This is the second in Agency Checklists’ four-part series on the Commissioner’s Annual Home Insurance Report
Since 1996, the DOI has been required to produce a home insurance report pursuant to M.G.L. c. 175 Sec. 4A & 4B. Unlike private passenger auto insurance in Massachusetts, there are no laws requiring that a property owner have home insurance.
This week, we review the Commissioner’s findings on the state of the MA FAIR Plan as of 2015, the last year for which complete data is available. While the MA FAIR Plan continues to write a majority of the home insurance in the Commonwealth, particularly on the Cape and Islands, it continues to insure a substantially decreased number of homes from the levels seen in 2007.
As always, all the graphs and data come directly from the 2015 Massachusetts Home Insurance Report.
What is the FAIR Plan and what does it do in Massachusetts?
For those homes which cannot obtain coverage from a traditional homeowner’s insurance company, a homeowner may apply to the Massachusetts Property and Underwriting Association, otherwise known as the FAIR Plan. The FAIR Plan is required, by statute, to offer coverages to a homeowner which include a replacement cost of up to $1 million dollars. For those homes, traditionally waterfront properties, that may have a value of more than $1 million dollars, a homeowner must seek coverage via the surplus lines market.
The History of the FAIR Plan
The following is an excerpt from the Division’s report which sheds a little more light on the history of the FAIR Plan:
The Massachusetts FAIR Plan, formally known as the Massachusetts Property Insurance Underwriting Association (MPIUA), was established in 1968 to operate in a manner similar to a traditional insurance company in that it inspects property, collects premium, issues its own policies, and adjusts its own claims, but with the requirement that it offer coverage to those denied coverage in the private market.
The FAIR Plan initially offered a standard fire insurance policy for both personal and commercial lines, which also covered direct loss from the perils of vandalism and malicious mischief, and offered coverage to home in specific urban areas of the Commonwealth. Originally, the Commissioner determined that the FAIR Plan would operate in “urban areas”.
In 1970, the Commissioner of Insurance broadened the operation of the FAIR Plan to include the entire Commonwealth of Massachusetts. The Commissioner also established that the commission rate to producers placing business in the FAIR Plan would be 12% of the premium charged to the insured.
In 1975, the Commissioner of Insurance expanded the personal lines coverage offered by the FAIR Plan from what is covered in a standard fire insurance policy to what is covered in a multi-peril insurance policy. In addition, the Commissioner required that premium rates charged by the FAIR Plan to home be tied to the published manual rates of the ISO (Insurance Services Offices) rating organization for standard home risks…
MA FAIR Plan continues to lose market share in Massachusetts
For many years, the MA FAIR Plan was actually the largest writer of home insurance in Massachusetts. As of 2015, however, that is no longer the case.
According to report, the FAIR Plan decreased its market share by a total of 2,625 policies during the fiscal year 2014-2015. This translates into a market share now accounting for 11.4% of the the total written premiums in 2015.
The following chart illustrates the MA FAIR Plan’s Market Share reduction in market share over the past three years versus the remaining traditional homeowners insurance companies operating in the Commonwealth.
The Cape and Islands (which include Barnstable, Dukes, and Nantucket counties) continue to represent the principle market in which the FAIR Plan writes the majority of its policies, although this percentage also has seen a decrease as well. In 2015, the FAIR Plan wrote approximately 41.3% of all the homeowner’s policies in on the Cape & Islands, a 2.0% decrease from 2014 when it wrote 43.3% of the policies.
After the Cape and Islands, the FAIR Plan’s largest presence is in Suffolk County where it wrote 16.8% of the policies in 2015, a decrease of the 18.1% it wrote in Suffolk County in 2014. In the Commonwealth’s most populous county, Middlesex, which also has the highest number of homeowner’s policies in force, the FAIR Plan only wrote 3.3% of the total number of policies in this county.
MAPFRE is now the largest home insurance writer in Massachusetts
As of 2015, MAPFRE is now officially the largest writer of homeowners insurance in the Commonwealth with a 12% share of the marketplace. The following two charts highlight the 2015 Share of the Market, first with the MA FAIR Plan included, and then without it. As can be determined by the graphs, the homeowner’s market here in Massachusetts continues to be dominated by local insurers.
A look at the total market share this year, with the inclusion of the FAIR Plan:
and now a look at the total market share, with the FAIR Plan excluded from the mix:
The rise and fall of FAIR Plan policies over the past decade
Continuing the trend of the last couple of years, the total amount of FAIR Plan business continues to decrease. According to the Division of Insurance graph below, 2007 represented the peak of the FAIR Plan’s market share in Massachusetts when it wrote 204,101 policies accounting for 16.1% of the written premium in the state.
This ten-year graph tracks the trend in FAIR Plan policies from 2005 to 2015 and provides a clearer picture of the current trend in FAIR Plan Policies.
2015 saw first FAIR Plan Underwriting Loss Since 2011
The Division also noted in this year’s report that during the 2015 fiscal year, the FAIR Plan’s underwriting loss constituted $56,932,0002. This is the first loss the FAIR Plan has had since 2011.
In 2014, for example, the FAIR Plan had an underwriting profit of $25,967,007. The number is qualified as the FAIR Plan’s “contribution to surplus” since the FAIR Plan cannot be technically categorized as an insurance company.
The total underwriting loss for 2015 translates into a $30,729 per policy as depicted in the following graph:
FAIR Plan Home Insurance Rates Retrospective
Little has change with respect to rates from 2014 to 2015. The year 2013 was the last year in which the FAIR Plan submitted an overall statewide rate increase of 6.8%.
In 2014, the Commissioner denied the rate increase, stating that the FAIR Plan had failed to meet its burden of support in demonstrating that its rate increase satisfied the statutory requirements.
The last time that a rate increase was approved was in 2005, when the FAIR Plan was granted a 12.42% statewide increase in rates, along with a 25.0% increase in Barnstable, Dukes and Nantucket.
The following chart is a ten-year retrospective the Division created representing FAIR Plan Home Insurance Rate Changes.
Once in, few leave, says Division
As it noted in the 2014 report, the Division says that one of the issues it sees, based on the data provided by the FAIR Plan, is that consumers who are once assigned to the FAIR Plan fail to shop around for alternative coverage afterwards. In 2015, for example, only 36 policyholders from the 185,274 policies written through the FAIR Plan, took advantage of the FAIR Plan’s Market Assistance Plan. This plan aims to help insureds find coverage from other insurers that write homeowner’s insurance in Massachusetts.
More to come on the Annual Home Insurance Report in the coming weeks
Next week, Agency Checklists will review take a look at the amount of home insurance policies by county followed by further articles on the impact of auto insurance and flood insurance on this market as well as other results from the report.