4th Look: 2017 Financial Results, Claims, Loss Ratios, Cancellations & NonRenewals For The Massachusetts Home Insurance Marketplace

The final article in a four-part look at the Commissioner’s 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. The Third Look took a look at home insurance policies by county and other interesting statistics related to that topic.

This final article deals with the previously uncovered sections of the Report including Financial Results, Cancellations and Non-Renewals, and a look at methods of setting Home Insurance Limits. This is a distillation of the report reproducing only the major findings and graphs. To review all the details and information included in the report, please refer to the full official report on the Massachusetts Division of Insurance website.

A snapshot of the over all state of the Massachusetts home insurance marketplace from this year’s 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

A look at the home insurance marketplace in Massachusetts — Photo source DOI

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.

Total and Average premiums by coverage for 2017 for Homeowner, Tenant and Condominium policies

Key facts for from the most recent data concerning Total Premium by Type of Coverage:

Massachusetts consumers purchased approximately $2.4 billion in homeowners insurance in 2017
This is an increase of 2.9% more than the total amount of premium by coverage reported for 2016.
This reflects an increase of in traditional homeowners insurance premium from 2016-2017 of approximately $62.8 million.
Traditional homeowner’s insurance premium continues to represent the lion’s share of total homeowners insurance premium, being 92.8% of all premium.

Key facts for from the most recent data concerning Total Average Premium by Type of Coverage:

Average premiums increased in two of the three types of home insurance coverage in Massachusetts this year.
Traditional home insurance average premiums increased by $50 from 2016 to 2017, if comparing the average premiums from 2015 to 2017, average premiums increased by $132.
Average premiums for condominiums also increased $2 from 2016 to 2017 and by $15 from 2015 to 2017.
While Tenant average premiums increased from 2015 to 2016, they decreased from 2016 to 2017 by $3. As such from 2015 to 2017 the increased was $11.

Claim numbers, costs and types of losses

A review of the Division’s findings with respect to the to past claims and expense trends:

In 2017, Massachusetts insureds filed a total of 61,466 claims with their insurers.
Traditional homeowners’ insurance represents 85% of the total number of claims.
This represents a 6.1% increase in the number of claims, or 57,952 more claims filed than in 2016.
Claims involving condominiums also saw a slight increased from 2016 to 2017 with 89 more claims filed.
This amount of Condominium claims in 2017, though, stills remains at less than half of 15,561 claims made in 2015.
Tenant claims remain low and saw a decreased from 2016 to 2017 with 142 fewer claims filed in 2017.

As for the data on the average claims size by type of home insurance coverage:

Claim trends are largely dependent upon the weather events that happen in any given year.
For example, 2017 had only one event that could be categorized as a severe storm.
Estimated property losses in Massachusetts for 2017 were approximately $116.1 million due to flooding and wind damage.
In comparison, in 2016 property loss damages totaled $159.4 million in 2016.
Nevertheless, the Division says that the total number of claims filed increased from 2016 to 2017
Average claim size, however, decreased by 10.5% for traditional homeowners insurance from 2016 to 2017 from $17,578 to $15,735.
Average claim size for condominiums also decreased by 3.6% from the $6,895 to $6,646.
Average claims for tenants also decreased slightly by 0.3% from $5,239 to $5,221.

Claim Experience Data – Water Still Trumps All Other Claims by Cause of Loss

In order to protect future claims as well as develop loss control programs aimed at reducing or preventing future losses, insurers tend to categorize and track submitted claims by certain categories. They are typically the following

Fire
Wind
Water
Theft
Liability
All Other

As outlined in the following graph compiled by the Division, the overwhelming number of claims submitted with respect to homeowners’ insurance policies continue to be as a result of water damage. Here is the key data for 2017

46.7% of the total amount of claims submitted in 2017 were for water losses relating to non-flood related water damage.
23.0% of the total amount of claims were filed under the wind damage category, representing the second largest amount of claims filed.
The third largest category of claims filed involved All Other.
The fourth category with the largest number of claims was in the Fire Category.
Liability and Theft were the remaining two categories with smallest number of claims, with 2,915 and 2,463, respectively.

In terms of the percentage of losses over the past three years, only Wind and Fire saw an increase if the percentage of losses as measured in dollars. Water, on the other hand, saw a decreased by also half from its 2015 level. Theft also saw the small increase, followed by Liability and All Other.

Wind and Hail – 11% of all total losses in 2017. Up from 6.4% to 11.0% from 2016 to 2017. Average 2017 Wind and Hail claim amount was $6,865.
Non-Flood Water Damage – 37.2% of total losses in 2017. Down from 45.8% to 37.2% from 2016 to 2017. Average 2017 Water claim amount was $11,433
Fire – 35.4% of the total losses claimed in 2017. Up from 34.2% to 35.4% from 2016 to 2017. Average 2017 Fire claim amount was $74,156.
Theft – 1.1% of the total losses claim in 2017. Down from 1.2% to 1.1% from 2016 to 2017. Average 2017 Theft claim was $3,313.
Liability and Medical Payments – 7.0% of the total losses claimed in 2017. Up from 5.6% to 7.0% from 2016 to 2017. Average 2017 claim was $24,952.
All Other Claims – 8.2% of the total losses claimed in 2017. Up from 6.8% to 8.2% from 2016 to 2017. Average 2017 claim was $8,093.

Loss Ratios are at their lowest levels in the past ten years

As the Division explains in its report, loss ratios are the “generally accepted measure of the underwriting success or failure of property insurance”. As can be seen by the below graph, the 2017 loss ratio is the lowest as compared to the past decade.

With 2017 logging only one major weather-related event as compared to past years which included two and up to four, the corresponding loss ratio is lower than in other years, such as 2011 and 2015. The Division’s next graph outlines the loss ratio by form, with traditional homeowner’s policies claiming a loss ratio of 37.4%, while condominium was 41.7% and tenant loss ratio 21.4%.

Combined and Adjusted Combined Ratios

The combined loss ratio attempts to measure the overall loss ratio for all FAIR Plan and insurance company policies. It is generally accepted that this adjusted ratio is calculated by combining company expenses and incurred claim costs, then dividing it by earned premium. A lower combined ratio typically goes hand in hand with increased profits for an insurer.

According to its calculations, 2017 show a slight decrease in adjusted combined ratios, as a result of the absence of major catastrophes in both 2016 and 2017. As a result, the adjusted combined ratio was 75.6% for 2017, down from 79.2% in 2016.

The Division notes that its calculations do not include insurer’s reinsurance costs, which can account for up to as much as 25% of a company’s premiums, depending on an individual’s insurers coastal exposures. Also omitted are “…reinsurance recoveries, or payments from reinsurers to insurance companies that partially reimburse the insurance company for losses paid.”

Cancellations/Non-Renewals

Key data on the number of Cancellations and Nonrenewals in both Urban and Coastal areas as reported by the top 25 insurance companies in Massachusetts along with the FAIR Plan.

490,824 policies in force as reported by the top 25 insurers and FAIR Plan in both urban and coastal areas in 2017.
A breakdown of that number revewals 300,182 urban area policies and 190,642 coastal area policies.
Of the 490,824, 369,793 homes were insured by insurance companies while 121,031 were insured under the FAIR Plan
In 2017, 73,479 policies were cancelled in urban or coastal areas in 2017.
Breaking down that cancellation number further,
- 52,845 policies were cancelled in urban areas
- 20,634 policies were cancelled in coastal areas
Of the total amount 73,479 policies cancelled in 2017
- 56,077 cancellations were effected by the top 25 companies
- 17,402 cancellations were FAIR Plan policies

The following is a breakdown of which of the Top 25 Home Insurance companies in Massachusetts has the highest rate of NonRenewals in 2017.

Reasons for Cancellations and NonRenewals

As part of its research into this report, the Division asked insurers and the FAIR plan the amount of cancellations and nonrenewals that stemmed insurer versus from the policyholder-initiated. In addition, it queried insurers whether or not these renewals were made during the first 60 days of a policy, typically when an insurer may nonrenew without a specific reason as opposed to nonpayment or premium or other reasons as permitted by law to do so after the first 60 day period. The following graph charts those results:

According to the data, 4,860 insurer-initiated policies were nonrenewed in the urban and coastal designated zip codes in 2017,
38 with 471 of the nonrenewals resulting from insurer withdrawal from certain geographic areas.
The FAIR Plan reported that 4,656 policies were not renewed in compliance to what it is “…permitted within its Plan of Operations, including properties whose value
exceeds the FAIR Plan’s $1,000,000 cap.”

How to obtain our past articles on or further information about this report…

This four-part summary of the Division of Insurance’s report on homeowner insurance to the Massachusetts Legislature covered some of the highlights from the report we thought might be of interest to our readers.

Here are the links to the first three articles:

The report also has additional information that we have not included that was of perhaps lesser interest and also the report references the underlying data that the Division used in compiling the report as a statistical supplement. While the Report and its Statistical Supplement can be found on the Division’s web site, feel free to contact Agency Checklists, if you would like to obtain a copy of the report.