Alabama Governor’s Promise to Keep Insurance Rates Down in Limbo

Gov. Robert Bentley has not yet kept a campaign promise he made in 2010 to have the Legislature address the rising cost and declining availability of homeowners’ insurance in Alabama.

Almost a year has passed since he announced the creation of a commission to study the insurance issue, and he’s still waiting on the group’s recommendations.

“The governor did not expect the process to take this long, but recognizes that this is a very complicated issue, and decisions must be made carefully,” the governor’s press secretary, Jennifer Ardis, said Friday.

A member of the governor’s Affordable Homeowners Insurance Commission said he’ s hopeful the commission will give recommendations to the governor shortly after the next hurricane season starts June 1 and Bentley could schedule a special session of the Legislature in August or September.

“Those on the coast are expecting the governor to stand by his commitment to call a special session. He voiced that during the campaign,” said Republican Sen. Ben Brooks of Mobile, who serves on the governor’s commission.

Bentley, who owns a coastal vacation home near Fort Morgan, promised in 2010 to address the skyrocketing insurance rates and the decline in competition that residents of southwest Alabama experienced after the double whammy of hurricanes Ivan in 2004 and Katrina in 2005.

On April 6, 2011, he announced the formation of the Governor’s Coastal Insurance Commission to study the issue. At the time, he speculated about calling the Legislature into special session in the fall to consider the commission’s recommendations.

Then killer tornadoes hit Alabama April 15 and 27, claiming more than 250 lives. Fearing that rates for inland homeowners could spike, Bentley expanded the role of his commission statewide, added more members and changed the name to the Affordable Homeowners Insurance Commission.

Talk of a special session shifted to January and now focuses on later this year.

“The governor has promised us a special session,” said Baldwin County Probate Judge Tim Russell, the commission’s chairman.

Commission members said it’s taken a long time because the commission is large, with 30 members. It’s a diverse group, with some members more knowledgeable about the insurance business than others. Consumer and insurance interests on the panel also differ on what should be done.

“We didn’t have enough consensus to bring legislation together because it’s such a diverse group,” Russell said.

People watching the commission say there’s another reason. It has lots of insurance industry members, including some who don’t want more government involvement in their business.

“We’re not real high on these commissions, especially when you stack them with insurance people,” said Dan Hanson, a Baldwin County resident who’s spokesman for the Homeowners’ Hurricane Insurance Initiative.

Geoff Plott, a commercial insurance agent from Tuscaloosa who serves on the commission, said consumers want cheap rates with a low deductible issued by a financially strong company, and that is not realistic in state that has a reputation for being a tough market for homeowners’ insurance. He said there are no quick, easy fixes.

Bentley’s state insurance commissioner, who serves on the panel, said some ideas presented to the panel are out of the question.

“What the people on the coast want is for me and the governor to cut their rates and raise the rates for everybody else in the state. I don’t have the ability to do that, and I don’t think the governor does,” Commissioner Jim Ridling said.

Another reason is that residents of the northern two-thirds of the state haven’t seen their rates skyrocket since the April tornadoes. Few of them turned out for public hearings the commission held, and public interest remains regional.

A review of Insurance Department records shows some companies haven’t raised rates since last spring, and others have received approval for increases of 5 percent to 10 percent. Plott said that’s in line with what rates are doing nationally.

Ridling said insurance companies are spreading out their tornado losses over 20 years and that has helped keep rates from rising rapidly. He expects customers will see annual increases for several years to come, but nothing like the coast.

“Are they going to see 100 percent rate increases? No,” he said.

Figures compiled by the state Insurance Department show the owner of a typical $150,000 brick home with a $1,000 deductible will pay less than $1,000 annually for homeowners’ insurance in Birmingham, about $2,000 in Mobile and $3,000 to $5,000 in Gulf Shores.

Commission members say it’s likely to take a couple more meetings to finish a report, and it may focus on long-term goals. Some say stronger building codes and making existing homes more wind resistant will help in a state that a recent insurance industry study ranked as 15th among the 18 hurricane-prone states for building standards and enforcement practices.

“Stronger building codes lower insurance costs for homeowners and will encourage private markets to write more policies. More competition from insurance companies will help stabilize insurance rates,” Plott said.

The governor’s press secretary said that once the commission completes its work, the governor will work with legislators to decide whether issues will be better addressed in a special session or regular session. The next regular session will start in February 2013.

Republican Rep. Steve McMillan of Bay Minette, who serves on the commission, said there is no need for the governor to call a special session without a consensus because nothing would pass and the state would waste money.

The Legislature and the state Insurance Department have already taken some actions that mirror the commission’s discussions.

Residents who fortify their homes to better withstand high winds can get rate reductions of 15 percent to 35 percent. That includes strapping rafters to the walls and making windows and doors stronger. Ridling said it takes $7,000 to $15,000 to make the changes in most homes.

Last year, the Legislature set up a trust fund that could be used for grants to help homeowners build safer homes and retrofit existing ones. At present, it has no money.

Some commission members said they would like to see some settlement money from the BP oil spill put into the trust fund and then have the state issue grants based on a homeowners’ income. Ridling said it’s a better approach financially that subsidizing rates.

“If you subsidize fortifying a home, you’ve done it forever. If you subsidize a rate, you have to do it year after year,” he said.