In a move that has outraged Island homeowners and their elected state representatives alike, the Massachusetts Division of Insurance, with only scant publicity, recently agreed to hike to the roof certain deductibles for people insured under the FAIR plan.

The Massachusetts Property Insurance Underwriting Association — a coalition of private insurers that manages the FAIR plan — received approval from the state insurance division on Oct. 31 to increase minimum windstorm and hail deductibles in Dukes and Nantucket counties from two to five per cent. The increase applies to homes valued up to $500,000.

With the increase, which goes into effect Dec. 15, many Vineyarders will have the highest home insurance deductibles in the country.

The FAIR plan was created by the state legislature in 1968 to provide insurance for people unable to obtain coverage on the private market. In recent years, nearly all Island residents have been forced into the plan as private insurance companies have stopped covering the area, citing the possibility of devastating hurricane losses.

The plan currently covers 170,000 homeowners, including approximately 50,000 on the Cape and Islands.

The hike in deductibles comes just as the FAIR plan is seeking a 25 per cent rate increase in coastal areas, including the Cape and Islands. The request has been hotly contested during public hearings in front of state Insurance Commissioner Nonnie Burnes.

Meanwhile, Massachusetts attorney general Martha Coakley is calling for a sharp reduction in FAIR plan rates, accusing the state underwriting association of gouging homeowners while earning more than $100 million in profits over the past three years.

Ms. Coakley has advised Commissioner Burnes to cut rates on the Cape and Islands by 29 per cent. Ms. Burnes is reviewing the request, but is not expected to make a decision before Jan. 1.

And while the battle over FAIR rate increases have played out on a very public stage — with emotional testimony, picketing and legal challenges — the recent increase in windstorm and hail deductibles largely flew under the radar of public attention.

Even some members of the Cape and Islands delegation were caught off guard.

“You could certainly say the timing is a little questionable. Here we are talking about one plan to increase the rates, and another plan [from the attorney general] to decrease those same rates, and then this increase to deductibles comes along and is approved with almost nobody knowing anything about it,” state Rep. Eric T. Turkington said.

“As far as I’m concerned this is a back door rate increase and it’s wrong,” he added.

Mr. Turkington is a member of a homeowners insurance study commission created earlier this year to study the homeowner insurance industry and recommend changes. The commission’s final report is expected to be released next Friday, he said.

He said the commission has held weekly meetings with the insurance commission and executive board of the FAIR plan, and at no point did anyone mention that an increase to the deductibles was being considered. He said most members of the special commission are frustrated with the FAIR plan and how it treats coastal homeowners.

“The private market has essentially abandoned the Cape and Islands; homeowners on the Cape and Islands don’t have any other option, and [the FAIR plan] seems to be exploiting that,” he said.

Mr. Turkington said he has heard from homeowners in his district on fixed incomes who can no longer afford the FAIR plan.

“Some are considering simply dropping their home insurance because they can’t afford it, and that is truly a problem. They are essentially putting everything they’ve worked for in their lives at risk because they can’t find a viable insurance option,” he said.

Cape and Islands Sen. Robert O’Leary, also a member of the insurance study commission, said the FAIR plan is in dire need of reform.

“It’s obvious this plan is not doing what it is supposed to do. It’s not just that [the FAIR plan] is not interested in providing the best insurance at the lowest cost; it’s that it’s now chasing the private industry — it’s trying to gather up every dollar possible . . . why don’t they just come to your front door with a gun and a mask?” he said.

Mr. O’Leary has filed a legal brief in support of the attorney general’s effort to reduce the FAIR plan rates and has sent a letter to the insurance commissioner asking for a freeze on increases to windstorm deductible for FAIR customers. He has also requested an immediate meeting between the insurance commission and the Cape and Islands delegation.

He said the rising rates and deductibles of the FAIR plan are based on computer models created by companies hired by the insurance industry. He said the models are steeped in mystery with little insight into how they were created.

He also speculated that rising insurance rates and deductibles in this area may be subsidizing losses the insurance industry is sustaining in other parts of the nation.

“These large companies are taking losses in places like Florida and the Gulf Coast, and they look around and see all this valuable property on the Cape and Islands. You have to wonder if they are looking to recapture some of their losses,” he said.

Mr. O’Leary has proposed creating a catastrophe fund that would be paid through insurer contributions to back up insurance companies, reducing the need to purchase the reinsurance that insurance officials cite as the key factor in increasing rates.

Mr. O’Leary has filed a bill modeled on the Florida Hurricane Catastrophe Fund, which protected homeowners and the home insurance market through four hurricanes last year. He said the CAT fund will help lower insurance costs and mitigate the risks claimed by the insurance companies in the case of natural disasters.

The concept of a catastrophe fund is gaining momentum locally and nationally. Last week, the U.S. House of Representatives approved a bill known as the Homeowners Defense Act that would create a national catastrophe fund to back up state measures in the event of a devastating storm, such as Hurricane Katrina.

The federal funds would be available for states that have their own catastrophe funds in place.

Mr. O’Leary said establishing a CAT fund will not solve all the state’s insurance woes, but it’s a good start.

“What we have now is a highly dysfunctional system and we can no longer ignore its deficiencies. My hope is this [fund] will be part of far-ranging solution to a problem that is fast becoming a national crisis,” he said.