Island homeowners who already pay some of the highest home insurance rates in the nation received some rare good news last week when the state insurance commissioner rejected a proposed 25 per cent rate hike for the FAIR Plan, the state-backed insurance provider of last resort for most Vineyarders.

In her May 8 decision, insurance commissioner Nonnie Burnes said FAIR plan officials failed to demonstrate a need for the proposed rate hike.

“The FAIR Plan is required to prove that its request falls within a range of reasonableness and that its proposed rates are not excessive, inadequate or unfairly discriminatory,” Ms. Burnes said in a statement. “I have found that the FAIR Plan failed to meet its burden on a number of critical fronts and will not be permitted to charge Massachusetts homeowners these increased rates.”

The FAIR plan was created by the state legislature in 1968 to provide insurance for people unable to obtain coverage on the private market. But starting in 2004, private insurers began pulling out of the Cape and Islands or dramatically increasing their rates, citing fears that a hurricane could strike the area and cause devastating losses. As a result, nearly all Island residents have been forced into the plan.

In February, the Massachusetts Supreme Judicial Court upheld the FAIR plan’s 2005 rate increases, which included an annual increase of as much as 25 per cent for cities and towns across Cape Cod and southeastern Massachusetts as well as all of the Vineyard.

FAIR Plan president John Golembeski, who hosted a well-attended public forum in Tisbury back in March, could not be reached for comment yesterday.

Paula Aschettino, a Cape Cod resident who has led a well-publicized grass roots campaign for home insurance reform, told the Gazette Tuesday that she was pleased with the insurance commissioner’s decision, but she also warned this is only a first step.

“Remember, we’re not opposed to the FAIR plan. If it wasn’t for the FAIR plan we wouldn’t have any choices [for insurance] here on the Cape and Islands. But we would like to see some type of relief to these people along the coast who are already struggling to pay their insurance bills,” she said.

Ms. Aschettino said she will continue to work with state legislators with the hope of passing several bills, including one that would require FAIR plan agents to provide a detailed statement that policy holders can read and understand, another that would limit future increases on wind deductibles and another that would establish a uniform methodology for predicting hurricanes and other large weather events.

She noted that coastal areas like the Cape and Islands have traditionally had the fewest number of weather and wind related damage claims. Despite this, homeowners along the coast pay the highest rates in the state and some of the highest in the nation, she said.

Ms. Aschettino said the FAIR plan rates and deductibles are established based on computer models that predict the likelihood of major storms and hurricanes. The models are created by companies hired by the insurance industry, she said, and are largely shrouded in mystery.

“Nobody knows how those models work . . . considering there is little history of hurricanes on the Cape [and Islands], I would say their predictions are suspect. It certainly raises red flags when [those models] are paid for by the insurance companies themselves,” she said.

Cape and Islands Rep. Eric Turkington, a staunch supporter of home insurance reform, said the decision by the insurance commissioner was a stunning victory for fair play and “the thousands of Cape and Island homeowners who have seen their policies cancelled and their rates balloon over the past few years based on specious industry driven predictions.”

Oak Bluffs selectman Roger Wey, also the director of the Oak Bluffs senior center, said the insurance commissioner’s decision is a well-deserved rebuke to the FAIR plan. “Enough was enough. I see it all the time with the seniors — these increases are hurting the people who can least afford to pay their bills. After years of increasing rates and deductibles, I think it’s good to finally get some good news,” he said.