In 2003, Geraldine and Tony Luppino built a home on a thumb of land that juts into St. Helena Sound. Fearing hurricanes, they made sure their new house was solid, complete with foot-thick concrete walls, hurricane straps for the roof and impact-resistant windows. In all, they paid a contractor $583,435.

So they were more than a little surprised two years later when they got a letter from Nationwide, their insurance carrier. The insurer had a new calculation for the home's “replacement cost” — $1.54 million. Their premium and deductible would be based on this new figure.

“We couldn't believe it,” Geraldine said. “It was almost a million dollars more than we paid to build it, and it had nothing to do with our personal belongings. It was for the building only. It didn't make sense.”

Stories like these are fueling a push to change an insurance playing field that critics say is tilted against consumers. On March 21, state Sen. Tom Davis, R-Beaufort, filed what he called the “Competitive Insurance Act,” legislation he said he hopes will help lure more companies to South Carolina and lower rates.

Business leaders along the coast are upset about rising commercial rates, and they fear that high premiums will harm a real estate market that's only begun to recover.

“I'm getting a lot more grass-roots support,” said Andy Twisdale, a Hilton Head real estate agent who has been pushing lawmakers to reform the system. “High rates are dramatically hurting our growth.”

The industry is pushing back. Insurance-related groups say that rates in South Carolina are reasonable and that insurers don't make profits here in the long run. Lobbying efforts are growing.

A Washington, D.C., think tank funded in part by the insurance industry recently published a report defending the status quo. “... Although it is not perfect,” the authors wrote, “South Carolina's homeowner's insurance system is a rational one that serves consumers well.”

Frustrated retirees

On a sunny afternoon last week, the Luppinos sat in their living room, holding the documents that spell out their story. Geraldine and Tony are transplanted New Yorkers who retired 20 years ago in Bluffton but decided to move to St. Helena Island as Bluffton grew more crowded.

They found a plot a few miles from Hunting Island State Park on a lane shaded by grand oaks.

The documents included their agreement with the contractor to build the house for $583,435. The house would be built 21 feet above sea level and have concrete and rebar walls. Metal hurricane shutters would cover windows. “It sailed through the approval process,” Tony said, recalling his interactions with Beaufort County inspectors. Another document was the appraisal Nationwide sent them.

On Sept. 7, 2005, a week after Hurricane Katrina hit New Orleans, Nationwide sent an inspector to their house, a woman in her early 20s. She didn't seem knowledgeable about construction, Geraldine said, “but we didn't think anything about it.”

And when they got the estimate of $1,539,000 for the home's replacement cost, they thought the inspector had simply made a mistake. To their surprise, the insurer stuck by the calculations.

“I'd like someone to give me a rational explanation how in two years a home has gone up a million dollars in value,” Tony said, his voice rising. “I'd love to be able to make a million dollars like that.”

The Luppinos' agent in Hilton Head didn't return a phone call seeking comment. Elizabeth Stelzer, a Nationwide public relations consultant, said that while she couldn't speak about specific policyholders for privacy reasons, the company makes sure customers are adequately insured using “the expertise of third-party vendors to establish a proper replacement cost.”

This process “takes into account regional labor costs as well as the most current materials costs,” she said in an email, adding that the company requires its customers to be “insured for 90% of the reconstruction cost” and “takes great pride in protecting what matters most to our members.”

Still, the Luppinos were left wondering if insurance companies are using inflated replacement costs instead of filing rate-increase requests with state regulators.

Worse, Geraldine said, an excessive replacement cost has a ripple effect. As is common with many coastal insurance policies, their hurricane deductible is a percentage of their replacement cost. The higher the replacement cost, the higher the deductible. “They're not taking any risk.”

Property owners in other states also are crying foul. Last year, customers in Florida filed a class-action lawsuit against Citizens Property Insurance Corp., a state-run company. The suit alleged that the insurer's inspection software overvalued replacement costs and was part of what amounted to a massive back-door rate increase.

The suit still is working its way through the courts.

“Certainly in states with a history of light rate regulation and relatively little competition among home insurers, there's always that risk,” said Amy Bach, executive director of United Policyholders, a consumer advocacy group based in San Francisco. “Why not overvalue, collect a higher premium and rest easy knowing there's slim to no chance you'll have to pay out policy limits — even after a total loss?”

Said Geraldine: “I think our state should look into this.”

Hurting small business

Last year, Andy Twisdale and Daryl Ferguson, a retired telecommunications executive from Beaufort, created a group of business leaders to push for reforms. “People are starting to call and ask why is (my premium) so high when we haven't had any storms?” Twisdale said. “I got a call from a guy who said his insurance is three times what my taxes are.”

The average premium over the past five years has risen 5 percent in South Carolina (in inflation-adjusted dollars), according to data compiled by the National Association of Insurance Commissioners. This 5 percent hike, however, is for the entire state and masks larger increases on the coasts.

It outpaced construction costs, which have remained flat since 2006, according to the Lincoln Institute of Land Policy's database.

Walter D. Carr owns commercial and residential buildings in Hanahan and Charleston. The buildings are in good shape, his credit is stellar, and he hasn't filed a claim since Hurricane Hugo in 1989, he said. But this month his insurer sent bills with a 20 percent increase on one property and a 23 percent jump on a second. Then came another bill for a commercial office building — a 25 percent hike.

This came on top of premium increases several years ago when insurers reappraised his properties and claimed replacement costs had significantly risen. “That didn't make sense. We were in the worst depression since the Great Depression, and I could then probably hire contractors for 30 to 40 percent less than I could before. They said there was an inflation adjustment. I said, 'What?' ”

Gov. Nikki Haley appointed Carr, a former building contractor, to the state Small Business Regulatory Reform Committee. Carr said insurance hikes are squeezing the entire small-business community, including his own company. “Right now, the premium increases are coming off my bottom line. None of my tenants could afford to pay increased rents.”

Insurers push back

Insurance companies cite a number of reasons for rising premiums, including higher construction costs and the potential for huge losses in catastrophic hurricanes. With reform legislation in the works, they have begun to push back against the notion that insurers are soaking consumers.

Last month, the R Street Institute, a Washington D.C., think tank, took a look at the state's coastal insurance market. The group's motto is “free market, real solutions,” and is partially funded by the insurance industry, but the group's president, Eli Lehrer, said its board decides independently what kind of research to do.

The group's list of fellows include Scott Richardson, director of South Carolina's Department of Insurance between 2007 and 2011, and Richardson's predecessor, Ernst Csiszar.

In their report, Lehrer and co-author Csiszar dismissed the notion that high profits are the root of high premiums. If anything, South Carolina is an unprofitable place for home insurers to do business, the report said. Insurers have lost money overall, about 8 cents for every dollar, during the past 25 years, it said, largely because of Hurricane Hugo. “Writing homeowners insurance in South Carolina, in short, is not very good business,” the report said.

The report also found the state's market had “healthy competition and there is no systemic or collusive 'price gouging.' ” The authors noted that 18 new companies have entered the market since 2007, including four last year.

They said that rates in South Carolina are typical of those in other hurricane-exposed areas. Their solutions: Homeowners should beef up their homes to withstand storms and state lawmakers could ease paperwork burdens on insurers to entice more to do business in the state.

“All in all, the South Carolina insurance market is stable, has ample competition, and serves consumers moderately well,” the report said.

Shopping for deals

When it comes to lowering their rates, the Luppinos have done everything the insurance industry says consumers should do: They built a house that should withstand the most violent storms. And they went shopping.

In 2007, Nationwide said it no longer wanted to write insurance for wind damage, so the Luppinos contacted Fireman's Fund, which appraised their house's replacement cost at $1.37 million, not including land and personal property.

That still didn't make sense to them, but their premiums were less, “so we went with them for a couple of years, but then their rates started creeping up,” Geraldine said. “It doesn't seem to matter what's happening with the economy.”

Then, in the thick of the recession, they switched to another company, PURE, a company that specializes in high-value homes. “They said they would use the Fireman's Fund appraisal.” But they gave the couple a better rate. Even so, their hurricane deductible is still about $30,000. “I doubt we will ever make a claim,” Geraldine said. “So it feels like we're essentially paying for nothing.”