Mass. FAIR Plan Seeks Rate Hike; Expert Witnesses to Testify on Insurer’s Behalf

The Massachusetts FAIR (Fair Access to Insurance Requirements) Plan, the state’s home insurer of last resort, has proposed this month an average statewide rate hike of 6.8 percent.

The FAIR Plan, whose official name is Massachusetts Property Insurance Underwriting Association (MPIUA), is a residual market insurance association in which all companies writing basic property insurance in Massachusetts are required to participate with losses shared among the member companies on a premium volume basis.

The FAIR Plan has not had a rate increase for past seven years. It currently underwrites around 200,000 policies — approximately 10 percent of the state’s home insurance policies.

On April 12, the board of directors of the FAIR Plan submitted its homeowners, dwelling and commercial rate filing with the Massachusetts Division of Insurance, with a proposed effective date of July 1, 2013.

The overall rate change sought for Homeowners 2, 3 and 5 (owners forms) is +7.0 percent, while the rate changes for Homeowners 4 (tenants form) and Homeowners 6 (condominium form) are -5.6 percent and +6.1 percent, respectively, for an overall statewide homeowners rate change of +6.8 percent. The overall statewide rate changes proposed for dwelling and commercial Lines are +5.2 percent and 0.0 percent, respectively.

Communities with higher storm risks along coastal regions could see higher rate hikes, but any rate increases as well as decreases would be capped at 9.9 percent.

Last year, the FAIR Plan’s proposal of a 7.2 percent average rate increase was rejected by state regulators. This time, the insurer plans to bring in more expert witnesses to speak on its behalf. It will also submit many more pages of documents to bolster its case.

“What we are planning to do is to provide much more evidence of the need for the increase that we are seeking,” FAIR Plan’s general counsel Bob Tommasino told Insurance Journal. “So we are providing more expert witnesses to testify on our behalf, as well as more documentation supporting the rate filing.”

Tommasino said the FAIR Plan would ultimately submit up to 2,000 pages worth of documentation and bring in several expert witnesses to support the proposed rate increase. Last year, the FAIR Plan had three expert witnesses.

The FAIR Plan has also been making an effort to streamline the evidentiary proceedings, Tommasino said. “This is the only company, as far as we know, in the entire country that has to make a filing that requires this level of evidence and this format of adversarial hearing, in which the state’s attorney general has the ability to cross examine our witnesses and seek discovery in the way of additional documents.”

There are a number of different components in the rate filing — but the two most controversial components of the rate filings are the inclusion of the cost of reinsurance and the use of new hurricane models that shows Massachusetts at a potentially greater risk of storm damages.

This year, Tommasino said, the FAIR Plan would have up to three expert witnesses from reinsurance intermediary Guy Carpenter, including its chief actuary, testifying about reinsurance costs. Also expected to testify is a former CEO of Validus, which is the largest reinsurer in the FAIR Plan’s current reinsurance program.

The FAIR Plan would also have witnesses from catastrophe modeling companies, including Karen Clark & Co.’s CEO Karen Clark and a representative from AIR Worldwide, Tommasino said.

Tommasino said a public hearing will likely be held in the next few weeks, followed by a discovery period in which the state attorney general’s office and the state rating bureau would request more documents from the FAIR Plan’s witnesses to prepare themselves to cross-examine these witnesses.

The FAIR Plan’s witnesses are then expected to present their testimony sometime in June. After that, the attorney general’s office and the state rating bureau will have an opportunity to present their advisory rate filings and present their own recommendation, or “take the position like they did last time that we haven’t provided enough evidence as to the reasonableness of the each and every component of our rate filing,” Tommasino said.

The FAIR Plan will then go through the same discovery process and testimony of other witnesses who will be cross-examined by the FAIR Plan. “That would probably be in July and then hopefully we will get a decision sometime thereafter,” Tommasino said.

Topics Carriers Pricing Trends Reinsurance Massachusetts Homeowners