Mass. Fair Plan Refiles for 12.4% Home Rate Hike; 25% on Cape

By | August 2, 2006

The Massachusetts Property Insurance Underwriting Association (the Fair Plan) has submitted a rate recommendation revised downward slightly from what the state disapproved on June 30.

For all homeowners forms, the residual market insurer’s revised filing seeks an average rate increase of 12.4 percent, compared to 12.5 percent in the original filing. For dwelling policies, it seeks a 5.7 percent average increase; the original had requested a 6.4 percent hike.

In keeping with the original, the revised filing proposes the biggest hikes– an average 25 percent– on properties in coastal Cape Cod.

If approved as filed, the new rates would go into effect Oct. 1, 2006.

Massachusetts Insurance Commissioner Julianne M. Bowler had given the Fair Plan 30 days from June 30 when she disapproved its original 12.5 percent average homeowners insurance rate increase. The revised filing was submitted on July 28.

Bowler rejected a $13 million expense for reinsurance and ruled that some of the estimates of hurricane-related costs not covered by rating models were too high.

According to John Golembeski, president of the Fair Plan, the slight revision in the recommendations reflects adjustments to the estimates for the non-modeled losses.

The revised filing incorporates the same $13 million charge for reinsurance but accompanies it with proof that the Fair Plan has actually purchased the coverage, a condition insisted upon by Bowler.

“It appears the commissioner agreed with the case we presented except on reinsurance and non-modeled losses,” noted Golembeski before filing the revised proposal.

Reinsurance costs are a major component of the Fair Plan’s filing. The residual market insurer had originally sought to cover the costs of purchasing reinsurance although it had not yet purchased coverage. That has changed– the Fair Plan now has its reinsurance in place, although the cost turned out to be well above $13 million.

Bowler indicated she would approve rates with the net reinsurance cost of $13 million. However, the net cost for the reinsurance actually purchased is about $28 million, according to the Fair Plan.

The revised filing follows Bowler’s signal that she would accept the $13 million reinsurance cost but leaves for future filings how to recoup the additional $15 million in reinsurance cost.

Despite indications that a 28.4 percent statewide rate hike was called for, the Fair Plan last September requested a 12.5 percent hike across all homeowners.

The biggest homeowners increases are in store for coastal Cape Cod, where the Fair Plan has become the leading property insurer rather than the insurer of last resort as intended. 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.

The Fair Plan is not the only property insurer grappling with hurricane models and reinsurance costs. These same forces are also driving private insurers to exit markets and raise rates, making the Fair Plan the most affordable and often only option for many Cape Cod and other coastal homeowners.

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