Homeowners Premiums Gouge Coastal Alabama

Mobile & Baldwin County pays 300% to 600% More!

The Alabama Clarity Law Data; the Alabama Department of Insurance (DOI) White Paper; and the Homeowners Hurricane Insurance Initiative (HHII) Response                                                                                  

In a 2010 interview with Mobile Press Register reporter Jeff Amy, Governor Robert Bentley publicly supported the Clarity Bill. Governor Bentley promptly signed the bill into law when Sen. Trip Pittman and Representative Joe Faust with coastal legislators got it passed in 2012. The Clarity Law required the Alabama Department of Insurance to collect, aggregate, and publish total insurance premiums and losses by zip codes. As a consequence a tremendous amount of statewide premiums and claims information came online at the DOI website Thanksgiving eve 2013.

• •The data shows Mobile and Baldwin counties had a ten year average of $622 in losses per policy in comparison to $722 for the rest of the state. 
• •It includes data from Hurricanes Ivan and Katrina, Tropical Storm Ida and Mobile’s Christmas Day tornadoes. It clearly demonstrated that coastal losses are not 4 times higher, (range 300% to 600%) than the rest of the state.
• •The data also showed that the coastal counties paid for the losses caused by hurricanes Ivan and Katrina in the years before the storms, at the old premiums.

Though the vast amount of historical Clarity Law data cannot be used for ratemaking purposes by itself (additional calculations are needful), it serves as a sobering reality check, clearly demonstrating that cost of risk is not properly distributed, and that DOI methods need dramatic recalibration.

In the wake of releasing the data, however, the DOI issued a White Paper that cites six “Challenges with Drawing Conclusions from The Clarity Act Data.”

The following is a synopsis of DOI concerns, and the HHII response.

1) The DOI concluded that even with the 400 percent increases in premiums, coastal counties are paying too little for insurance. HHII disagrees and asked DOI to prove this statement because the data reveals that losses caused by Hurricanes Ivan and Katrina, plus the cost of doing business, plus profits were paid for in the years leading up to the storms at the old premiums. This, alone, refutes the DOI conclusion that a 300% to 600% premium increase was necessary.

2) The DOI pointed out that Clarity Law data double-counts some policies causing a 10% error.       

3) The DOI said that the 2011 Tuscaloosa tornado losses should be dismissed from the data and hurricane losses retained when comparing coastal counties with the rest of the state.       

4) The DOI said the data does not include information from surplus lines, non-typical insurance providers.     

5) The DOI said data is missing because some companies went out of businesses.       

6) The DOI said some families have dropped their wind coverage since insurance prices quadrupled. Any losses they suffered since dropping coverage were not reported.

 If all above DOI objections are granted then the Coastal Counties cost estimated by HHII would be $930. Far from the 300% to $600 the DOI has dictated for Mobile and Baldwin County.  Of course granting all objections are not valid so…

Conclusion

With reasonable adjustments made for all DOI concerns, the average coastal loss per policy is $777, the rest of the state is $722. Coastal losses are 8% higher -- that is, statistically even with the rest of the state. They are nowhere near 400% higher as allowed by the DOI.

This factual, historical data is very significant.

It captures all the premiums, all the claims, all the policies from all the admitted insurance companies in all the state’s zip codes from years 2007 – 2012.  The Clarity Law data includes Alabama Insurance Underwriters Association (the state “Wind Pool”) during the years of Hurricane’s Ivan and Katrina.

In contrast, the prior administration and former insurance commissioner made their 2006 decisions to dramatically change the way coastal counties are treated without this vast data pool. As each company sought changes, the DOI relied on one company’s data from five years, supplied by territories, not zip code, augmented by EXPERIMENTAL hurricane catastrophe models which, themselves, contained minimal upstate hurricane information, no tornado, hail or straight-line wind data at all, and no zip-code data from non-hurricane years. The DOI also did not have information from surplus lines.

The Clarity Law data is vastly superior to the data available when the former insurance commissioner changed the way coastal Alabama would be treated. It overwhelmingly demonstrates that coastal counties’ losses do not justify charging coastal Alabama 4 times more than the rest of the state.

Alabama law requires that the DOI prohibit inadequate and excessive premiums. The law also requires that the DOI prohibit discrimination. The data overwhelmingly suggests that coastal premiums are excessive and discriminatory.

Though the Clarity Law data cannot, and was never intended to, be used for ratemaking purposes by itself (a few additional calculations are necessary), it clearly demonstrates that cost of risk is not properly distributed, and that DOI methods need dramatic recalibration.

     Both the law and common decency require it.