Legislation intended to lower the cost of homeowners insurance premiums in coastal Alabama was introduced in the Alabama House and Senate last week.

If passed, Senate Bill 298, introduced by Senators Bill Hightower and Trip Pittman, would create the Alabama Coastal Insurance Authority (ACIA) for the purpose of lowering homeowners insurance premiums for Mobile and Baldwin county residents. House Bill 321 was introduced in the House of Representatives by Rep. Joe Faust and co-sponsored by other Mobile and Baldwin county House members.

The legislation was birthed from months of local meetings of the Coastal Insurance Working Group. The CIWG was a committee formed by Gov. Robert Bentley last summer and tasked with finding actionable solutions to the seemingly “skyrocketing” homeowners insurance costs on the state’s Gulf Coast.

“The Coastal Insurance Work Group is an excellent example of our government, educated citizens and private industry working together to solve our community’s problems,” CIWG co-chairman and Homeowners Hurricane Insurance Initiative member Earl Janssen said.

The legislation would exempt the nonprofit ACIA from paying insurance premium taxes and other license and privilege taxes. It would also lower premium costs by authorizing the ACIA to assess policyholders in the event of excess losses instead of charging high premiums based on hurricane prediction models up front.

In the event of a catastrophic loss, the ACIA would sell 20-year bonds to insurers to cover a hurricane loss if reserves are depleted. The ACIA’s customers would be charged assessments for 20 years to service the bond debt. The assessments would be collected by the county tax assessor along with annual property taxes.

The bill will also give the ACIA the authority to place property liens on policyholders to secure payments and to give power to local tax assessors or revenue commissioners for the collection of the assessments.

State Insurance Commissioner Jim Ridling predicts the legislation will bring relief to coastal area residents who have seen their wind premiums steadily rise since in the last 10 years.

“The goal of this bill is to provide coastal property owners the opportunity for more affordable, while still actuarially sound, insurance rates,” Ridling said. “Thanks goes out to Gov. Bentley for starting this process, to our coastal area legislators for sponsoring the bill and to the dedicated local citizens, government servants and industry experts that have worked hard to get us to this point. I hope the Alabama Legislature will act quickly to address this very important issue and move this legislation forward.”

Critics of the legislation say that at a fundamental level, the new ACIA’s policies would no longer be insurance as it has long been recognized. This week, Mobile-area insurance agent and CIWG critic Bob Walsh said the legislation amounts to nothing more than a cost-sharing scheme akin to the Affordable Care Act.

In a document shared with Lagniappe this week, Walsh said insurance by its very nature is forward looking and considers the risks associated with events that have yet to happen but may be predicted with some level of specificity. Under the coastal insurance legislation, Walsh said, insurance would cease to be insurance because it would become retrospective, mandating insurance companies to cover events that have already happened.

Walsh said the ACIA’s post-event assessments would transfer the burden of catastrophic loss from the insurance companies to the consumer.

“Under the CIWG plan, insurance is retrospective,” Walsh said in the document. “The CIWG mandates that insurance companies cover events that have already happened, which renders the basic mathematical architecture of insurance — the calculating of risk among large pools of people — pointless”

In its report to Bentley in January, the CIWG determined that between 2005 and 2015, the average coastal homeowners insurance premium increased by 137 percent following hurricanes Ivan and Katrina. On the other hand, premiums rose just 36 percent upstate.

Walsh likened the legislation to a game of Russian roulette, saying because it has been 10 years since those hurricanes devastated much of the Gulf Coast, Mobile and Baldwin counties are due for another major storm in the near future, something he said the ACIA won’t be prepared for.

Walsh said the bill would also give local municipalities too much power, citing a passage in the bill that reads, “The governing body of any unit of local government, any residents of which are insured by the authority, may issue bonds from time to time to fund an assistance program, in conjunction with the authority, for the purpose of defraying deficits of the authority.”

“This is only one step away from allowing  any of these local governments to tax, assess, place liens and confiscate property with the help of the local tax assessor,” Walsh said.

Proponents of the bill say it will address affordability in the coastal insurance market and will help solve the area’s problem of functionally uninsured policyholders, or those with homeowners policies but deductibles they can’t afford.