FAIR plan to hike wind deductible for Cape homeowners

By SARAH SHEMKUS
Cape Cod Times
December 04, 2007 6:00 AM

Thousands of homeowners could soon be on the hook for more of the damages incurred by storms when the FAIR Plan implements a plan to raise wind deductibles on some Cape and Islands policies this month.

The move has drawn the ire of local residents and activists, who claim that increasing deductibles is equivalent to raising premiums.

"I call this a rate hike in disguise," said Paula Aschettino, an Eastham resident and the founder of activist group Citizens for Homeowners Insurance Reform.

A deductible is the amount a policyholder must spend toward repairing damages before the insurance company will cover any costs.

FAIR Plan President John Golembeski defended the deductible increase, which takes effect Dec. 15.

In 2005, he explained, his staff conducted an analysis of the insurance marketplace and determined that the FAIR Plan's wind deductibles on the Cape and Islands were not in line with those of private companies.

"The change was made so that the wind deductibles that we offer are consistent with those that are offered by other insurers," he said. "It is a rule change, not a rate change."
In other regions, including SouthCoast, the FAIR Plan's deductibles were already consistent with the private market, he said.

The FAIR Plan, an association of all the companies that offer homeowners insurance in the state, provides coverage for those who are unable to obtain it on the private market. For the past few years, private insurers have been pulling out of coastal areas, driving more and more homeowners into this insurance of last resort.

As of the end of October, nearly 59,000 FAIR Plan policies were in effect on the Cape and Islands, representing about 44 percent of the region's homeowners.

When the recent changes become effective, FAIR Plan wind deductibles will go from 1 percent of the insured value of the property to 2 percent for two groups of Cape homeowners: those located within a half-mile of the coast and insured for less than $200,000, as well as those located farther from the water and insured for less than $500,000.

Therefore, the wind deductible for a home on the Cape that is insured for $500,000 would go from $5,000 to $10,000.

On Nantucket and Martha's Vineyard, homes insured for between $200,000 and $599,999 will see their deductible go from 2 percent to 5 percent.

At the urging of state Division of Insurance officials, however, the FAIR Plan included provisions that allow policyholders to reduce or eliminate their wind deductible by taking steps to mitigate the risk to their home.

Because implementing some of these measures can be costly, Aschettino questioned whether these mitigation provisions would actually improve homeowners bottom lines.
"I don't know whether citizens really look at that as savings," she said.

Aschettino is also unhappy that Insurance Commissioner Nonnie Burnes approved the change in deductible without a public hearing.

The law does not require such a hearing, but Aschettino said that the public has a right to offer input on a change as significant as this.

"What really concerns us is the Division of Insurance allowing this to happen," she said. "I feel that we are speaking to deaf ears."

Kimberly Haberlin, spokeswoman for Burnes, said that such a charge does not accurately reflect the commissioner's role in the insurance market.

"The commissioner is very concerned about the burdens Cape residents are facing due to the current state of the homeowners insurance market," Haberlin said. "(She) is responsible for helping to create a healthy insurance market so, at the end of the day, companies can meet their obligations and keep their promises to their policyholders. Ensuring that a stable environment exists is in the best interest of all Massachusetts consumers."

Burnes was a member of the legislatively created special commission on homeowners insurance that recently recommended ways to combat the problem of rising insurance costs.

The commissioner's office also recently agreed to a meeting with Aschettino and state Sen. Robert O'Leary, who has been a vocal advocate of homeowners insurance reform.

"We just feel that the market on the Cape, it's just not functioning," said O'Leary. He would like, he said, "to remind (Burnes) of the impact that this is having, and that we see this as a rate increase for all intents and purposes. We'd like her to move more cautiously here."