Third Look: A Further Look At Massachusetts Home Insurance Policies By County

Our Third Article in a Four-Part Series on the 2015 Report

This is the third part of a four-part look at the Commissioner’s 2015 Annual Report on Home Insurance in Massachusetts. 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. While the First Look article was an overview of the entire report and the current state of the home insurance market, the Second Look focused more on the status of the Massachusetts FAIR Plan and how its market share continues to decrease. Today’s article takes a look at home insurance policies by county and other interesting statistics related to that topic.

A quick overview of the 2015 report

This year’s report cites a 1.3% increase in the total number of home insurance policies between the years 2014 and 2015. While representing the second increase in a row for this marketplace, it is lower than the previous year which saw the number of policies rise by 2.1% from between 2013 and 2014.

In Massachusetts, the home insurance market covers non-commercial property, which includes risks of damage to structural and personal property, as well as for risks involving personal property claims. In comparison, in 2013 there were a total of  1,863,049 policies while the number was 1,901,864 in 2014.

A look at the total number of home insurance policies in force in 2015

This week, we review the Commissioner’s findings on home insurance coverage by county. As just a reminder, in 2015, there were approximately 1,926,172 home insurance policies in force in the Commonwealth. Breaking that number down further:

• 224,242 of those policies were condominium home insurance policies;
• 1,452,671 of the total number of policies were traditional homeowner policies; and
• 249,259 of the policies were rental insurance or tenant policies.

Home Insurance Coverage Rates By Massachusetts County

When looking at home insurance rates by county, Middlesex County, which in addition to being the most populous county in the Commonwealth, also continues to have the most home insurance policies with 441,538 in force for the year 2015.

The following is a list of the remaining counties and the home insurance policies they had in force during 2015, in descending order.

Percentage of Home Insurance Policies Voluntary vs. FAIR Plan

The next chart graphs the amount of home insurance policies by county. In addition, it shows what percentage of the total policies in each county were voluntary versus policies issue through the FAIR Plan. With the FAIR writing just under half, or approximately 41.3% of the total policies on the Cape and Islands, that market share is represented in the graph in the counties representing those areas: Barnstable, Dukes and Nantucket.

Tracking the changes in number of policies by county

The chart from the Commissioner’s Annual Home Insurance Report, tracks the changes in home insurance policies by county from 2014 to 2015. Ultimately, the Division noted that the total number of home insurance policies in each county remained “fairly consistent” between the years 2014 and 2015.

The Growth of Bundling Home and Auto in Massachusetts

The continued growth of the “bundling of auto & home” did not slow down in 2015. Prior to the introduction of Managed Competition, the Commissioner noted in his report that many large national companies were not interested in expanding home insurance coverage in Massachusetts. The main reason why was that these companies believed that they could not operate within the rules of the old “Fixed and Established” system.

Nine years after the introduction of “Managed Competition”, however, that is no longer the case. In addition to increased competition within the private passenger automobile insurance marketplace, which has seen an additional 15 insurers enter the marketplace, many insurers now also offer “expanded multi-policy premium discounts to insureds who buy both home insurance and automobile insurance coverage from the same company.”

In the face of this new trend in Massachusetts, the Commissioner asked that the top 25 home insurance companies in Massachusetts report the level of home insurance premium credits that it provided to its insureds in both 2014 and 2015 who also have motor vehicle coverage with their company or an “affiliated insurer.”

Home Insurance Credits With Auto Insurance Policy

In 2015, premium credits for home insurance coverage accompanying a related auto insurance policy increased by approximately $5.2 million from 2014 to 2015.

Number of Home Policies Receiving Premium Credit for Auto Insurance

In terms of actual number of policies affected, the Division says more than 3,059 home insurance policies urban areas received premium credits in 2015 versus 2014, while 2,716 more homeowners policies overall had premium credits due to related private passenger coverage.

Credit average also increased from 2014 to 2015

The average credit for auto and home bundling also increased increased $19 dollars in 2015, rising from $248 in 2014 to $267 in 2015.

Coverage Options and Limitations

In this part of the report, the Division review the type of policy forms used by the top 25 insurance companies as well as the types of deductibles and coverage limitations incorporated into these company’s proprietary and ISO-type forms.

According to the Division, of the top 25 home insurance companies, 20 insurers use standard ISO or IS)-modified forms for their home insurance policies, while seven companies use proprietary forms, while the remaining insurer uses an AAIS-developed form. The DOI says that the total number of companies exceeds 25, because two companies employ both proprietary as well as ISO-type forms.

The following are some highlights from each of the topics addressed by the Division in this section of the report.

Wind Deductibles

According to the Division, wind deductibles have become mandatory part of the majority of home insurance companies standard policies in the Commonwealth in an attempt for these companies to reduce their risk.

These deductibles apply to any wind-related damage occurring in specific coastal territories or within a certain distance from the shore. As a result, the Division notes that these deductibles are most often applied to wind-relate damage involving homeowners living in the Bristol, Plymouth, Barnstable, Dukes and Nantucket counties in Massachusetts. Furthermore:

• Among the top 25 home insurance companies and the FAIR Plan, all but two reported that they have mandatory wind deductibles.
• The Division says while it has required that consumers receive “full disclosure” of deductibles prior to purchasing a policy, the Division says it remains unclear whether consumers are aware or understand “the potentially large sums they may be responsible for paying in the event of a wind-related loss.”
• In some instances, wind deductibles were reported to be as high as 5% of the coverage for the main structure.
• Coastal homeowners in the Bristol, Plymouth, Barnstable, Dukes and Nantucket counties have the largest wind deductibles.
• For all coastal and urban homeowners either covered by the FAIR Plan or by one of the top 25 home insurance companies, 47.5% of these policyholders had a mandatory wind deductible included in their coverage in 2015.
• Breaking this down further, in coastal areas, 74.8% had a mandatory wind deductible, while 29.6% of policyholders had one in urban areas.

Unattached Structures or the “Coverage B” Limit

• Only six insurers out of the top 25 home insurance companies and the FAIR Plan offer insureds the possibility not to purchase a Coverage B limit in a home insurance policy.
• The Division says that the remaining top 20 insurers automatically include Coverage B in all their homeowners insurance policies, which in a standard policy is typically set equal to 10% of the Coverage A limit.
• The Division noted that of the six companies offering a policyholder the opportunity to exclude Coverage B voluntarily from their policy, a total of 1,256 opted not to do so in 2015.

Flood Exclusions

As opposed to comprehensive coverage under automobile insurance policies, home insurance policies do not cover damage associated with floods. Because of this general exclusion and the frequency and severity of flooding losses, the Division’s report discuss in this section the National Flood Insurance Program (“NFIP”) administered by the Federal Emergency Management Agency (“FEMA”).

Under the NFIP, the government plays the role of underwriter and assumes the financial risk for damages while relying on private insurance agents to sell policies. However, the proportion of homeowners with flood insurance in 2015 remained relatively low. As evidenced by the recent flood losses in Texas, Florida and Puerto Rico, insureds underestimate the risk of flood loss.

In Massachusetts, in 2015, the year of the Division’s report, only 62,449 policyholders in Massachusetts had flood insurance under NFIP, an increase of 4.1% from the 60,018 reported for 2014, but still a low number when measured against the 1,926,172 homeowner policies written in Massachusetts that year. This chart from the Division’s report breaks the policy count down by counties.

The NFIP statistics on national purchases of flood insurance shows that the Massachusetts was just slightly over its ranking by population in the purchase of flood insurance. According to the NFIP’s monthly countrywide policy statistics, as of 6/30/15 Massachusetts ranked 14^th in the country in the number of NFIP policies written but was the 15^th most populous state according to the U.S. Census.

In the county rankings, the Cape and the Islands, were the only counties, Barnstable, Dukes and Nantucket, that had over 10% penetration for homeowners buying flood insurance. Considering the relative risk to these areas, the just over 10% purchase rate for flood insurance seems surprising. This chart from the report graphically shows the purchase percentages.

Flood insurance is mandatory only for those homes identified by FEMA mapping as in high-risk flood areas and that are mortgaged through a federally-backed lender. However, the NFIP will provide flood coverage for any property holders if the property is in an approved NFIP community. The property need not be in a flood plain to qualify for coverage.

Since this delayed report relates only to 2015, it does not deal with the NFIP’s recent flooding losses from Hurricane Harvey and Hurricane Irma. Earlier this year, before these losses the Congressional Budget Office estimated that the NFIP had $5.7 billion a year in costs while bringing in about $3.3 billion in premiums and about $1 billion in surcharges and fees a year, or about a $1.4 billion annual shortfall.

It remains to be seen if the present efforts to reform NFIP under the “Flood Insurance Market Parity and Modernization Act” will ever occur. However, the losses caused by these two hurricanes hitting the three states with the highest penetration of NFIP coverage could double the program’s present $24.6 billion deficit to over $50 billion under some projections.

Unless Congress enacts some reforms, the cost of the government insuring uninsurable coastal properties will continue to be unfair burden on taxpayers.

Next week’s article

In next week’s fourth and final article, we’ll review the rest of the Division’s report with regards to Financial Results, Cancellations and Non-Renewals along with a look at methods of setting Home Insurance Limits.