Our last look at the Commissioner’s Annual Report on Home Insurance
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 on the Massachusetts FAIR Plan while our 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.
The total number of home insurance policies in 2018
Just to quickly recap, the total number of home insurance policies rose by 1.8%, or 35,444 policies from 2017 to 2018. The following graph highlights the growth in homeowners’ insurance policies since 2015:
Total number of insurance claims and average claim loss
A review of the Division’s findings with respect to past claims and expense trends:
- In 2018, Massachusetts insureds filed a total of 92,921 claims with their insurers.
- Traditional homeowners’ insurance represents 88% of the total number of claims.
- This represents a 51.2% increase in the number of claims, or 61,446 more claims filed than in 2017.
- Claims involving condominiums also saw a slight increase from 2017 to 2018 with 1,357 more claims filed.
- Tenant claims remain low and saw a decreased from 2016 to 2017 with 479 more claims filed in 2018 than in 2017.
The following graph outlines the total number of claims by coverage:
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.
- There were five officially-designated catastrophes in Massachusetts during 2018.
- Estimated property losses for 2018 were approximately $487.8 million versus the $116.1 million reported in 2017.
- In comparison, in 2016 property loss damages totaled $159.4 million in 2016.
- The average claim size, however, decreased by 10.8% for traditional homeowners insurance from 2017 to 2018 from $15,735 to $14,041.
- The average claim size for condominiums increased by 10.7% from the $6,646 to $7,357.
- Average claims for tenants increased by 18.6% from $5,221 to $6,195.
Less homes had flood insurance in Massachusetts in 2018
Flood insurance is only mandatory for those homes identified as being high-risk flood areas per FEMA mapping and that are mortgaged through a “federally-backed lender.” As of 2018, 61,245 policyholders in Massachusetts had flood insurance. This represents a decrease of 3.2% from 2017 when 63,242 policyholders had it. The DOI did note that while it had an issued a Bulletin in 2006 reminding insurers and insurance producers to offer flood insurance to all Massachusetts homeowners, the numbers continue to be relatively low as of 2018.
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
- 40.1% (36,997) of the total amount of claims submitted in 2018 were for water losses relating to non-flood related water damage.
- 36.6% (33,839) 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 was in the All Other category with 11,429.
- The fourth category with the largest number of claims was in the Fire category with 5,085.
- Liability and Theft were the remaining two categories with smallest number of claims, with 2,717 and 2,278, 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.
- Wind and Hail – 21.6% of all total losses in 2018 versus 11% in 2017. The average 2018 Wind and Hail claim amount increased from $6,865 to $7,798 over a one-year period.
- Non-Flood Water Damage – 37.7% of total losses in 2018 versus 37.2% of total losses in 2017. The average 2018 Water claim amount increased from $11,433 (2017) to $12,440 in 2018.
- Fire – Decreased to 25.8% of total losses from 35.4% in 2017. Statewide average Fire, Lightning and Removal claim decreased from $74,156 to $61,867 in 2018.
- Theft – Decreased from 1.1% of the total losses claim in 2017 to 0.6% in 2018. The statewide average theft claim increased, however, in 2018 to $3,394 from $3,313 in 2017.
- Liability and Medical Payments – 0.5% decrease in the total losses from 2017 to 2018, or to 6.5% from 7.0%. The statewide average 2017 claim increased from $24,952 (2017) to $29,369 in 2018.
- All Other Claims – Total claim losses decreased slightly in 2018 from 7.7% from 8.2% in 2017. The statewide average claim also increased slightly from $8,093 (2017) to $8,175 in 2018.
Loss ratios rises in 2018
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 in the gra[h below, the 2018 loss ratio rose after reaching its lowest level in 10 years in 2017. The following chart, using DOI data, presents an overview of loss ratios in the Massachusetts homeowners’ insurance marketplace over the past decade, or since 2008.
Combined ratios of loss and expense as compared to premiums collected
Combined ratios offer the ability to measure “the overall experience of property insurance companies” within a market. The following chart represents the Division’s calculations as to the percentage insurance premiums paid out for Massachusetts home insurance losses versus the percentage of premium “attributed to various operating expenses”. The following is selected data from the informational chart produced in this year’s Home Insurance Report on the Adjusted Combined Ratio for this marketplace.
| Year | Earned Premium | Loss Ratio | Adjusted Loss Ratio | Producer Commissions | Expense Ratio | Combined Ratio Adj Loss Ratio + Expense Ratio | Adjusted Combined Ratio (incl Mutual Divs) |
|---|---|---|---|---|---|---|---|
| 2018 | 2,185,328 | 48.8% | 54.0% | 16.3% | 33.3% | 87.3% | 87.8% |
| 2017 | 2,108,513 | 36.8% | 41.2% | 16.4% | 33.9% | 75.1% | 75.6% |
| 2016 | 1,995,190 | 39.6% | 44.9% | 16.2% | 33.8% | 78.7% | 79.2% |
| 2015 | 1,907,594 | 128.5% | 146.5% | 15.6% | 32.9% | 179.4% | 180.1% |
| 2014 | 1,823,597 | 39.6% | 45.0% | 16.8% | 33.9% | 78.9% | 79.6% |
As noted in the report, weather-related disasters have an out-sized impact on the adjusted combined ratio as evidenced in 2015 when the home insurance marketplace was greatly impacted by winter storms and ice dams.
There were five major weather events in 2018
According to the Division of Insurance, non-weather events rarely result in a major change in loss trends. Weather-related events, however, have the opposite effect and can greatly change this number based upon the severity of the event. The DOI notes that the five major events, which included the Merrimack Valley Gas Line Explosions and Fire, resulted in a much higher loss ratio in 2018 versus 2017. It, however, did not come close to 2015 when the loss ratio soared as detailed above.
The Division report did include a special section dedicated to the claims filed in the Merrimack Valley Gas Line Event in 2018. It includes a table and notes that there were 851 reported claims to the top 25 homeowner insurers as well as the MPIUA (FAIR Plan). The total reported losses were $12,099,044 with 394 claims made in Lawrence and 274 claims in Andover.
Since the vast majority of claims, however, were resolved directly with Columbia Gas rather than a homeowner’s insurer, the Division noted that a great majority of the claims it reported on in the report were not included in that data. For those who are interested in reviewing the data, nonetheless, it can be accessed in the official report.
Cancellations and Non-Renewals in 2018
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.
- 486,954 policies in force as reported by the top 25 insurers and FAIR Plan in both urban and coastal areas in 2018.
- A breakdown of that number reveals 298,911 urban area policies and 188,043 coastal area policies.
- Of the total amount of urban and coastal policies in-force, 367,517 homes were insured by insurance companies while 119,437 were insured under the FAIR Pla.n
- In 2018, 83,657 policies were cancelled in both urban or coastal areas during 2018.
- Breaking down that cancellation number further,
- 58,448 policies were cancelled in urban areas
- 25,209 policies were cancelled in coastal areas
- Of the total amount of cancellations in 2018
- 57,819 cancellations were instituted by the top 25 companies
- 25,838 cancellations were instituted by the FAIR Plan.
The following is a breakdown of which of the Top 25 Home Insurance companies in Massachusetts has the highest rate of Non-renewals in 2018.
Reasons for Cancellations and NonRenewals
As part of its research into this report, the Division asked insurers and the FAIR Plan about the number of cancellations and nonrenewals that stemmed from insurers as opposed to those initiated from the policyholder. In addition, it queried insurers whether or not these renewals were made during the first 60 days of the policy, typically when an insurer may non-renew without a specific reason, as opposed to nonpayment of 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, there were 25,282 insurer-initiated policies non-renewed in 2018, or roughly 68 per 1,000 policies renewed.
- 96.9% of homeowner’s insurance policies with claims filed were renewed by their insurers in urban areas.
- 97.1% of homeowner’s insurance policies with claims in coastal areas were renewed by their insurers.
- The FAIR Plan did not renew 2,058 homeowner’s insurance policies in 2018 pursuant to what it is permitted to do within its Plan of Operations.
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:
- 1st Look: An Overview Of The Home Insurance Marketplace In Massachusetts
- 2nd Look: The Massachusetts FAIR Plan Wrote 1.8% More Policies In 2018
- 3rd Look: 2018 Home Insurance Policies By Massachusetts County
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 are having trouble obtaining a copy of the report.
