The second in a four-part series on the Annual Home Insurance Report
This is the second part of a four-part look at the Commissioner’s 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 the private passenger auto insurance marketplace in Massachusetts, however, there are no specific laws requiring that a property owner have home insurance. Please note all of the charts and graphs discussed in our articles comes courtesy of the Annual Home Insurance Report published by the Massachusetts Division of Insurance.
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, the home’s owner may apply to the Massachusetts Property and Underwriting Association, commonly referred to as the FAIR Plan, which is required by statute to provide a homeowner’s policy with 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.
A slight increase in market share in 2018 versus 2017
As outlined in our First Look article, the total number of home insurance policies that insurers wrote between 2017 and 2018 increased 1.8%, representing approximately 35,443 more policies in the Commonwealth.
Looking specifically at the FAIR Plan, in contrast to last year’s report, total enrollment in the MA FAIR Plan increased by 599 policies issued between the fiscal years 2017 and 2018.
As a result, in 2018 the MA FAIR Plan accounted for 10.3% of all written premiums in the Commonwealth. While an increase over 2017 numbers, this percentage is still substantially lower than in 2006 when its market share “peaked” at 16.1%. The following graph represents the number of FAIR Plan Policies during the Fiscal Years 2007-2018 (meaning from October 1st of the previous year to September 30th of the noted year).
The rise and fall of FAIR Plan policies over the past decade
As can be noted by the graph below, the number of FAIR Plan Policies has continued to decline from its peak of in 2007 when there were 204,101 policies in force.
FAIR Plan continues to write the largest amount of homeowner’s insurance on Cape Cod
In general, the proportion of FAIR Plan policies in force varies greatly by geographic area in Massachusetts. The largest majority of FAIR Plan policies continue to be concentrated on the Cape and Islands (comprising the counties of Barnstable, Dukes, and Nantucket).
In 2018, for example, the MPIUA wrote approximately 38.4% of all of the home insurance policies in this area. In comparison, the FAIR Plan writes about 13.1% in Suffolk County, while only 11.6% or less of all home insurance policies in each of the remaining counties throughout the state.
How the FAIR Plan fits within the Massachusetts homeowners insurance marketplace
Mirroring 2017, MAPFRE continues as the largest homeowner insurer in Massachusetts with a 12.2% percent market share. Rounding out the larger remaining market shares are LIberty Mutual, Safety, Chubb, Arbella, Andover, Amica, Travelers, USAA, and Vermont Mutual.
As noted in the DOI Report, unlike other states, the homeowners’ insurance marketplace is mainly dominated by regional carriers with only Amica, Travelers, USAA, Liberty and Chubb selling homeowners’ insurance nationally (outside of New England). Of those, however, it is interesting to note that only Chubb and USAA are not originally hailing from New England.
The following charts provide a comparison of the market place both with and without the FAIR Plan’s market share included. Both charts use DOI data and are based on the total premium collected/written and not house-years.
2017 FAIR Plan Financial Results
In contrast to 2017 when the MA FAIR Plan had an underwriting profit of $45,041,000, for the 2018 fiscal year it had an underwriting loss of $22,227,000. As illustrated in the chart below, the only other year in which the FAIR Plan suffered a loss was in 2015. The Division notes that the FAIR Plan’s underwriting results are on a direct basis and do not reflect reinsurance premiums paid by the FAIR Plan or reinsurance recoveries.
When calculated per policy, the above graph on the right shows that the FAIR Plan’s fiscal year underwriting loss or ‘charge against surplus’ was $121 per policy in 2018 versus the $245 underwriting profit per policy in 2017. The Division calculates the FAIR Plan’s Gain (Loss) per policy by dividing the fiscal year’s underwriting profit (or loss) by the number of fiscal year owner, condo, or tenant policies issued.
FAIR Plan Home Insurance Rates Retrospective
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.
FAIR Plan Home Insurance Rate Change
| Effective Date | Percent |
|---|---|
| 12/31/1996 | 5.3% |
| 12/31/1997 | 2.2% |
| 12/31/1998 | 0.9% |
| 12/31/1999 | 0.1% |
| 12/31/2000 | -0.5% |
| 12/31/2001 | -0.2% |
| 12/31/2002 | 1.9% |
| 12/31/2003 | 2.8% |
| 12/31/2004 | 3.2% |
| 10/01/2006 | 12.4% |
| 03/31/2010 | -0.7% |
Once in, few leave the FAIR Plan
The failure of consumers to leave the FAIR Plan once they have been assigned to it is one of the major problems cited in the annual Home Insurance Report. According to the DOI, only seven policyholders of the 184,344 policies written availed themselves of the FAIR Plan’s Market Assistance Plan.
The FAIR Plan Clearinghouse
In order to address the issue of how many homes insured by the MA FAIR Plan could potentially qualify for voluntary market coverage from a licensed Massachusetts insurer, the Division noted that in July 2018, the MPIUA Board of Directors “…authorized and implemented the clearinghouse
initiative to help insurance companies work with homeowners’ producers to give more residual market (i.e., FAIR Plan) policyholders the opportunity to find coverage in the voluntary market.” The aim of the initiative is to continue the depopulation of the Massachusetts FAIR Plan.
According to the report, in order to participate in the Clearinghouse, an insurer must comply with the following:
- Be an admitted carrier,
- Be licensed to write homeowners insurance in Massachusetts, and
- Must sign a Clearinghouse Agreement containing the terms and conditions under which the MPIUA will provide information the company.
The DOI notes that while the information provided to companies does not include any personally identifiable information but it does include “…certain information about the insured and about the property to assist the member company in determining whether to offer homeowners insurance, through the policy’s listed producer, to an existing FAIR Plan policyholder.”
More to come on the Annual Home Insurance Report in the coming weeks
Next week, Agency Checklists will take a look at the number 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 financial results from the report.
