In late August 2011, Gov. Robert Bentley’s Affordable Homeowners Insurance Commission (AHIC) held its first public meeting in the convention center in downtown Mobile. Formed five months earlier by an executive order, Bentley tasked the commission with studying the lack of affordable and comprehensive insurance in coastal Alabama and making recommendations that addressed any issues it identified.
Representative of the problem, the meeting in Mobile drew a crowd. More than 700 people rendered the convention center’s two ballrooms standing-room-only, as the commission held a nearly four-hour listening session hearing from homeowners in danger of losing their greatest investment to skyrocketing premiums or policies dropped altogether.
People from the local business community testified that their livelihoods were threatened by an increasing lack of spending power and consumer confidence. Elected officials also chimed in, urging the commission to make hasty, albeit reasonable decisions.
In the following weeks, the commission held similar meetings in other areas of the state, but the crowds weren’t there. Evidently, turmoil in the homeowners insurance market didn’t exist away from the coast. In Tuscaloosa, which was still recovering from the April 27 tornado outbreak, it was suggested that the only non-industry member of the audience was the daughter of one of the commissioners.
The governor’s order called for a minimum of seven members on the commission, but by the time it was touring the state, it had swelled to more than 30 people. The majority were either representatives of the insurance industry or elected and appointed officials. Only one, Michelle Kurtz of the faith-based Homeowners Hurricane Insurance Initiative (HHII), predominantly self-identified as a consumer advocate.
HHII was formed years earlier, in response to the church community’s recognition of market changes after hurricanes Ivan and Katrina. The group is credited by many for a grassroots campaign that led to the creation of AHIC, as well as a related bill that concurrently passed through the state legislature known as the Clarity Act.
True to its name, the Property Insurance Clarity Act required insurance companies authorized to do business in the state to be more transparent, by reporting the number of policies they wrote in each ZIP code along with their related premiums and any losses incurred.
The bill, which Bentley signed into law in November 2012, was retroactive 10 years to include information relevant to the hurricanes. The data it produced was required to be published on the state Department of Insurance’s website.
At the time, HHII put a lot of weight on the Clarity Act. They expected the data to reveal a bias against coastal counties, where premiums ran as much as four times higher, although claims were on par with the rest of the state. HHII spokesman Dan Hanson was quoted in this paper calling the Act “a big step” toward solving the larger problem.
“How big of a difference will transparency make?” Hanson asked in February 2012. “I think it’ll pull a $3,000 average premium down to $1,700. And I think it makes the deductibles disappear.”
Other members of AHIC, including insurers, also supported the Clarity Act, but questioned the impact it would have in an area they believed actually is subject to more risk. Regardless, the industry doesn’t set rates based on historical data, but rather on predictive modeling.
Just over a year ago, AHIC released its final report to Gov. Bentley. Although it produced a number of regulatory and statutory recommendations, the two Bentley chose to emphasize provided no immediate relief and require homeowners to have more of a role in lowering insurance costs than either the industry or the state.
Those include the creation of an insurance institute to study the market and educate consumers on how to mitigate risk and shop around plus, the disbursement of as much as $100 million from Restore Act funds (BP oil spill fines) for home fortification and other mitigation.
The Alabama Center for Insurance Information and Research, as the institute is known, will be based in the University of Alabama’s Culverhouse College of Commerce and is currently seeking an executive director. It is not known how Restore Act funds, which have yet to be determined but are required by law to be used for environmental restoration or economic development projects, can be diverted toward insurance mitigation.
Meanwhile, the first round of data produced by Clarity Act was released in November and HHII is claiming they are vindicated by hard evidence that coastal counties have indeed been “gouged” by insurance providers.
Inequity in pricing
“The data, as it is, is almost impossible to look at, but we did the analysis and over the last 10 years our losses per policy are actually lower than the rest of state,” Kurtz said last week. “That means even with the hurricanes, insurance companies are spending more to repair damage upstate than in Mobile and Baldwin counties.”
HHII member Earl Janssen, who performed the analysis on the group’s behalf, reinforced Kurtz’s conclusion, saying the coastal counties are cheaper than those upstate whether the data is interpreted in loss ratios or losses per policy.
Over a 10-year period beginning in 2003, Janssen determined policies statewide paid out 85 cents on the dollar, while those in Baldwin County paid out 45 cents, and in Mobile County paid out 50 cents on the dollar. As expressed in losses per policy, Mobile and Baldwin were about $100 cheaper to insure than the other 65 counties in the state.
The 2011 tornadoes were by far the most expensive weather catastrophe for insurers in that period, which paid out more than $2.5 billion in claims, according to the data. Comparatively, insurers reported just $1.5 billion in direct incurred losses in 2004 and 2005, the years hurricanes Ivan and Katrina struck, respectively.
Meanwhile, the average cost of a policy upstate was $839, when homeowners in Mobile and Baldwin counties were forking out around $500 more. HHII’s data does not include the cost of deductibles.
“I know it’s a hard thing to grasp because we’ve been told all along we’re more expensive and all the sudden this data comes out to confirm our suspicions and the Department of Insurance right now is challenging their own data,” Janssen said. “My challenge to [the DOI] is show us the data that proves otherwise.”
Deputy Insurance Commissioner Charles Angel said the data was accurate, but he takes issue with the group’s interpretation.
“The data itself is accurate but some pieces of data are missing, there are other pieces of data that are double counted and there are some other facts about what is in the data to cause somebody to misinterpret it,” Angel said.