As its Dec. 31 deadline approaches to forward recommendations to Gov. Robert Bentley, the Coastal Insurance Working Group (CIWG) is revealing more details about potential changes to the Alabama Insurance Underwriters Association (AIUA) and a so-called “coastal band” of wind insurers spanning the Gulf Coast.
Some local elected officials are worried the new plans may not go far enough to ease the pain of coastal Alabama’s functionally uninsured, those who pay monthly for home insurance but don’t have enough money in the bank to cover the cost of damages because their policies have high deductibles.
According to Department of Insurance Deputy Commissioner Charles Angell, the CIWG’s concept of an Alabama Coastal Wind insurer is fluid and constantly changing. As of this week, the proposal would change the way the AIUA operates, making it a tax-exempt organization. Currently the AIUA writes 32,000 policies for $5.6 billion in total insured value, a 20 percent market share in Mobile and Baldwin counties.
The AIUA is owned by the property insurance industry and has about $82 million in capital and equity with $5.5 million in retained surplus. The remaining money belongs to the insurance companies the AIUA contracts with, according to Angell. In the CIWG plan, those insurers would be asked to leave that money in the AIUA and allow it to accumulate when hurricanes don’t hit the state.
Angell said under the new plan, the AIUA would lower annual wind premiums by 50 percent. Currently the average AIUA insurance plan is around $2,000. Policyholders might be asked to make a one-time contribution to the AIUA, taken from a small percentage of the targeted $1,000 in savings with their new plan.
The plan would offer a 1, 2 or 5 percent deductible, with the $1,000 premium based on selection of the 2 percent deductible. The premium would be higher or lower based on the deductible policyholders choose.
The CIWG presented the new plan to local elected officials and the Baldwin-Mobile legislative delegation last week. Fairhope Mayor Tim Kant expressed concern residents will still have to pay high deductibles in the event of a major storm hitting their home.
“We have some lower-income folks, and some who are on fixed incomes, who would be in trouble if they ever had any damage to their homes,” Kant said. “It would be nice if it wasn’t all about lowering the premium but also about lowering deductibles. Someone living on $1,400 a month on Social Security would still not be able to pay for a deductible.”
Angell suggested adding stipulations to the plan based on the policyholder’s ability to pay the deductible.
“I would suggest someone who takes the 5 percent deductible should have a catastrophe savings account,” he said.
According to materials provided by the CIWG, if a major storm hits under the new AIUA plan, policyholders would be hit with a possible 28 percent assessment to service the debt repayment.
The assessment would be added to the policyholder’s premium for 20 years. Assuming a $1,000 premium, the addition of a 28 percent assessment would mean the policyholder would pay $1,280 per year for 20 years after a significant hurricane. The assessment would be charged at the same rate everywhere an AIUA policy is written, from the beach to Bay Minette, according to Angell.
“If we have three storms in the first year, then had another 1-in-50-year storm in the fifth year and a 1-in-50 in the 10th year, you’d get three assessments that would just go over $1,000,” Angell speculated. “That’s kind of a worst-case scenario, but you’d still just be back to the premium you are paying through AIUA now.”
Baldwin County Commissioner Tucker Dorsey said he is concerned premiums would still rise for policyholders every time a hurricane hits, something he said they are already upset about. Angell said the premiums would only rise if a hurricane does hit, instead of premium hikes being based on hurricane prediction models like they are now.
Dorsey and State Rep. Barbara Drummond also expressed concern about the impact of high deductibles on residents who are functionally uninsured.
The CIWG has also agreed to recommend the Department of Insurance (DOI) or state legislature mandate insurance companies not vary the non-wind policies they write between territories without providing the DOI with loss data to support those increases.
“People down here believe — and I think they are correct — that they are paying more for fire insurance here than those upstate,” Angell said. “At the Department we believe insurers should have to quote fire and theft liability separately from wind coverage so that we can better monitor it and ensure equity among premiums.”
Through the CIWG, the Baldwin-based consumer advocacy group Hurricane Homeowners Insurance Initiative (HHII) agreed to distribute information about the Strengthening Alabama Homes program, which encourages homeowners to make an effort to fortify the roof, windows and doors of their homes against the impact of wind from a hurricane.
HHII, which pushed for the CIWG’s creation and has worked for insurance reform at the local, state and national level, has also asked the DOI to research whether a community rating system would work in Mobile and Baldwin counties. The rating system would determine whether, if a large portion of a community has performed work for flood damage mitigation, the whole community would get a discount on premiums. The theory suggests if 50 percent of homes in a community have made the effort to secure their properties against loss, it could help others in the neighborhood suffer less damage in the event of a storm.
The CIWG is also still considering the creation of a coastal band of insurance, with states from Texas to Florida forming their own hurricane insurer. A parity bill based on data collected by the state’s recent Clarity Law is also still on the table. It would mandate insurers write homeowners policies at the same rate statewide. But the DOI, which has challenged the very data it reports under the Clarity Law, does not believe it should be used for policy writing.