FAIR Plan decision eliminates state average increase request of 7.2 percent
On Friday, the Commissioner Murphy issued an order rejecting the Massachusetts Property Insurance Underwriting Association’s (MA Fair Plan) proposed rate filing. The MPIUA is the joint underwriting association which operates the residual market for home and property insurance policies across the Commonwealth. It currently is the largest insurer of homes in Massachusetts, with approximately 200, 150 policies.
“Whether it’s health insurance, home insurance or any of the lines of insurance we regulate, the Division of Insurance carefully scrutinizes all proposed rate increases as consistent with the laws and regulations of the Commonwealth. Ensuring that insurance rates are commensurate with the benefits provided at the most reasonable cost is the Division’s priority,” Murphy said. “If you want to raise rates on Massachusetts consumers, you had better do your homework and be prepared to justify the increase that you are seeking.”
In response to Friday’s announcement, Attorney General Coakley applauded the decision:
“Consumers in the FAIR Plan have nowhere else to go and should not be required to pay unjustified rates,” said AG Coakley. “We are very pleased that the DOI recognized that the insurance companies were using unexplained hurricane models that we believed were incorrect for Massachusetts. The rejection of this proposal will save thousands of Massachusetts residents hundreds of dollars and provide them with solid, more affordable insurance.
Echoing the Attorney General, Barbara Anthony, Undersecretary of the Office of Consumer Affairs and Business Regulation was also pleased with the results. “We want to make sure that the FAIR plan provides value for the residents of Massachusetts who have no choice but to seek coverage under this program. This filing did not meet the standards that the Division of Insurance expects. I’m gratified to see that the interest of Massachusetts consumers has been protected.”
In November 2011, the MPIUA submitted a rate filing to the Division that sought an overall 7.2 percent statewide increase for its rates. More specifically, it sought an average 7.4 percent increase for homeowners, an average 4.8 increase for condominium owners, a proposed 5.9 percent increase for tenants insurance and a statewide average increase of 6 percent for dwelling fire and extended coverage policies. It did not include any increases for commercial property insurance.
In response to the proposed rate filing, the Division of Insurance held a public hearing on the issue on January 15, 2012. In its testimony at the hearing, the MPIUA had said that the rate increase was necessary.
The Attorney General and the State Rating Board both gave testimony opposing the proposed rates. The State Rating Board opposed the rate hike saying that the FAIR Plan had failed to provide sufficient evidence to demonstrate that the data used to compile the FAIR plan’s proposal was accurate and timely and within “…a range of reasonableness and are not excessive, inadequate or unfairly discriminatory.”
The Attorney General also argued against the rate proposal outlining three major issues with the FAIR Plan’s proposal. First, the proposed rate increases used unidentified hurricane models that insurers claim ” predicted the likelihood and damage of a major hurricane hitting Massachusetts.” Second, the proposed rates included significant amounts of reinsurance that the FAIR plan pays to pass along its risk to other insurers of which the costs and amounts were unjustifiable. Third, the “profit-provision” included in the rate filings totaled $15 million of additional added profit to the FAIR plan, without which argued the Attorney General, the overall percent increases statewide would be only two percent.
An Agent Speaks Out
Jane Logan, CPCU is both an agent and advocate for the Citizens for Homeowner Insurance Reform. She testified at the public hearing in January and was happy with the Commissioner’s ruling.
I’m pleased with the DOI decision on the MPIUA rate filing. Now the issue at hand is the Bills pending on Beacon Hill.”
Ms. Logan who has advocated for reform for many years, sees the growth of the MA FAIR Plan into the behemoth it has become as both bad for consumers and agents. While consumers have very little choice but to go into the FAIR Plan, this lack of choice is also problematic for agents. In particular, Ms. Logan highlights the following issues for agents who write in the FAIR Plan:
- No binding authority;
- Lower commission – (12 %) and no contingent commission;
- Higher premiums for homeowner means some consumers will drop other policies like their Umbrella or lower limits on their auto policies;
- Homeowner premiums in general have increased, but often MPIUA premiums are lower than voluntary carriers but there are coverage and deductible differences making an accurate comparison impossible;
- Inferior policy forms and fewer coverage enhancements;
- Wind deductibles – including all wind, not just hurricane or named storm;
- Placing business with unrated or surplus lines carriers to get better terms or deductibles, splitting commission with wholesale broker and/or having errors & omissions issues for placing coverage with unrated carriers such as Narragansset Bay;
- Policies do not automatically renew, if insured doesn’t pay renewal coverage ceases with no legal notice of cancellation.
Ideally, she would like other agents to join her in her pursuit of real reform for the Massachusetts homeowners insurance marketplace.
I don’t know ONE agent on the Cape who would talk to you on the record for fear of backlash from the insurance industry. I tried for many years to get other agents to work for homeowner insurance reform and they simply have no interest in getting involved. I’m very disappointed with coastal agents for not using their expertise to advocate for consumers.
Interestingly, Agency Checklists attempted to contact an insurance agency on the Cape who would not talk to us about this issue on the record. As a result of the Commissioner’s decision, the FAIR Plan’s current rates will remain in place until which point the association decides to seek a rate change.