The Special Commission studying homeowners insurance rates in the Massachusetts Coastal area convened on September 7th at Cape Cod Community College in Barnstable.
Commission members were the following:
Representative Ron Mariano, House Financial Services Committee
Senator Stephen Buoniconti, Senate Financial Services Committee
Nonnie Burns, Commissioner of the Insurance
Representative Susan Gifford, House Minority Leader
Senator Stephen Ryan, Senate Minority Leader
Representative Erik Turkington, Cape Cod or coastal House member
Senator Robert O'Leary, Cape Cod or coastal Senate member
Donald Uvanitte, representative of the State Treasurer
Jeffrey Clements, representative of the Attorney General
Jack Golembeski, President, Mass Fair Plan
Christopher Mansfield, Mass Insurance Federation
Robert Cordner, Mass Insurance Federation
Charles Robinson, Mass Association of Insurance Agents
Andrew Castaldi, Re-Insurance Association of America
Steve D'Amato, Center for Insurance Research
Dierdre Cummings, Mass PIRG.
There were approximately 150 citizens in attendance. The hearing format was presentations made to the Commission by attendees. No questions were allowed or entertained.
The following is a rough recitation of the presentations made to the Commission by the various volunteer speakers:
- An initial speaker explained U.S. House bill HR 3355, currently in the House, and likely to pass on to the Senate in the fall. The bill provides for lost cost loans for persons suffering catastrophic damage. It is designed as an interim measure until such time as funding is in place for catastrophic damage support by the Government. The U.S. House members involved in the bill fully support the bill proposed by Mass. Senator O'Leary, setting up a catastrophic fund in Massachusetts.
- Paula Aschettino, the Chair of the Homeowners for Insurance Reform, mentioned that insurance company profits are climbing. In 2005 the profits were up 49% from 2004. Payouts for claims have dropped throughout the country. Only 68.7% of premiums have been used to pay claims. Cape Cod has the lowest loss rate in the State of Massachusetts. The models being used by the insurance industry (and the Fair Plan) were designed for Florida, and have little relevancy to Massachusetts coastal regions. The models must be made transparent. The State should explore the issue of catastrophic bond funds, encoring investors to invest in such bonds, potentially alleviating the losses by insurance companies. The relationship between the Mass. Legislators and the insurance industry is troublesome, exemplified by a soiree being hosted at the Mass. State House on October 30th, inviting the insurance industry to meet the legislators during their convention in Boston.
- A speaker recommended changing the formula for insurance premiums, reducing costs when homeowners make improvements on their home to mitigate potential damage. The insurance industry should re-tool its premium formulas, specifying steps that can be taken by homeowners that would reduce premiums.
- A Nantucket speaker voiced a desire to be able to insure a home for only that amount that the homeowner feels the need to have reimbursed. We are captivated by the insurance companies who tell us how much insurance we need, often far above what we homeowners feel is needed.
- A homeowner in Wellfleet explained that she owns several low cost housing units. Her own home was built in 1840 and has never had any damage provoking insurance claims. Her insurance rates have gone up drastically, but she is unable to raise her rents because the local housing authorities require her to keep her rents at a reasonable level, thereby allowing low income tenants to live in Wellfleet. She can no longer sustain the expenses and will have to close her units, thereby removing her units from those available to low income tenants.
- A Falmouth homeowner owns a home 5 miles from the ocean and 42 feet above sea level, yet she has had her insurance cancelled, and was forced into the Fair Plan. That resulted in a period of non-coverage while the change was made. She described the attempts at dialogue with the Fair Plan as similar to trying to discuss with the Registry of Motor Vehicles.
- A resident of Eastham who owns a 17 room B&B complained that his insurance has gone from $14,000 to $26,000 virtually overnight. The B&B is his only income and he can no longer sustain the large payments.
- A resident of Wareham wants to eliminate insurance coverage on his property except for liability. He has determined that the only way to accomplish this is through the excess insurance industry. To date he has determined that such a policy would actually cost him $300 more than the already exorbitant rate that he pays for "full" coverage. He would like the system changed to allow homeowners to insure as they see the need.
- A speaker from Sandwich lamented the fact that the persons in the audience were generally middle age or above, and that there was a strong lack of younger homeowners. The issue in fact faces the younger homeowners perhaps more strongly than the older.
- An Insurance Agent from Falmouth lamented the models used by the insurance industry as inappropriate for Cape Cod. He suggested that there were people in this region who could/would put together more Cape Cod specific models. Among these were scientists at the Wood Hole Institution who had already studied local hurricanes in depth.
- One such scientist from Woods Hole agreed that such a model should be commissioned locally, and indicated he and his colleagues would be able to perform the work. He specifically mentioned Karry Emanuel, the author of the book "Divine Wind," who is located locally and would be an invaluable participant. The speaker provided some graphic explanations of hurricane history in the area, the difference between storms in the north and the south, and the realities of cold and warm water streams in the area working to offset potential storms. The Commission asked several questions, and left the impression that they would like to hear more about such a local model being developed. Steve D'Amato, a Commission member, suggested using some of the money available to the insurance industry to pay for the development of a local model.
- A homeowner from Sandwich asked a number of questions. Why did the State allow insurance companies to abandon coverage on Cape Cod? Why now are representatives of some of those companies in positions on the Board of Directors of the Fair Plan? Why was a person recently appointed to the Fair Plan's Board of Directors from Cape Cod when she had a history of employment in the insurance industry? If the Fair Plan covers approximately 40-50% of the homes on Cape Cod, why aren't people from Cape Cod represented in its directorship? Since the Fair Plan is a governmental agency, why isn't it held to the rules of transparency that other agencies of Government are? Why is the Fair Plan operated as a for profit agency? Whereas the Fair Plan was designed to provide "affordable insurance," in fact there is no definition of what is "affordable." This is the responsibility of the Commission of Insurance. Perhaps she could define "affordable," and the Fair Plan could be forced to operate within that framework.
- A former member of the Cape Cod Chamber of Commerce indicated that his organization supported the catastrophic fund proposed by Senator O'Leary. He also advocated strong consideration of the plight of small businesses whose insurance rates are skyrocketing. He advocated the creation of a Massachusetts-specific re-insurance fund, the increase in the Fair Plan's coverage ceiling over $1 million, and the use of Massachusetts expertise to develop a more locally based and appropriate model on which to base rates.
- A homeowner from Harwich mentioned that the worst incident of property damage/loss in Massachusetts had nothing to do with hurricanes. It resulted from an industrial explosion in Danvers. In fact hurricane-related losses in Massachusetts were almost non-existent.
- A homeowner from Hyannisport asked that insurance payments be spread over a year's time rather than only on one due date. This is done in the auto insurance industry, and could alleviate the pain for some low income insured.
- An insurance agent from Chatham recommended that the rules be changed by the Fair Plan so that the wind deductible only apply to instances resulting from named storms, and not from any incidence of wind.
- A homeowner from Hyannis complained about the red lining procedures of the insurance industry. In addition, he asked that insurance company decisions on replacement costs be made with input from the homeowner rather than simply dictated to the insured.
- A homeowner from Eastham recommended that premium rates be based partially on an incentive program similar to home energy efficiency. If a homeowner makes improvements to mitigate potential damage to the property, he/she should be rewarded by lesser premiums. A formula should be worked out allowing all homeowners to see what they could do to reduce their costs.
- A homeowner from Harwich asked the Commission to consider the big picture of what is happening on Cape Cod. Housing is already unaffordable. Tax rates are climbing out of sight. There is already a major problem with foreclosures on the Cape. If insurance rates are allowed to climb unabated, in ten years the Cape will be nothing but rich people who have no concerns about the effects of storms. The tourist industry would suffer, as would the diversity of the Cape's population.
- A homeowner from West Harwich lamented the fact that insurance premiums include a 4% state tax, wondering why this added insult was allowed.
- A man from South Yarmouth commented that the state of insurance on Cape Cod should have been addressed by the legislature long ago, before the situation was a monopoly of the Fair Plan. His biggest fear is that with the monopoly position of the Fair Plan, should there by a disaster, would the Fair Plan in fact be able to pay out? Or would the Cape Cod residents be faced with the dismal performance seen in Louisiana after the storm? He recommended that the competitive atmosphere among insurance companies be re-established in whatever means necessary.
- A homeowner from Barnstable was recently cancelled by One Beacon on the basis that his home had a historic plaque affixed to it. The home had no history of claims or damage. His position is that the insurance industry should be taking risks. That was the nature of their business. The situation has now changed so that the risks are undertaken by the homeowners and not the insurance companies.
- An individual from Chatham mentioned that the State should not be in the homeowners insurance business. They had enough other things to do. He lamented the demise of the local insurance agent who provided personal attention and choices to the homeowner, replaced by impersonal companies with no choices whatever. He felt that homeowners should have the right to rebates when they made no claims, rather than simply having the unused premiums go into the coffers of the mega insurance companies.
- A retired building inspector from Barnstable commented that what was happening now was "terrorism," directed against the homeowners by the insurance industry. He lamented the total disregard for the "good citizens" of Cape Cod who spent their lives working and paying, only to be treated as a cash cow at this juncture. He felt that the word "greed" best explained the demeanor of the insurance industry. He also felt that homeowners should be allowed to decide what coverage they needed/wanted, rather than having the insurance industry dictate to them.
- An Eastham resident mentioned that in 144 years of recorded data, only 6 named hurricanes had had an effect on Cape Cod. All of these had been the equivalent of Category 2 or below. He mentioned that of the 18 members of the Fair Plan's Board of Directors, most were insurance people. He demanded more representation from Cape Cod. He felt that citizens should have access to the hurricane models through the Freedom of Information Act since the Fair Plan was a state agency. He also mentioned that construction practices and materials on Cape Cod were far better than those in Florida and other southern states, thereby much more resistant to winds. He also thought the industry should be forced to strictly consider the value of buildings being insured as opposed to the value of the property.
The meeting was adjourned when there were no more presenters.