Mass. Fair Plan Softens Rate Blow; Seeks12.5% Statewide, 25% on Cape Cod

September 15, 2005

Despite indications that a 28.4 percent statewide rate hike is called for, the Massachusetts Fair Plan is requesting a 12.5 percent hike across all homeowners policies.

The residual market insurer’s overall request includes an average hike of 12.9 percent on the major homeowners forms (HO-2,3,5) and a slight 0.3 percent jump for tenants’ policies (HO-6). The organization has also asked for an increase of 6.4 percent on dwelling policies statewide. Officials said actuarial indications support a filing for an increase of 29.3 percent for homeownes and 9.3 percent for dwellings.

The Fair Plan has asked for its biggest increases for coastal Cape Cod (Barnstable, Dukes and Nantucket counties), where it has emerged as the leading property insurer. For Cape homes, it has filed for an average 25 percent hike, although its actuaries maintain that experience supports as much as a 68 percent increase. In New Bedford and parts of Bristol and Plymouth counties, homeowners would see an average 20 percent boost under the proposal.

In Cambridge, Boston, Springfield and other urban areas, rates would go up about 5 or 6 percent or not at all.

This is the first time the Fair Plan has filed for rate adjustments under a new law permitting it to request rates that exceed certain caps. The insurance commissioner must still approve final rates. A public hearing on the Fair Plan’s filing has been called for Oct. 11.

Under the old capping system, the Fair Plan would be limited to requesting a 5.9 percent increase, according to John K. Golembeski, president of the Massachusetts Property Insurance Underwriting Association, the Fair Plan’s formal name.

The residual market property insurer has voluntarily “tempered” its rate request, exercising restraint under the new law that lifts caps on how much of an increase it can seek, said Golembeski.

“Indications are that we could have gone for a higher amount however we indicated we would do this gradually and have tempered our request because of those commitments,” Golembeski told Insurance Journal.

“Do this” refers to bringing Fair Plan rates more in line with actual losses and voluntary market rates. In recent years, while the Fair Plan’s rates have been capped, private carriers have been raising their rates and restricting their business in coastal areas in particular. This has left the Fair Plan as the primary and very often the lowest cost insurer in coastal cities and towns.

On Cape Cod, the Fair Plan market share has ballooned from just four percent in 2000 to more than 28 percent today. Statewide, the Fair Plan, which was originated to help urban hard-to-write properties, writes about 11 percent of risks, or some 150,000 policies.

“The rate caps have created some of the market imbalance in coastal areas,” Golembeski noted, suggesting that higher Fair Plan rates should “move the market in the right direction” of encouraging more private carrier involvement.

“We have to keep pace with where other companies are going,” he added.

Golembeski said that in addition to compensating for past caps, the rate increases are needed to cover rising construction costs and real estate values. The Fair Plan’s rate structure does not include the cost of reinsurance, which the 400 licensed member insurers that share in the Fair Plan’s losses procure on their own.

The Fair Plan is recommending no change in commercial property rates.

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