Mass. DOI Approves Named Storm Deductible to be applied to Homeowners Multi-peril and Dwelling Fire and Extended Coverage Policies
On May 11, 2018, Presiding Officers, Jean F. Farrington and Kristina A. Gasson, signed their approval of a settlement agreement between the Massachusetts Property Insurance Underwriting Association’s (“Fair Plan”), The State Rating Bureau, and the Attorney General. The settlement, allows the filing with the Division of a Named Storm Deductible by the MA FAIR Plan. Commissioner Gary D. Anderson signed his approval the same day.
Named Storm deductible was submitted in December 2017
On December 19, 2017, the Massachusetts Property Insurance Underwriting Association (“Fair Plan”) submitted to the Division of Insurance (“Division”) a rate and form filing seeking approval of a Named Storm Deductible for use on Homeowners Multi-Peril and Dwelling Fire and Extended Coverage policies issued through it.
Mass. Fair Plan sought unsuccessfully for approval without hearing
If the Division had approved the filing, Fair Plan policies would have had the named storm deductible replace the wind/hail deductibles used on its policies. The Fair Plan had characterized the request as a minor modification to its current filing that the Division could approve without a hearing. After a review of the filing, however, the Division disagreed with the Fair Plan’s position and, on January 24, 2018, issued a hearing notice scheduling a public comment hearing on the filing for February 23, 2018.
Citizens for Homeowners Insurance Reform denied intervenor status
Counsel for the Fair Plan and the Attorney General, a statutory intervenor in this matter, filed notices of appearance to participate in the hearing process.
As per the notice of hearing, any person who wished to appear and present testimony in this matter could file a written petition for leave to intervene or to participate, which includes any data that the petitioner intends to introduce at the hearing, no more than four business days after publication of this hearing notice,
On January 31, 2018, Paula Aschettino, chair of Citizens for Homeowners Insurance Reform, submitted a petition to intervene. The three parties to this proceeding, the State Rating Bureau, the Fair Plan and the Attorney General, filed timely oppositions to her petition. On February 16, an order was issued denying Ms. Aschettino’s petition to intervene but allowing her to participate.
A public hearing on February 23, 2018, in which only three members of public spoke
At the public comment hearing, both the State Rating Bureau and the Attorney General indicated that they were reviewing the Fair Plan’s Filing. Ms. Aschettino made a statement and submitted documents to support her opposition to the Filing. A Fair Plan policyholder and an insurance producer located on Cape Cod also made statements.
At a prehearing conference held after the conclusion of the hearing, the Fair Plan, the State Rating Bureau, and the Attorney General agreed to confer and set a date for cross-examination of the Fair Plan’s witness. At a March 2 telephone status conference, the parties scheduled cross-examination to take place on April 19, 2018.
On April 18, 2018, the parties notified the Division they were discussing a settlement and had agreed to cancel the cross-examination.
Settlement agreement caps premium increases for conversion to named storm deductibles
On May 1, the Fair Plan, the State Rating Bureau, and the Attorney General submitted a proposed settlement agreement to the Commissioner and jointly recommended its approval.
As part of the recommendation for approval of a Named Storm Deductible, the settlement agreement capped the Fair Plan’s proposed premium increase resulting from the conversion of the wind/storm deductible to a named storm deductible and clarified the terms and scope of the named storm deductible.
The capping mechanism limited the maximum premium percentage increase for any individual policyholder, resulting from the conversion to a named storm deductible, at 1.1 percent for homeowners policies and to 1.25 percent for dwelling property forms. The Division believed this reduction to a maximum increase of 1.1 percent would particularly benefit homeowners policyholders with coverage A limits under $200,000.
For dwelling policies, the capped premium percentage increase significantly moderates the effect of such increase across policyholders.
In the initial filing, the Division noted a significant number of the projected premium increases for percentage deductibles on homeowners policies exceeded 1.1 percent, to a maximum of 2.9 percent. A large number of the projected premium increases for homeowners with fixed-dollar deductibles shown in the initial filing exceeded 1.1 percent, up to a maximum of 6.3 percent.
Deductible for hurricanes or tropical storms named by the National Weather Service or the National Hurricane Center
According to the Division, the revised endorsement forms attached to the settlement agreement make clear that the Named Storm Deductible applies only to physical loss or damage to property that is directly or indirectly caused by wind and occurs during the duration of a Named Storm.
The approved forms define a “Named Storm” as a hurricane or tropical storm the National Hurricane Center, the Weather Prediction Center, or sections of the National Weather Service has given a name.
Under the approved forms, “Duration of a Named Storm” begins twelve hours before a watch or warning is issued by the National Weather Service or the National Hurricane Center for a Named Storm for any part of Massachusetts. The duration continues throughout the storm and ends at the later of twelve hours: After the lifting of the watch or warning or the time the National Hurricane Center discontinues the Named Storm.
Storms “named” by commercial weather reporting entities or media meteorologists would not be subject to the Named Storm Deductible.
As of the approval of the proposed Named Storm Deductible, the existing provision for wind/hail deductibles will terminate.
Most wind damage in Massachusetts caused by unnamed and not named storms
In the Division’s opinion, policyholders will directly benefit because claims seeking reimbursement for wind/hail damage caused by unnamed storms will be subject only to the All Other Perils (“AOP”) deductible that a policyholder has selected. Historically, the Division has observed that the great majority of wind losses incurred by Fair Plan policyholders have resulted from unnamed storms rather than named storms (i.e., hurricanes or tropical storms.)
Replacement of the generic wind/hail deductible with a Named Storm Deductible means that policyholder claims for wind damage that occurs as a result of non-named storms will be subject only to the policyholder’s selected all other perils (AOP) deductible. Policyholders should, therefore, anticipate increased benefits for wind damage claims under their Fair Plan policies.
Based on perceived benefits, Division enters an order approving settlement agreement and forms
In summation, the Division found the Stipulation submitted by the Parties appropriately addressed concerns about premium increases that Fair Plan policyholders insured under Homeowners Multi-peril and Dwelling Fire and Extended Coverage policies might incur solely as a result of the conversion of a wind/hail deductible to a named storm deductible.
The revised endorsements should more precisely delineate for consumers the parameters of the new deductible. The Division concluded the elimination of the Fair Plan’s current wind/hail deductible and the addition of a Named Storm Deductible will result in rates that are “not excessive, inadequate, or unfairly discriminatory for the risks to which they respectively apply, and fall within a range of reasonableness.”
Effective date August 1, 2018, by stipulation
Since the Fair Plan’s filing did not include a proposed effective date for the filing, the parties agreed to an effective date of August 1, 2018, in order to ensure a smooth transition to the Named Storm Deductible.
The Division approved the Stipulation with the further proviso that it would apply to Fair Plan Homeowners Multi-Peril and Dwelling Fire and Extended Coverage policies issued or renewed on or after August 1, 2018.
