect of escalating costs in the insurance industry, Ms. Aschettino told the dozen who attended the forum.

Most insurers lay the blame for soaring premiums on their increasing costs for reinsurance, the insurance they buy to cover their own losses. Hoping to offset their reinsurance costs and set aside money for future claims, insurers are raising premiums for homeowners - or pulling out of some coastal area markets altogether.

Un-FAIR increases?

In 1968, the Commonwealth established the Fair Access to Insurance Requirements (FAIR) Plan, funded collectively by insurers throughout the state, to offer insurance to those who could not get coverage from other providers.

Although intended to serve as a temporary program for urban and coastal homeowners in Massachusetts, the FAIR Plan became the only insurance option for many on the Cape and Islands, especially over the last few years. Tashmoo Insurance company owner Joe Gervais, who attended last week's forum, estimates the FAIR Plan insures more than 40 percent of Island homeowners.

The Massachusetts Property Insurance Underwriting Association (MPIUA), which administers the FAIR Plan, operates as an independent company. Unfortunately, for the second time in less than a year, the association is requesting approval by July 1 from the state insurance commissioner for a rate hike, with the Cape and Islands, New Bedford, and most of Plymouth county slated for a 25-percent increase. Last year's rate

increase, approved by ex-commissioner Julianne Bowler, was appealed by Attorney General Martha Coakley and is undergoing review by the state Supreme Judicial Court.

FAIR Plan chief executive Jack Golembeski said in a phone call Tuesday that two factors are driving the rate hike, one being the cost of reinsurance.

"The cost of reinsurance has risen very dramatically, everywhere in the world," Mr. Golembeski said. "Unfortunately, when you look at reinsurance, the cost of it is driven by companies based outside of the U.S., foreign companies in London, Europe, or Bermuda, who set the price."

The first rate hike last year was based on buying a limited amount of reinsurance, which is the intended use for money raised from this rate hike, as well, M. Golembeski said. "As far as we're concerned, the insurance commission approved the last rate increase, we implemented it, and are moving forward to seek the additional price relief we need. Having said that, we do believe as we look forward, the pricing cycle we're in should slow down and abate."

Offering some encouragement, Mr. Golembeski added, "We believe we'll see some competition return, once the FAIR Plan prices get to the level where it covers the costs of reinsurance and risk that exists on Cape Cod. Then some companies may return, once the cycle plays out, and we'll see some reduction in price." It won't happen overnight, he cautioned.

Mr. Golembeski said the second factor affecting rates is risk projections for future hurricanes and windstorms on New England's coast. Despite what some newspapers reported, he said, the FAIR Plan uses computer models based on long-term 100-year data, not near-term, five-year forecasts.

Islanders' concerns

The proposed FAIR Plan rate hike concerns Edgartown homeowner Steve Warriner, who turned to the plan when MetLife elected not to renew his homeowner's insurance. "I've seen a dramatic increase in price over a short period of time," he said at last week's forum. "In about five years, I went from paying $800 up to $3,200."

Upping his deductible to the maximum helped save a few hundred dollars, but his premium remains over $2,000. "There's essentially no real choice, as far as I know, once you lose your insurance company," Mr. Warriner added.

Maureen Fischer of West Tisbury said she and her husband Bob were paying a yearly premium of about $2,200 a year and a half ago with Liberty Mutual, which jumped to about $4,500 this year.

"As homeowners on Martha's Vineyard, we all realize we're sitting on our retirement investment here," Ms. Fischer said in a follow-up phone call. "Suppose we have to settle on a policy that's going to be $4,000 a year - what's to say that's not going to increase by another 25 to 50 percent in another five years? That's scary."

The FAIR Plan is the best value for many homes with a replacement cost of less than a million dollars, because not many insurers are interested in that market, Mr. Gervais said this week. "The choices are limited. For a lot of people, the FAIR Plan is the best show in town," he said. "If they get this rate increase, however, that may not be the case."

Banking for a windy day

Reinsurance costs rose after hurricanes in the 1990s and the events of Sept. 11, 2001, Ms. Aschettino said. Insurance companies started leaving the Cape before Hurricane Katrina, beginning in 2004. Since then, insurers dropped about 30,000 homeowners on the Cape, the Boston Globe reported last Saturday.

Unfortunately, reinsurance purchases affect only those areas subject to hurricanes or weather-related catastrophic events, Mr. Gervais said. "The market for reinsurance is very limited, with a limited number of participants," he said. "I think the only practical solution I've seen for this is Senator [Robert] O'Leary's proposal."

Senator O'Leary filed bill No. 624 in the state senate to establish a catastrophic event fund (CEF) to encourage private insurers to continue and expand homeowners' insurance coverage in coastal areas. He based the bill on a similar hurricane catastrophe fund established in Florida that helped protect homeowners and the homeowner insurance market after four hurricanes last year.

The CEF would reimburse private insurers for a portion of insured losses from hurricanes, tornadoes and other windstorms that would have a negative and destabilizing effect on the entire Massachusetts economy. The fund would serve as a state-backed form of reinsurance, allowing companies to buy less reinsurance from the private market.

To establish the fund, Senator O'Leary proposes that all insurers who write policies in Massachusetts would be required to contribute annual premiums. The Commonwealth, in turn, will appropriate $7.5 million in the CEF for two years to obtain federal tax-exempt status for the fund.

In addition, Senator O'Leary's legislation mandates a two-year rate freeze for FAIR Plan policies in large share territories. The legislation also would implement regulations restricting private property insurers from reducing the number of policies offered in a given territory by no more than 10 percent in a given year.

"We're not trying to take this business over," he emphasized. "But at the same time, we don't want these incredible swings where overnight, a company's canceling a couple of thousand policy holders in a single month - that's what's going on."

Senator O'Leary's bill also calls for the establishment of a commission to study insurance fraud, price gouging, storm damage prediction data, and hurricane loss projection methodology.

Rate hike hearing

Last Friday, Ms. Aschettino joined six Cape Cod residents and legislators at a hearing held by state insurance regulators in Boston and testified against the proposed FAIR Plan rate hike. She encourages Vineyard homeowners to send her an e-mail at insreform@aol.com briefly describing their insurance experiences, which she will forward to the Attorney General's office attorneys at the rate hearing.

CFHIR's web site, www.homeownersinsurancereform.org, offers information about upcoming forums, information about the insurance industry, and a list of state government officials to contact about insurance reform issues.

The three key people to call or write, Ms. Aschettino suggests, are Governor Deval Patrick, Attorney General Martha Coakley, and Insurance Commissioner Nonnie Burns.