Our Third Article in a Four-Part Series
This is the third part of a four-part look at the Commissioner’s 2017 Annual Report on Home Insurance in Massachusetts. Since 1996, the Division 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. With that said, the purpose of the Commissioner’s Annual Report is to shed light as well as educate consumers with respect to the composition and health of the overall home insurance market in Massachusetts. In order to make the overall report more easily digestible, Agency Checklists has broken down its analysis into a four-part series.
While our 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. This week our Third Look at the Home Insurance Report takes a look at home insurance policies by county and other interesting statistics related to that topic.
A recap of the major findings of the 2017 report
This year’s report, which focuses on data from 2017, cites a 3.12% increase, or 60,176 policies, in the overall number of home insurance policies in the Commonwealth between 2016 and 2017. This is a marked increase from the year before when the Division noted that there was only a .04% increase in policies from 2015 to 2016.
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.
A look at the total number of home insurance policies in force in 2017
In 2017, there were approximately 1,987,168 home insurance policies in force in the Commonwealth. Of that number:
- 24,178 of those policies were Condominium home insurance policies;
- 1,449,876 of those policies were Traditional Homeowner’s insurance policies; and
- 296,115 of those policies were Rental insurance or Tenant policies.
On an interesting side note, in comparing the above numbers with those reported in both 2015 and 2016, Rental or Tenant policies showed the largest increase in numbers, while both traditional and condominium slightly decreased in number during the same time period.
Home Insurance Coverage Rates Ranked Highest To Lowest By Massachusetts County
If measuring home insurance rates by county, Middlesex County, the most populous county in the Commonwealth, ranks as the county will the most home insurance policies in force in Massachusetts during 2017. We thought it might interesting to our readers, if we ranked the ten Massachusetts counties based on the number of home insurance policies they had in force during 2017, in descending order.
2017 Home Insurance Policies By County
| 1. Middlesex County | 454,208 policies |
| 2. Worcester County | 239,233 policies |
| 3. Essex County | 223,129 policies |
| 4. Norfolk County | 214,536 policies |
| 5. Hampden and Hampshire Counties | 170,126 policies |
| 6. Plymouth County | 165,201 policies |
| 7. Bristol County | 159,287 policies |
| 8. Suffolk County | 151,163 policies |
| 9. Barnstable, Dukes and Nantucket | 139,025 policies |
| 10. Berkshire and Franklin Counties | 71,260 policies |
Percentage of Home Insurance Policies Voluntary vs. FAIR Plan
The next visual from the DOI’s Report charts 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.
As is apparent in the above graph, the FAIR’s Plans largest market share continues to be focused on the Cape and Islands, where is writes just under half or 40% of all home insurance policies issued there. That market share is represented in the graph in the counties representing those areas: Barnstable, Dukes and Nantucket. The second largest market for the FAIR Plan is Suffolk County with 14%.2 percent of the market followed by Plymouth County. The county with the lowest market share for the
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 2016 to 2017. Ultimately, the Division noted that the total number of home insurance policies in each county remained “fairly consistent” between these two years.
The Growth of Bundling Home and Auto in Massachusetts
The continued growth of the “bundling of auto & home” did not slow down in 2017. In his report, the Commissioner noted that prior to the introduction of Managed Competition, many large national companies were not interested in expanding home insurance coverage in Massachusetts. The main reason why was in relation to the many companies’ belief that they could not operate within the rules of the old “Fixed and Established” system.
A decade 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 17 insurers enter the marketplace, two more than in 2015. Many of these 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 2016 and 2017, who also have motor vehicle coverage with their company or an “affiliated insurer.”
Home Insurance Credits With Auto Insurance Policy
In 2017, premium credits for home insurance coverage accompanying a related auto insurance policy increased by approximately $2.1 million from 2016 to 2017. The following chart shows the breakdown of these home insurance credits between the Commonwealth’s urban and coastal areas.
Number of Home Policies Receiving Premium Credit for Auto Insurance
In terms of actual number of policies affected, the Division says more than 2,963 home insurance policies in urban areas received premium credits in 2017 versus 2016, while overall 3,766 more homeowners policies overall had premium credits due to related private passenger coverage in 2017 versus 2016.
Credit average also increased from 2016 to 2017
The average credit for auto and home bundling also increased increased $3 dollars in 2017, rising from $284 in 2016 to $287 in 2017. As for the average level of premium credit, the following chart shows an increase in both urban and coastal areas, with coastal increasing from 14.9% to 18.3% over the one year period, while in urban areas it increased from 16.3% to 17.3%.
Coverage Options and Limitations
In this part of the report, the Division typically reviews 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 four reported that they have mandatory wind deductibles in 2017.
- The Division says while it has required that consumers receive “full disclosure” of deductibles prior to purchasing a policy, the Division continues to reiterate that 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, 38.7% of these policyholders had a mandatory wind deductible included in their coverage for the policy year 2017.
- Breaking this down further, in coastal areas, 62.3% had a mandatory wind deductible, while only 23.7% of policyholders in urban areas had one.
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 2017 continues to remain relatively low.
In Massachusetts, for example, FEMA reported that only 63,242 Massachusetts policyholders had flood insurance per the NFIP report for the calendar year 2017. This number represents a 1.8% decrease in the number of insureds from 2016. This chart from the Division’s report further breaks the policy count down by counties.
The latest data from the NFIP as of May 31, 2018, ranked Massachusetts 13th in the country with respect to the number of policies that were placed from the state through the NFIP, even though Massachusetts is ranked as the 15th most populous state in the nation. While the Division says it continues to remind insurers and producers the importance of offering flood insurance to all Massachusetts residents, the DOI says that the total number of homes with adequate flood insurance coverage continues to be relatively low.
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. Considering the relative risk to these areas, having a county on the Cape, like Barnstable, with less than a 10% purchase rate for flood insurance seems surprising. But, as this chart demonstrates, the purchase of flood insurance is down across the board in every county in Massachusetts.
Next week’s article
In next week’s fourth look, the remaining parts of the Division’s Home Insurance Report will be reviewed including Financial Results, Cancellations and Non-Renewals along with a look at methods of setting Home Insurance Limits.
Are you looking to start from the beginning of our series? Here are the links to the reports from the first two parts of our four-part series.
