Views differ on bill strengthening homeowner's insurance
Last week the House of Representatives passed a bill intended to strengthen consumer protection for Rhode Island homeowners, but not everyone thinks it’s a good idea.
Ted Sarno, Director of the Building Department for the City of Warwick, said he read over the bill with “incredulity.” He is worried that the bill will ultimately hurt consumers by pushing insurance companies out of the state.
The bill, sponsored by Rep. Brian Kennedy (D-Dist. 38, Hopkinton), focuses specifically on homeowner’s insurance and the impact of natural disasters, like hurricanes.
“It’s a good consumer protection bill,” said Kennedy, who said some from the insurance industry are calling it “the most important piece of legislation for homeowners in Rhode Island.”
The bill expands upon legislation that was passed in the mid-2000’s after hurricanes like Katrina wreaked havoc on the southern United States.
“People in our area were asked to pay higher premiums to offset insurance claims on the hardest hit areas,” said Kennedy.
Because of the damage, the re-insurance market, that protects companies against excess losses, began to pull out of many coastal areas, including those in Rhode Island. Those insurance companies that still offered policies switched from dollar-based storm damage deductibles to percentage-based deductibles, forcing Rhode Islanders to pay more out of pocket. In Warwick with 39 miles of shoreline, homeowners saw premiums jump is they could even get homeowners insurance.
The previous bill outlined when a hurricane deductible would be used for storm damage, a law that saved consumers money when Hurricane Irene was downgraded to a Tropical Storm before hitting Rhode Island.
Surrounding New England states picked up the previous bill, and Kennedy thinks this bill will serve as a model for neighboring states, too.
“They’re going to copy what we’ve done here,” he said.
The legislation passed last week adds three components to the law currently on the books.
First it prohibits insurance companies from charging clients more than one hurricane deductible per year, even if the area is hit by multiple hurricanes.
“The last thing we want them to do is get hit by another storm and pay all of that money out of pocket again,” said Kennedy.
The second component allows residents a grace period on payments to their insurer should they be forced out of their homes. Kennedy said it would allow people who are not getting their mail to have extra time to pay their bills.
“It ensures their insurance won’t get cancelled because of a catastrophe,” he said.
The Department of Business Regulation would oversee the rules for the declaration of a catastrophe.
The bill also establishes a protocol for mediation between the insurance company and the insured to prevent lawsuits should problems arise.
Sarno said the bill referenced hurricanes many times, but focused mainly on wind damage, and was careful to keep flood damage out of the equation. Sarno said homeowners are “damned if you do and damned if you don’t” with the bill. He said most modern homes are up to code for wind damage, but older homes that need to be retrofitted could face issues with insurers. He said a family member’s home had to be fitted with automatic hurricane shutters in order for them to be insured, which cost them thousands of dollars upfront. Sarno said homeowners can’t mitigate those costs.
But Sarno’s main issue with the bill is the potential to push insurers out of Rhode Island.
“Insurance companies will say, ‘Fine we’re not going to insure you anymore,’” he said, contending that insurers may not want to comply with the new regulations.
The previous legislation tackled the switch from dollar-based to percentage-based deductibles by capping them at 5-percent. Kennedy said that if someone wanted to claim damages on a home assessed at 300,000, they would have to pay the first $15,000 if they had a 5-percent deductible.
“That’s a lot of money someone has to take out of their pockets before the insurance company even gives them a penny,” he said.
He urges consumers to “go out and look” for additional quotes from insurance companies that still offer dollar-based deductibles.
But Sarno is worries that Rhode Islanders won’t have many alternative options.
“The list of insurers will become less and less,” he said.
He suggested the Department of Building Regulation could upfront deductibles through a community development fund, versus dictating what insurers could do.
“It seems to me insurance companies are going to say, ‘Watch out, I don’t want to get involved in Rhode Island, why should I?’” he said.
Sarno said the bill was “lovely to read” but impractical.
Mayor Scott Avedisian disagrees, and thinks the bill is a good step forward in consumer protection policies, especially for the residents of Warwick.
“This is an important change of insurance for the city since we have 39 miles of coastline and many of our coastal neighborhoods have been plagued by higher and higher insurance rates, costly flood insurance costs, and expensive wind and hurricane insurance issues,” he said. “This legislation will assist in equalizing these insurance costs and treating all coastal property owners the same.”
Kennedy said the new additions to the bill would help consumers breathe easier.
“It’s going to provide homeowners with that much more comfort,” he said.
An identical bill introduced in the Senate by Sen. Joshua Miller (D-Dist. 28, Cranston, Warwick) is being held for further study.