ROBERT O’LEARY
Wants catastrophe fund

Cape Cod resident Alan Ringgold has seen his homeowner’s insurance costs nearly triple in about five years.

Ringgold, who owns a waterfront home in Eastham, said his annual insurance premium mushroomed from roughly $2,300 to over $6,000. He recently was able to reduce the premium to $5,000 by increasing his deductible.

“It’s just obscene what all the insurance companies are doing,” he said.

Ringgold is among many homeowners on Cape Cod and coastal areas who have complained to lawmakers about their ballooning insurance costs and difficulties obtaining insurance.

A 16-member commission has recommended that the state establish a fund to pay for damage from catastrophic storms and create a new state entity to study models that insurers use to predict the likelihood of devastating events. Insurers use those models to determine premiums.

The panel, which included state lawmakers and insurance industry representatives, released a report with its findings and recommendations late last month. The commission is calling for more consumer education about homeowner’s insurance and some reforms to the FAIR Plan, the state’s insurer of last resort.

While the commission’s efforts have been praised by consumer advocates and legislators, some say the recommendations fall short of what’s needed to assist homeowners who currently are struggling.

“Most of the recommendations do not deal with providing immediate relief [to homeowners],” said Steve D’Amato, a commission member and director of the Center for Insurance Research, a Cambridge-based consumer research and advocacy group.

D’Amato and four other commission members included a statement with additional recommendations in the report. They said the state should pay for the creation of a public model that predicts potential losses from catastrophic events that the attorney general could use in rate hearings before the Division of Insurance.

A grassroots organization called Citizens for Homeowners Insurance Reform has criticized the modeling system used by insurers to forecast losses and set rates. The formulas and scientific calculations used to create those models and estimates are not disclosed by the private companies that produce them. Since insurers base their rate increases on those models, advocates are calling for more transparency and say a public model would be beneficial.

They also say the state should clarify that caps apply to any sought rate increases for the FAIR Plan.

In their statement, D’Amato and the four commission members noted that the Legislature has imposed rate limits on FAIR Plan premiums to assure that consumers don’t face enormous rate hikes.

“These caps are necessary protections for vulnerable citizens; they should be clarified and enforced,” according to the statement.

Citizens for Homeowners Insurance Reform also has questioned why residents on Cape Cod and other coastal areas are paying 2 percent to 5 percent deductibles for wind damage, while other Bay State residents don’t.

“We’re pleased with the study that they’ve done but we are still concerned about the wind deductibles, lack of caps on rates and the models that definitely are unscientifically based for this area. And those models play a huge part of why our rates have gone up,” said Paula Aschettino, an Eastham resident who started Citizens for Homeowners Insurance Reform last year.

In its report, the commission recommended that the FAIR Plan offer more flexible payment options, enabling consumers to spread out payments over eight installments. While that change would not lower premiums, it would help some homeowners to plan for the expense, according to the commission.

In addition, the commission wants the FAIR Plan to provide incentives to private insurers to provide coverage in high-risk coastal areas and to implement three-year term limits for the plan’s board members.

‘A Growing Interest’

There are 218,000 homeowners who cannot obtain insurance through a private company who are covered through the FAIR Plan. Thousands of homeowners on the Cape have had to seek FAIR Plan coverage as insurers have scaled back coverage in coastal areas in recent years. About 59,000 homes on the Cape and islands rely on the FAIR Plan.

The FAIR Plan has sought rate increases citing the escalating cost of reinsurance, which is insurance that insurers purchase to protect themselves against projected catastrophic losses.

A 25 percent rate increase for Cape Cod homeowners covered by the FAIR Plan was granted last year and went into effect in October 2006. But the attorney general is challenging the rate hike. The Supreme Judicial Court is considering her appeal.

In the meantime, the FAIR Plan is seeking another 25 percent increase for Cape homeowners, which the Division of Insurance currently is considering.

Appraisals that force homeowners to pay for a certain amount of coverage based on inflated property value is another issue that D’Amato and others have raised. “There needs to be a better mechanism to contest the amount of insurance homeowners must obtain,” D’Amato said.

And consumer advocates say the attorney general should have the authority to have a hearing on private insurers’ rates. The insurance commissioner also should provide more information on the profitability of insurance companies, they say.

“One of my concerns is that there hasn’t been an adequate analysis of the profitability of the homeowner’s insurance line of business in Massachusetts. It’s clear that it’s been a very profitable line of business,” D’Amato said.

Consumer groups support the commission’s recommendation to form a state-run catastrophe fund.

Sen. Robert O’Leary, D-Barnstable, who served on the commission, re-filed a bill this year to produce a $6 billion catastrophe fund. The fund would rely on a mix of state and private money. O’Leary’s bill seeks to have insurance companies funnel payments that currently go to reinsurers into the fund.

The bill is before the Legislature’s Committee on Financial Services, which has not held a hearing yet on the matter.

“I think there’s a growing interest in [the fund],” said O’Leary. “There is a willingness to look at it now Â… the commission itself recommended it and that’s going to be helpful.”

Recent activity at the federal level also is helpful, according to O’Leary. The U.S. House of Representatives approved a measure in November that would pay for a national catastrophic event fund.