One way to curb soaring homeowners’ insurance premiums in Arkansas could be by building homes to withstand severe weather, Arkansas Insurance Department officials told legislators last week.
States that have residential mitigation programs require insurers to give discounts on homeowners’ insurance policies to homes designed to withstand strong winds and heavy rains, Arkansas Insurance Department Compliance Director Jimmy Harris told legislators during the Arkansas Legislature’s Joint Insurance & Commerce Committee meeting last Monday.
“We can’t control the weather, supply chain issues, building costs and the labor market,” Harris said. “What we can control is resiliency, mitigation, education and the insurance policy itself.”
He told lawmakers that several states had adopted legislation that requires insurance companies to offer discounts to homes that are built to standards set by the Insurance Institute for Business & Home Safety of Richburg, South Carolina.
Harris said that, for example, an Alabama program called Strengthen Alabama Homes awards 1,000 grants of up to $10,000 annually to homeowners for construction projects that meet the standards set by the IBHS.
The grant money comes from fees paid by insurance companies that write policies in Alabama and not from taxpayers.
The home improvements lower the risk of damage during storms and result in discounts on homeowners’ policies.
Harris and Insurance Commissioner Alan McClain were at the committee meeting to provide updates on homeowners’ insurance. Rates have risen about 20% this year as insurance companies tried to keep pace with rising property damage claims caused by more severe weather and high costs.
Sen. Jimmy Hickey Jr., R-Texarkana, said during the meeting that constituents were constantly calling him and other legislators about the rising insurance rates. “I just want to make sure that we personally are exhausting any and everything” in terms of ways to reduce insurance premiums, Hickey said.
After the meeting, McClain said that the Arkansas Insurance Department was informing legislators about mitigation programs. “The question is always whether it’s going to be a good fit for our state,” he said.
Offering grants to homeowners would require approval from the Legislature, he said. “The metrics look like it would be money well spent,” McClain said.
Six states have mitigation programs in place and 18 are considering it, said Brian Powell, catastrophe risk resilience specialist at the National Association of Insurance Commissioners.
“I think the biggest challenge is really just the legislators understanding what this truly is and the benefit of it, and then the general public, obviously, understanding it,” Powell said.
But he said that if nothing’s done, Arkansans can expect to see a continued loss of life and property damage along with rising insurance rates as a result of more frequent and powerful storms.
Travis Taylor, director of the Office of Risk & Resilience at the Alabama Department of Insurance, told Arkansas Business that putting a mitigation program in place could take a few years. “When you’re dealing with legislation and those kinds of things, and getting that kind of stuff passed, it’s not something that’s easy to do, but at the same time, it’s a matter of just getting started,” he said.
Mitigation programs also strengthen the insurance industry in the state states that have them.
Eight insurance companies have stopped writing homeowners’ coverage in Arkansas in recent years.
But with a mitigation program, insurance companies see insurable homes in areas where previously they didn’t, and are willing to offer coverage, Taylor said. Having insurance in those areas “helps our economy,” he said. “It helps our population in some of these places, and it protects our citizens as well.”
Reducing Risk
Around 2006, Alabama homeowners were seeing home coverage rise after a number of hurricanes swept through the state. Insurers either refused to renew policies or stopped writing them in coastal counties. “So if you could find insurance, it was very expensive,” said Powell, who was deputy commissioner at the Alabama Department of Insurance at the time.
He said planners developed a way to reduce risk to insurance companies. “We realized that reducing the risk was really the only way that we could affect the premiums and encourage companies to come back in because they would have a better risk to insure,” he said.
But a lot of skepticism arose about whether the program was going to work, he said. The cost was also a concern. The extra expense to retrofit a home varies, but it could be 15% to 30% more than building to previous standards that can’t withstand strong winds, Taylor said.
Alabama’s legislature approved its mitigation program in 2011, providing grants of up to $10,000 to homeowners to strengthen their homes.
Strengthen Alabama Homes uses the Fortified Home program standards developed by the Insurance Institute for Business & Home Safety, which calls for retrofits such as locked-down roof edges and wind- and rain-resistant attic vents. Contractors also have to go through training and testing to be able to apply the fortified roofs to a home, Taylor said. As of last week, more than 50,000 Alabama homes had received the IBHS certification, but only 8,000 of those homes had received state funding.
“That’s because of education, awareness and then also the incentives” that prompted homeowners to rebuild their homes or replace their roofs to fortified standards without the grant money, Powell said.
Powell said studies show that the value of the home increases about 7% to 10% once it’s fortified.
Taylor said a study is expected to be published by the end of the year that will show that fortification works. The number of claims that were filed for people who had fortified homes versus claims that were filed for non-fortified homes after Hurricane Sally landed in Alabama, in 2020 “were incredible,” Taylor said. “A lot of the claims that were filed by folks with fortified roofs, it was not the hurricane damage, it was because of trees falling on their houses,” he said. “So not the actual wind and rain and stuff that came from the hurricane itself.”
Sign up for Daily E-news
