Vineyard property owners concerned about sky-high insurance premiums now have company; the Massachusetts Attorney General mounted a claim last month that faulty computer-generated hurricane models have contributed to unnecessarily high home insurance rates for property owners across the commonwealth.
In a strongly-worded Nov. 17 letter to the state insurance rating bureau, the chief of insurance and financial services for Attorney General Martha Coakley said: “We write to you to express our ongoing concern regarding homeowners insurance premiums in Massachusetts and, in particular, the use of unproven and in some cases discredited hurricane models to justify excessive voluntary market rates . . . The situation remains troubling.”
The letter comes at a time when Cape and Islands lawmakers have filed legislation calling for increased scrutiny of hurricane forecasting models and more transparency in how insurance rates are determined. It also comes as the Massachusetts Property Insurance Underwriting Association (Fair Plan) has filed for a 7.4 per cent rate increase statewide and a 6.7 per cent rate increase for Cape Cod and the Islands. For many homeowners on the Vineyard, the Fair Plan is the only option they have to buy homeowner insurance.
A state hearing by the rating bureau has been rescheduled for Jan. 19.
According to the letter from Ms. Coakley’s office, between 2004 and 2010, hurricane and reinsurance charges increased voluntary market homeowner insurance premiums by about $2.2 billion statewide. “Excessive insurance rates have a significant impact on both individual consumers and on economic activity in Massachusetts,” the letter said.
Cape and Islands Rep. Tim Madden said yesterday that he welcomed scrutiny from the attorney general and that he intends to testify at the January hearing. “I truly believe the Cape and Islands are subsidizing the Fair Plan. It is on the backs of the ratepayers. We are paying a large portion of the bill,” Mr. Madden said.
Steve Schwab, vice president of Martha’s Vineyard Insurance, agreed that computer-generated hurricane models have contributed to high rates here, often nonsensically.
“Hurricane modeling used to be based on historical data, and that seemed to make more sense,” he said. “Vineyard Haven isn’t usually hit by as severe winds as the other side of the Island. But when you use computer modeling, it is more of a Google Map approach. It is now the whole Island, the whole Cape and the whole coast. So there is no consideration for the protected harbors. It is a broad-brush approach.”
He continued: “Insurance companies have moved from what has happened in the past to what might happen in the future. So we have never been hit by a category five hurricane. But their model asks, what if we were.”
The end result, Mr. Schwab said, is high premiums and deductibles for homeowners. “We now have high wind deductibles. You might have a $1,000 deductible for fire, but when it comes to wind, it could be a $15,000 wind deductible,” he said.
Mr. Madden said his deductible on Nantucket is even higher. “My wind deductible is $50,000. We are talking any wind damage isn’t covered. This isn’t a fair plan; it is an unfair plan,” he declared.
Homeowner insurance is required by banks for mortgages, along with flood insurance.
Mr. Madden said an even bigger concern centers on the fact that people outside the insurance industry have no information on how the hurricane modeling is done. “They say it is proprietary, so they can’t tell us how they came up with the model. It is classified,” he said.
In a telephone interview with the Gazette this week, Joseph G. Murphy, Commissioner of Insurance for the state Office of Consumer Affairs and Business Regulation, said his office is already responding to the Attorney General’s letter and that hurricane modeling will be at the top of the agenda for the hearing in January. “We will meet with the attorney general’s technical staff. We are still reviewing and want to understand what is going on,” he said. “It is a long hearing process.”
He said last June New England insurance commissioners met in Wilmington, Md., for a presentation on hurricane modeling. He said the models now in use have improved considerably and no longer take a broad-brush approach.
In reviewing insurance rates, Mr. Murphy said his commissioners have to weigh the concerns of the insurance companies and their needs against what the consumers are able to afford.
On the Vineyard, Mr. Schwab said the Fair Plan has driven most other companies out of the market here. “Competitive markets have shrunk away in the last 10 years,” he said.
Mr. Murphy said the rising clamor over homeowner insurance rates comes in a year that has seen much extreme weather. “There were tornadoes in June, hail in central Massachusetts before Halloween. Then there was Irene,” he said. “The challenge is striking a balance, to make sure that the companies are healthy and can pay the claim; but also they have a product accessible to the consumer.”
But Mr. Madden said that gives him even more reason to be concerned about homeowners in his district. “In the case of Irene, that storm went through central Massachusetts, but we are paying for the brunt of it,” he said.
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