The MPIUAA had requested an overall rate increase for homeowner’s insurance of almost seven percent
Commissioner of Insurance Joseph G. Murphy has rejected a request by the Massachusetts Property Insurance Underwriting Association’s for a proposed increase in homeowner insurance rate. This is the second time Commissioner Murphy has rejected a proposed rate hike by the Mass. FAIR Plan. In 2011, the Commissioner rejected the FAIR Plan’s proposed rate increase of approximately 7.4 percent across the board.
The proposal, first submitted to the Division of Insurance in 2013, had sought a statewide increase in rates of almost seven percent (6.8%), with an almost nine percent increase in coastal communities including New Bedford, the Cape and Islands, and Lynn, as well as Worcester, Springfield, certain parts of Boston and specific areas in both Suffolk and Hampshire counties. The MPIUAA is “the insurer of last resort” for Massachusetts homeowners who are unable to obtain insurance coverage in the voluntary market.
As we do with all lines of insurance we regulate, the Division scrutinized this FAIR Plan filing to ensure that the request met both the statutory requirements and the rigorous consumer protections we have put in place,” Commissioner Murphy noted in announcing his decision. “The FAIR Plan filing was disapproved for failing to meet these criteria. They simply didn’t make their case,” the Commissioner concluded.
Massachusetts Attorney General Martha Coakley, whose office had strongly opposed the proposed rate increase, applauded the decision.
Homeowners should not be required to pour their money right into the pockets of insurers,” AG Coakley said. “This is real money that can stay in homeowners’ pockets. We are pleased that the DOI recognized that the insurers’ proposal was excessive and would significantly harm Massachusetts ratepayers.”
The Attorney General’s Office concluded that the Division’s decision will save Massachusetts homeowners some $16 million in policy premiums they would have had to pay if the rate increase had been approved. Currently, the FAIR Plan provides home insurance for more than 40 percent of residences on Cape Cod and the Islands as well as an additional 12 percent across the Commonwealth. According to the Attorney General, this translates into about 50,000 families in urban areas and approximately 80,000 families on in coastal areas including Cape Cod and the Islands.
The Division says the Mass. FAIR Plan’s rate filing failed on two major points
This DOI’s decision on the proposed rate increase followed a lengthy hearing process in which the FAIR Plan, the Office of the Attorney General, and the Division’s technical arm, the State Rating Bureau participated. In addition, the Division also conducted a public outreach effort that involved conducting “regional listening sessions” in communities most likely to be affected by a rate increase. The communities included Barnstable, Boston and Springfield. After these public meetings, which allowed consumers to voice their opinions on the proposed rate increase, the Division returned to Boston to commence its formal hearing on the matter. In publishing its decision, the Division concluded the following:
We find that the MPIUA, on two significant aspects of its Filing, failed to meet its burden of proof: to provide sufficient evidence to demonstrate that the values for hurricane losses and to demonstrate that the cost of reinsurance that were incorporated into its proposed rates fall within a range of reasonableness and will produce rates that are not excessive. The factors that the Commissioner considers in evaluating those aspects of the Filing have been identified in prior proceedings on MPIUA rates. Rather than address those factors, the MPIUA has continued to utilize a hurricane model that has not been shown to produce results that meaningfully reflect the frequency and severity of storms that are correctly classified as hurricanes in Massachusetts, develop measures of vulnerability that are specific to Massachusetts, and quantify other factors, such as demand surge, that might affect hurricane losses.
With respect to reinsurance, the MPIUA submitted its Filing on a schedule that would not, realistically, permit an alignment of its rate year with its reinsurance year. The record does not demonstrate that the MPIUA engaged in a meaningful process to determine its reinsurance needs or that it required consistency between modeled expected losses and the reinsurers’ estimates of such losses on the transaction costs associated with the reinsurance purchase, specifically what the reinsurers reasonably require to cover expenses and earn a profit.
We therefore disapprove the MPIUA’s 2013 Filing. Although our Decision does not address every aspect of the Filing, we remind the parties that the omission of any discussion on a particular element of the ratemaking process does not constitute approval of any party’s position or permit an inference that the element is approved.
The Mass. FAIR Plan is one of the only residual markets that turns a profit
The Attorney General also noted that the DOI’s decision will not affect the MPIUAA’s finances as the FAIR Plan is one of the only residual markets to make a profit.
Despite its request for rate increases, the FAIR Plan has been steadily making money, which is uncommon for a residual market. During the six-year period from fiscal year 2007 through fiscal year 2012, the FAIR Plan profits amounted to over $250 million, or more than $40 million a year on average. In this proposal, the FAIR Plan requested its rate include a new ‘underwriting profit provision’ which would generate an additional $16 million in additional annual profit for the FAIR plan. Eliminating this additional profit request in the FAIR Plan’s proposal would eliminate the projected increase.