A proposal by an insurer to increase the price of its standard homeowner’s policy by 25 percent on Cape Cod has alarmed both homeowners and Realtors.

The Massachusetts Fair Plan, considered the state’s home insurer of last resort, is seeking the rate hike. The Fair Plan insures 35,300 homes on the Cape, or about 28 percent of all homeowners there.

Local Realtors are concerned that such a steep increase will hurt the Cape’s real estate market, which relies heavily on buyers looking for second homes and vacation properties and has gradually softened as the number of for-sale homes has grown.

“With our market being a little slow, any additional burden will only increase [the] reluctance of buyers to purchase property on the Cape,” said Deborah Schilling, a Realtor with RE/MAX Classic in Barnstable. “I think we’ve experienced a lot of competition for second-home buyers from the Southeast and by comparison if you add an insurance burden, it could slow the motivation for people to invest on Cape properties and give them another reason to look elsewhere.”

Doug Azarian, broker-owner of Century 21 North Falmouth Realty, said that coupled with a rising number of homes for sale, rising fuel prices and changes in the global economy, the proposed rate increases could affect home prices and sales.

“I know that some of the current homeowners are a little concerned that this will become an obstacle – that it might get in the way of them selling their homes,” said Azarian, who serves as the secretary-treasurer of the Massachusetts Association of Realtors. “It’s one more thing to put downward pressure on prices.”

The increase is being sought because of the rising cost of reinsurance, which is insurance that insurance companies purchase to protect themselves against catastrophic losses and projected hurricane losses, according to Fair Plan officials.

Avinash Mehta, who is the technical assistant to Fair Plan President John Golembeski, said that while other insurance companies have been able to boost their premiums over the last few years, Fair Plan has not been able to keep up because state law limited how much it could raise prices. Last year, for example, the Fair Plan raised its rates by 6.3 percent, while in the previous year it had increased its rate by 4.9 percent. Statutory changes made last year are enabling the Fair Plan to seek the higher rate based on a pricing formula that takes into account predicted hurricane losses and the cost of reinsurance.

‘Getting Expensive’
The average premium for homeowners on the Cape and Islands covered under the Fair Plan is $1,306. The Fair Plan, which was created by the state to provide coverage to homeowners unable to get insurance in the private market, also wants to increase its policy rates by 20 percent in the Plymouth area and New Bedford.

Mehta said Fair Plan’s projections indicated that a 68.5 percent increase was needed on the Cape and Islands. “Obviously a 68 percent increase is too much, so in order to temper it we applied for a 25 percent increase,” he said.

Cape Realtor Keith Bradley said he has been concerned about the cost and availability of homeowner’s insurance since last year when companies started scaling back coverage on the Cape. The state’s largest home insurer announced last year that it would not renew all 14,000 policies on the Cape. That forced many homeowners to seek coverage through Fair Plan, and prompted local Realtors to invite Golembeski to discuss their insurance concerns.

Bradley, a broker-associate with The Real Estate Co. in Chatham, said he urged state lawmakers to pay attention to issue when the state’s Realtor group held its annual lobbying day in the summer.

“Homeowners really need some kind of relief,” Bradley said.

As a property owner himself, Bradley has felt the effect of rising insurance rates. A home on Buzzards Bay that he inherited is now insured through the Fair Plan. Bradley said he is paying about $1,200 a year to insure the home, roughly $400 more than what he had to pay when he had insurance coverage through a private carrier.

Azarian, the Falmouth Realtor, saw his homeowner’s insurance rates skyrocket. He had to seek coverage from Fair Plan for his Sandwich home two years ago, and saw his insurance premiums jump from $750 a year to $1,800.

Still, Azarian said the Fair Plan fulfilled a critical role on the Cape when other insurance companies stopped writing business there.

“When the other insurance companies started to pull out of the Cape and not offer homeowner’s insurance, Fair Plan was there to provide insurance. So they really filled the gap,” he said.

Pat Thatcher-Hill, a Realtor with RE/MAX Classic in Falmouth, said homeowner’s insurance is available because there are a number of private companies that serve the area, but she tells prospective clients that it can be expensive to retain insurance.

“We warn them that it’s getting expensive,” she said.

Mark McCartin, a partner at Dowling and O’Neil, an insurance agency in Hyannis, said the Fair Plan is not the only insurance choice on the Cape. McCartin said he and his partner Rob Miller have aggressively pursued insurance companies to convince them to offer insurance to Cape property owners. And McCartin said that if the Fair Plan does increase its rates, some insurance companies may reassess the situation and decide that they could still be profitable on the Cape by charging higher premiums.

A hearing has been set for Oct. 11 to discuss Fair Plan’s rate request. Meanwhile, the Cape Cod & Islands Association of Realtors and MAR plan to host a seminar for Realtors and the general public to find out more about the Fair Plan and why the company is proposing the rate increase, according to Henry J. DiGiacomo, chief executive officer of the Cape Realtor group.