The steadily increasing cost of home insurance has been a bone of contention on the Vineyard for years, but a proposed increase to the rates of the FAIR plan - the state-backed insurer of last resort, and the only insurer for over 40 per cent of homeowners on Cape Cod and the Islands - has many Islanders now crying foul.

The FAIR plan has filed a request to increase rates by as much as 25 per cent in coastal areas effective July 1. The state insurance commissioner is still considering the matter.

Last month, state Senate President Therese Murray proposed a moratorium on FAIR plan rate increases until Oct. 1, when a newly formed special commission is expected to recommend wide-ranging solutions to deal with the homeowner insurance crisis on the coast.

The Massachusetts FAIR plan was established by the commonwealth in 1968 as an insurer of last resort for urban areas, funded collectively by insurers throughout the state. As an insurer of last resort, the plan was meant to serve as a temporary program from homeowners.

But for many homeowners on the Cape and Islands the FAIR plan has become their only insurance option.

And while some say the moratorium is a good start, they also view it as a temporary fix to a much larger problem.

Recent natural disasters like Hurricane Katrina, coupled with the increased cost of doing business has made most insurance carriers skittish about underwriting policies for Island homeowners.

Robert Mone, owner of Mone Insurance Agency in Vineyard Haven, said the driving force behind the increase in insurance rates is the cost of reinsurance, which backs up claims by insurers. Some insurance companies have blamed the high cost of reinsurance as the reason for dropping coastal policies.

For Cape and Islands residents, the trend hit a critical point in 2004 when the Andover Companies stopped covering the region. Over the next three years at least seven more insurers declined to renew some or all of their Cape policies, leaving more than 43,000 homeowners looking for new insurance coverage.

Mr. Mone, who estimated that 55 cents of every dollar spent on home insurance goes toward purchasing reinsurance, said writing home insurance policies is a losing proposition for Island insurance providers.

"If we only wrote home insurance policies we would be out of business," he said candidly.

Mr. Mone said he supports a temporary moratorium on any further rate increases, but only as a way to buy time to look at the problem and come up with a more comprehensive solution.

"Anything that can save people money is a good thing. But something more needs to be done to address the problem; in the meantime I worry it is only going to get worse before it gets better," Mr. Mone said.

A proposal is now on deck by Cape and Islands Sen. Robert O'Leary to establish a catastrophe fund that would be paid through insurer contributions to back up insurance companies, reducing the need to purchase reinsurance.

Mr. O'Leary has filed a bill modeled on the Florida Hurricane Catastrophe Fund, which protected homeowners and the homeowner insurance market through four hurricanes last year.

Reached at his office in Boston last week, Senator O'Leary said the catastrophic fund, or CAT Fund, is aimed at lowering insurance costs and mitigating the risks claimed by the insurance companies in the case of natural disasters.

"Under the current system, homeowners pay money to insurance companies who in turn spend much of that on purchasing reinsurance. Then, if there is no natural disaster at the end of the year, the money is taken off the table and put into someone's pocket. The [catastrophe] fund would ensure the money would stay on the table and accumulate over the years," Mr. O'Leary said.

Under the proposal, the commonwealth would put $7.5 million into the CAT Fund for two years in order to satisfy Internal Revenue Service rules for tax-exempt status. The fund would then be administered by a governing board within the state treasurer's office. All insurers across the state would be required to contribute to the fund annually.

There has been talk in recent years about creating a national catastrophe fund, although Congress has balked at the plan. Much of the resistance has come from officials in landlocked states where insurance carriers do not share the same level of risk as those in coastal areas.

The same regional divide may be an issue here as well; state legislators in central and western Massachusetts are reportedly reluctant to establish a catastrophe fund that would mainly benefit coastal areas like the Cape and Islands.

But Mr. O'Leary said high insurance premiums on the coast have a ripple effect across the state.

"You can't just break your foot without it affecting your whole body. If insurance companies are paying outrageous amounts for reinsurance on the Cape, it is going to affect the industry in Worcester and in Springfield," he said.

Senator O'Leary said he wants to see an end to red-lining, the practice of insurance companies offering coverage to homeowners in one area while refusing to insure those in other areas. He said legislators may try to require insurers to serve the entire state or none of it.

"The private market is not very well regulated, and I don't think this practice of insuring a home in one part while refusing to write a policy in another part of the state is very equitable," he said.

Information provided by the Massachusetts Division of Insurance bears out the growing trend of red-lining. While a total of 81 insurance companies provide coverage in Hamden County and 79 provide coverage in Franklin County, only 23 carriers provide insurance to Dukes County. Another seven companies will provide some insurance on the Island, but only in certain areas.

Paula Aschettino, founder and chairman of the recently formed Citizens for Homeowners Insurance Reform, said she was encouraged to see lawmakers and Gov. Deval Patrick put the issue on the front burner.

Ms. Aschettino also said she hopes state officials will focus on the scientific models that are used to drive up the exorbitant rates by private insurance companies. The Cape-based citizens group, she said, has studied historical storm patterns which indicate only a handful of category two hurricanes have hit the Cape and Islands in the past 144 years.

"We are most concerned about these large increases based on predictions of storms and disasters when there is no historical data to suggest such a catastrophe is imminent, or even likely. It seems like someone is taking advantage of the situation," she said.