Baldwin County resident Carolyn Wright’s homeowners insurance premiums have gone “sky high” since Hurricane Katrina hit the Gulf Coast in 2005. She lives in a 20-year-old home on Baldwin County 64 in the Belforest community, and while she’s only filed one claim since then, her premium has doubled from $2,000 per year just 10 years ago to about $4,000 per year today.

Her story is not uncommon among homeowners in Mobile and Baldwin counties, where policyholders typically pay $500 more per policy annually than their neighbors with similar homes upstate. Meanwhile, high premiums have impacted more than just homeowners.

Habitat for Humanity Baldwin County Executive Director Sandy Folan said her organization has worked hard to ensure the people it helps can afford to live in the homes the charity constructs. But high insurance premiums can put the houses out of range for low-income families.

“We were in a situation where, even though our homes had affordable mortgages, some of the families we help couldn’t afford to live in their Habitat homes because of the high insurance premiums they had to pay,” Folan said. “We made sure their mortgage payment is no greater than 30 percent of their monthly income, but when you add in their insurance premiums, it puts that percentage out of range for many of our families.”

In response, Habitat has begun to build all of its homes in Baldwin County to the “fortified standard.” A 2009 state law recognized the fortified standard and gave the Alabama Department of Insurance the authority to allow insurance companies to consider home mitigation efforts when writing policies for coastal residents.

According to Smart Home America, homes fortified to the Institute for Business and Home Safety standard can see wind premiums 25 percent to 50 percent lower than homes built without mitigation efforts.

The benefit of home fortification is twofold for Habitat, Folan said.

“The first reason is building the home to that standard ensures insurance premiums will be low enough to be affordable,” she said. “The second is so that, in the case of a storm, they will still have their Habitat home to return to if they have to evacuate.”

Still, fortification can be expensive. For Habitat, that means raising $2,500 to $10,000 more to build each home.

“Everything you do to fortify these homes raises the price,” Folan said. “For us, it is harder to get the funding to build our homes because it costs more. We have to raise more money to build the home, but we do it all to keep our homes affordable for our families.”

Michelle Kurtz, a Daphne resident who has spearheaded efforts to lower wind premiums for local homeowners through the Fairhope-based Homeowners Hurricane Insurance Initiative since 2007, told Lagniappe last year her homeowners insurance premiums had risen from $1,200 to $2,400 to $3,200 annually during a six-year period after hurricanes Katrina and Ivan.

Kurtz’s and HHII’s efforts led to the August 2015 creation of the Coastal Insurance Working Group, a committee tasked by Gov. Robert Bentley with finding solutions to the coastal insurance “crisis.”

After meeting two days a week for four months, the CIWG released a formal report to the governor on Jan. 20 detailing five ways the group believes the state can move to lower insurance costs for homeowners.

The CIWG report found that between 2005 and 2015, the average coastal homeowners insurance premium increased by 137 percent. On the other hand, premiums increased by just 36 percent upstate. Prior to 2004, insurers used historical data to set wind insurance rates, but between August 2004 and October 2005, the country experienced seven of the 10 most expensive natural disasters in history. Afterward, insurers began to use subjective hurricane modeling to write policies, which has largely been blamed for the increase in premiums.

The CIWG report further shows while premiums were increasing, deductibles were rising. The report lists a number of churches and businesses in Baldwin County that dropped wind coverage because it became too expensive. In Fairhope, the Good Samaritan Sanctuary and the social service agency Ecumenical Ministries — home to HHII — dropped wind coverage because of the expense.

The report’s first recommendation is to reshape the for-profit Alabama Insurance Underwriters Association into a new, nonprofit Alabama Coastal Insurance Authority. A second idea takes the ACIA and expands it to multiple states on the Gulf Coast, also known as a multi-state coastal band strategy.

Other recommendations include a federal and state tax exemption for coastal wind premiums, funding for loss mitigation efforts and stronger building codes, and a parity bill limiting the difference between coastal and upstate premiums.

Kurtz said the report represents a paradigm shift in the way homeowners insurance premiums will be written in coastal Alabama.

Since 2007, HHII has hosted more than 3,000 meetings, listening tours and presentations to municipal, county and state elected officials. After all those years and meetings, Kurtz said the group finally feels like all the work is starting to pay off.

“It feels like all these years we’ve been the little brother, tugging at big brother’s pants leg to get noticed,” Kurtz said. “But now, big brother is finally standing with us.”

Still, state legislators will have to hammer out the details of a proposal which will take some political will to pass.

A LEGISLATIVE FIX
In response to the CIWG report, local legislators are taking up HHII’s cause in Montgomery. State Sen. Bill Hightower is crafting legislation he says will restructure the AIUA into a nonprofit insurer and provide better coverage at a lower cost.

“In my campaigns and in my travels in coastal Alabama, I meet people who have experienced economic discomfort because they have these high insurance costs,” Hightower said. “Some people I’ve met have had to drop their insurance altogether. We have to do something to make insurance more affordable for people here.”

A memo released by the Department of Insurance last week said the proposed legislation would achieve federal nonprofit status for the AIUA — coastal Alabama’s “wind pool” — and rename it the Alabama Coastal Insurance Authority. The ACIA’s governing structure would be comparable to wind pools in other coastal states and ensure “greater financial strength,” making the organization more efficient in responding to claims in the event of major storms.

The state insurance commissioner would appoint an independent board of directors — six insurers, two agents, four local business people and a state director of risk management — and require regular financial reports from the ACIA.

Hightower said the AIUA was set up as a “last resort” insurer for homeowners who were unable to find coverage through other insurance. He said AIUA policyholders pay for depreciated-cost insurance, which means it may not provide a check for full coverage of losses.

“This plan will not only reduce the cost of wind pool insurance, but will also give consumers better insurance,” Hightower said. “This is not depreciated-value insurance, it is replacement-level insurance. With depreciated-value coverage, if you have a 20-year roof but you are in your 10th or 15th year of owning that roof, you won’t get the full amount to replace that roof. But with replacement coverage, if a hurricane destroys your roof the new plan will give you the full value to totally replace that roof.”

Participation in the new ACIA would be voluntary. The Insurance Department’s memo states that under the proposed legislation, non-ACIA policyholders would receive up to a 50 percent reduction from their “HO-3 RCV” premium. Current AIUA consumers would see a premium reduction of approximately 20 percent — about $350 per year — and broader coverage including higher limits, additional living expenses and more deductible options.

In the CIWG report, the group recommends a deductible of 2 to 10 percent, which will work similarly to regular insurance. The lower the deductible, the higher the monthly premium.

“In coastal Alabama we have a problem where many insurance policyholders are functionally uninsured, meaning they have wind or homeowners insurance policies, but if they were hit hard by a hurricane they wouldn’t be able to afford the cost to fix their damages because they have high deductibles,” Hightower said. “The AIUA has a problem in that regard because the cost is lower but the insurance isn’t as good as it should be.”

Kurtz said the new ACIA would build an “insurance tower,” stacking policyholder premiums on top of themselves in an effort to build up enough money in reserves to cover a major hurricane. The CIWG predicts once the reserve is built up, it would take the equivalent of three-and-a-half Hurricane Ivans in a 20-year period to deplete the reserve.

If those funds are depleted, homeowners would see a post-event assessment on ACIA members. Because it will be post event, policyholders will know exactly why they were charged.

A figure developed by the CIWG shows that for every dollar spent on a homeowners insurance premium, 40 cents goes to pay for the cost of reinsurance, or the expense the insurer pays to cover itself against catastrophic loss. The CIWG expects to cut that cost by weaning the ACIA away from purchasing reinsurance.

“The premiums consumers pay would go into an account that will build up until the entity no longer needs to purchase much reinsurance,” Kurtz said. “It would still buy reinsurance for a while, with the idea of dramatically reducing the amount of reinsurance that needs to be bought after a few years.”

Assuming a $1,000 premium, the addition of a 28 percent assessment would mean the policyholder would pay $1,280 per year for up to 20 years after a significant hurricane.

According to Hightower, the formula insurers use to write policies could also change under the legislation. Currently, insurance companies use computer-generated hurricane algorithms when setting premium prices to make sure their risks are covered. Hightower said the models are controversial because they haven’t always been accurate.

“People in Mobile and Baldwin County are paying higher insurance costs than everyone else, and that’s based on hurricane prediction models that don’t work,” he said.

Hightower stressed the legislation is not finalized, but he hopes it will see a vote in the regular session. Still, sometimes bills take years to pass.

“The bill is being drafted right now,” he said. “We need a lot of eyes on this because it will be a big decision that could save homeowners 50 percent on their wind premiums. That’s a tremendous savings.”

DOI representative Mark Fowler said Insurance Commissioner Jim Ridling supports the proposed legislation. According to Fowler, coastal homeowners face three problems: insurance affordability, availability and high deductibles that make them functionally uninsured. The legislation, he said, will address all three.

“This is the most promising thing we’ve seen to come along to address some of the issues homeowners face,” Fowler said. “We do believe that homeowners on the coast are paying actuarially sound rates, but we also know that many of them need relief. This legislation will be an actuarially sound way to give them that relief.”

If the bill is passed in the regular session, the ACIA could be in operation as early as Jan. 1, 2017.

OBAMACARE FOR HOMEOWNERS?
Not everyone is happy with the proposed legislative fix.
Mobile area insurance agent Bob Walsh has vocally opposed the CIWG’s proposals since the group’s report to the governor was released in January. Walsh, a licensed insurance agent since the 1970s, said the proposals amount to an elaborate cost-sharing scheme akin to the federal Affordable Care Act.

“This is Obamacare for homeowners,” Walsh said. “This is an elaborate cost-sharing program badly constructed by bureaucrats. This is not a good thing for consumers.”

According to Walsh, the proposed legislation will give too much power to the ACIA and removes risk from insurance companies and places it instead on the consumer. If the ACIA can’t pay damages, it has the power to assess the consumer.

“This gives the new ACIA the power to levy taxes against individual consumers,” Walsh said. “They can do this at 28 percent for up to 20 years. And if that’s not enough, they can come back for more. This also gives the county revenue department the power to put an additional tax lien on your property.”

But according to the DOI, the legislation will put less of a burden on consumers because the potential assessments plus reduced insurance wind premiums won’t exceed current wind premiums.

Kurtz disputes the claim that the CIWG proposals are a form of government control, saying none of the report’s findings will be imposed on those who wish to stay with their regular insurer. She stressed that the ACIA is a private-market solution and not an imposed government fix.

“One thing we want to emphasize is all of this is voluntary,” she said. “Everyone will still have access to options they are currently part of now. Absolutely nothing is part of any kind of government agency. This is very much a plan to work within the private market, not an imposed government fix, which is a criticism we have heard.”

Hightower also disagreed that the plan is a government takeover of the coastal insurance market.

According to DOI officials, the ACIA will not be a subsidized or government-run program. While the AIUA currently receives a subsidy from homeowners statewide, the DOI claims the ACIA will not require any more of an assessment than the current program.