Mass. Denies Hike in FAIR Plan Home Insurance Rates

Massachusetts insurance officials have blocked a 13.2 percent statewide rate hike by the state’s residual market home insurer.

The decision by Insurance Commissioner Nonnie S. Burnes also kills a 25 percent increase in coastal homeowners’ insurance rates that was part of the proposed increase.

The decision spares some 150,000 coastal and urban homeowners from being charged higher premiums.

Burnes ruled that the FAIR Plan, also known as the Massachusetts Property Insurance Underwriting Association (MPIUA), failed to justify what would have been its first rate hike since 2006.

“Through the rate case, the FAIR Plan is required to prove that its request falls within a range of reasonableness and that its proposed rates are not excessive, inadequate or unfairly discriminatory,” said Commissioner Burnes. “I have found that the FAIR Plan has failed to meet its burden on a number of critical fronts and will not be permitted to charge Massachusetts homeowners these increased rates.”

According to Burnes, the FAIR Plan failed to use “reasonable, accurate and timely data” to support its call for a rate increase. Burnes stated that the FAIR Plan filed for new rates before it had analyzed its current reinsurance needs and actually purchased reinsurance.

Additionally, Burnes expressed concern that the FAIR Plan intended to pass on a greater share of its reinsurance costs to consumers.

Burnes also criticized the FAIR Plan for using dated loss data from 2001-2005 and filing for new rates just before loss data for 2006 became available. She wrote that the FAIR Plan acknowledged that it had improved loss ratios in 2006, suggesting that its request would have been different had it waited to use the more current data.

The rate case has been pending before the Division of Insurance since March 2007.

Massachusetts Attorney General Martha Coakley was among those who had urged Burnes to reject the FAIR Plan’s proposed hikes.

Coakley in fact called for rates to be cut 18 percent statewide, including 29 percent on Cape Cod and surrounding islands.

In 2006, the FAIR Plan was granted a 12.4 percent statewide hike and 25 percent on the Cape by then-Insurance Commissioner Julianne Bowler. That hike was challenged by the attorney general but eventually upheld by the court in late 2007.

That 2006 rate hike was the first since the Massachusetts Legislature amended the FAIR Plan statute in 2004 to eliminate rate caps for the 13 largest share territories by allowing predicted hurricane losses and the cost of reinsurance to be factored into the rates.

The attorney general had contended that the rates in the 2006 filing approved by the commissioner exceeded those caps. That challenge failed in court.

In the latest decision, Burnes ruled that the FAIR Plan did not provide any evidence to justify the need for rate increases that surpass these caps.

In the fight against the latest rate filing, the attorney general accused the FAIR Plan of using an inappropriate hurricane model, inflating its projected hurricane losses, and overcharging its consumers for reinsurance.

The FAIR Plan provides basic property insurance for applicants who have been unable to gain insurance through the voluntary market. But due to hurricane loss projections and cutbacks on the coast by insurers, it has become a primary market with preferred rates for many agents and homeowners, particularly those along the coast. It now provides insurance on more than 40 percent of the residences on the Cape and the Islands.

All companies writing basic property insurance in Massachusetts are required to participate in the FAIR Plan and share losses in proportion to market share.

Topics Pricing Trends Reinsurance Massachusetts Hurricane Homeowners