Insurers tie deductibles to windproofing

Massachusetts home insurance companies are asking many of their customers to either absorb more risk or spend thousands of dollars storm proofing their homes.

Close to 10 companies and the state's home insurer of last resort, the Massachusetts Fair Plan, have won or are seeking regulatory approval for higher percentage deductibles that customers along the coast, and to a lesser degree those inland, would pay if their homes were damaged by high winds or a hurricane.

The deductibles are typically 2 to 5 percent of a home's insured value, meaning someone with a $400,000 home and a 5 percent deductible would be on the hook for the first $20,000 of damage.

Many of the companies are offering to waive or reduce the size of the deductibles if customers take steps to safeguard their homes against wind damage, including installing special impact-resistant glass and storm shutters and taking other steps.

"That's a fairly new development," said Paul M. Craig , chief executive of Shade and Shutter Systems of Hyannis. "Very few companies have been offering customers an incentive to make their homes safer."

The rising deductibles are another manifestation of hurricane fears. In the wake of the Gulf Coast hurricanes, the handful of companies that run computer models estimating wind damage have sharply increased their damage estimates in coastal areas. The damage estimates have spurred reinsurers -- the companies that insure insurance companies against catastrophic events -- to raise their rates dramatically.

Some home insurers in Massachusetts have concluded the risks are too great on Cape Cod and in other coastal areas and have stopped doing business there. Those that have stayed behind have limited the number of policies they write, dramatically increased premiums, and adopted wind and hurricane deductibles to shift more risk to homeowners.

Wind and hurricane deductibles began popping up in policies several years ago, but now they are increasing and spreading inland.

Metropolitan Property and Casualty Insurance Co. recently imposed a 2 percent mandatory hurricane wind deductible on all homes in nine Massachusetts counties, including Suffolk, Norfolk, Middlesex, and Essex counties. It imposed a 1 percent hurricane deductible in Worcester County.

The MetLife deductible is only triggered by damage caused by a hurricane identified as such by the National Hurricane Center. The deductible is waived if the homeowner has a contractor install shutters, panels, or impact-resistant glass capable of withstanding 120 mile per hour winds.

The Fair Plan, which insures 41 percent of all the homes on the Cape and islands, is seeking regulatory approval to raise its deductible for wind damage to 5 percent for nearly all homes on Nantucket and Martha's Vineyard and to 2 percent for most homes on the Cape. The company has existing flat-fee deductibles ranging from $500 to $5,000 in inland communities.

The Fair Plan has offered to waive or reduce the wind deductibles if a homeowner purchases flood insurance and installs window shutters, roof tie downs, and more secure garage and patio doors.

Jack K. Golembeski , chief executive of the Fair Plan, said the cost of such mitigation efforts depends on the size of the house and how many windows it has. "This is not a cheap process," he said.

Craig, of Shade and Shutter, says the cost of mitigation can quickly reach thousands, if not tens of thousands of dollars. He sells a relatively inexpensive Vusafe panel made of impact-resistant polycarbonate that he says is easy to install and can withstand winds of 165 miles per hour and the impact of a 2-by-4 traveling at 50 feet a second.

The Vusafe panels can protect a standard 3-by-5-foot window for about $275, Craig said. By contrast, he said, aluminum accordion-style shutters cost about $600 per window, roll-down shutters cost $900 to $1,200, and a new window with impact-resistant glass would cost about $1,500.

The carrot-and-stick approach to mitigation efforts -- waiving de ductibles if a homeowner safeguards a home -- is what most insurers have adopted. There have been scattered attempts in Florida, Connecticut, and a handful of other states to mandate mitigation efforts as a condition of coverage, but all of them have been shot down.

Stephen D'Amato , a consultant to the Center for Insurance Research in Cambridge, said storm proofing homes makes sense, but he thinks insurers need to give their customers more incentives to have the work done.

D'Amato said consumers who storm proof their homes should see their premiums drop as well as having their wind or hurricane deductible eliminated.

Golembeski said the Fair Plan proposal pending before the Division of Insurance would do just that, waiving the wind deductible and offering a credit on the premium.

Paula Aschettino , an Eastham homeowner who heads Citizens for Homeowners Insurance Reform, said wind deductibles are too broad.

She says a minor wind storm last year caused nearly $8,000 of tree damage on her property, but her insurer would cover none of it because she had a wind deductible of 2 percent, or $12,000. She paid the cost out of pocket.

Craig said insurers should give homeowners much greater financial incentives to storm proof their homes, the state should be giving them tax credits, and mortgage companies should be allowing them to roll the cost of mitigation into their mortgages and pay it off over time rather than in one lump sum.

Craig said homeowners in coastal areas are paying far more for less insurance coverage today because the perceived risk associated with their homes is much greater.

By making those homes less vulnerable to major storms, he said, insurers will face less risk and be able to charge less.

"Risk is the problem," Craig said. "If you can reduce the size of the risk, you can reduce the size of the problem."

Bruce Mohl can be reached at mohl@globe.com.