Our last look at the Commissioner’s Annual Report on Home Insurance
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.
Since 1996, the Division has been required to produce a Home Insurance Report pursuant to M.G.L. c. 175 Sec. 4A & 4B. This final instalment in our four-part series on the annual report, deals with certain remaining sections of the Report including the Financial Results, Cancellations and Non-Renewals, as well as a look at methods of setting Home Insurance Limits.
Finally, just a reminder, that our four-part series is a distillation of the report reproducing only some of 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 2019
As mentioned in our first look at this year’s Home Insurance Report, while the total number of home insurance policies in 2019 increased by 26,099 policies from 2018 to 2019, this number does not show the whole picture. Traditional home insurance policies actually decreased in number by 5,081 while tenant and condominium policies increased by 31,180. The following chart shows the growth in policies over the past five years.
Total Home Insurance Policies in Massachusetts 2015-2019
Total number of insurance claims and average claim loss
A review of the Division’s findings with respect to past claims and expense trends:
2019 saw fewer filed claims with home insurance companies in comparison with 2018. The following is a few of the key data points from the report:
- In 2019, Massachusetts insureds filed a total of 64,031 claims, a significant decrease from the 92,921 claims filed in 2018.
- Traditional homeowners’ insurance represented approximately 86% of the total number of claims.
- Both condominium and tenant coverage types saw a decrease in claims from 2018 to 2019.
- Filed claims involving condominiums decreased by 1,732 from 8,271 in 2018 to 6,539 in 2019.
- Tenant claims continue to remain low overall with a decrease in the number from 2018 to 2019 by 457.
The following graph outlines the total number of claims by coverage:
Total Number of Claims by Coverage 2017-2019
As the Division outlined in its report, claim trends are largely dependent upon the weather events that happen within any given year. In 2019, there were five weather events that were designated as “official Massachusetts catastrophes.” The following is the DOI’s description of the five weather events in the report:
- “Two severe winter weather events took place January 20 through January 23 and February 23 through February 26 consisting of flood, freezing, ice, snow and winds and resulted in estimated property losses in Massachusetts of approximately $88.3 million.
- Three events took place, one on July 19 through July 23, a second on October 16 through October 17 and a third on October 31 through November 1, reflecting the diverse perils of flood, hail, tornado, wind and thunderstorm. These three events resulted in combined estimated property losses in Massachusetts of approximately $86.1 million.“
Now, the data on the average claims size by type of home insurance coverage:
- Estimated property losses for 2019 were $174.3 million; a number much lower than the $487.8 million reported in 2018.
- As for the average claim size, it increased by 26.4% for traditional homeowners insurance from $14,041 (2018) to $17,755 (2019).
- The average claim size for condominiums increased by 10.2% from the $7,357 to $8,104.
- Average claims for tenants increased by 5.6% from $6,195 to $6,540
The Average Claim Size By Coverage Type 2017-2019
Less homes had flood insurance in Massachusetts in 2019
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 May 29, 2020, Massachusetts was the 13th largest marketplace in the country in terms of the number of policies placed through the NFIP (National Flood Insurance Program). In terms of population, Massachusetts is the 15th largest state by population.
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.
- 28,160 or approximately 44.3% of the total amount of claims submitted in 2019 were for water losses relating to non-flood related water damage
- 17,850 of the total amount of claims were filed under the wind damage category, representing 28.1% all claims filed in 2019.
- The third-largest category of claims filed was in the All Other category with 13.4% of the total claims or 8,519.
- The fourth category with the largest number of claims was in the Fire category with 4,747.
- Liability and Theft were the remaining two categories with smallest number of claims, with 2,269 and 2,062, respectively.
2019 Claim Numbers By Cause of Loss
Loss ratios 2008-2019
As the Division explains in its report, loss ratios are the “generally accepted measure of the underwriting success or failure of property insurance”. It noted further that while non-weather events typically do not “cause major shifts in loss trends”, weather-related events and “catastrophes” often due, as evidence particularly in 2011 and 2015.
As for the 2019 loss ratio, it saw a marked decrease versus 2018. The following chart, using DOI data, presents a history of the loss ratios in the Massachusetts homeowners’ insurance marketplace over the past eleven years since 2008.
An overview of Total Homeowners Loss Ratios
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.
DOI’s Calculations of Adjusted Combined Ratios
| 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) |
|---|---|---|---|---|---|---|---|
| 2019 | 2,246,346 | 40.2% | 44.9% | 16.4% | 33.5% | 78.4% | 79.1% |
| 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% |
Cancellations and Non-Renewals in 2019
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.
- There were a total of 496,492 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 308,920 urban area policies and 187,572 coastal area policies.
- Of the total amount of urban and coastal policies in-force, 381,195 homes were insured by insurance companies while 115,297 were insured under the FAIR Pla.n
- In 2019, 87,497 policies were cancelled in both urban or coastal areas.
- 60,482 were initiated by the policyholder
- 27,015 were initiated by the insurer
- Breaking down that cancellation number further,
- 61,862 policies were cancelled in urban areas
- 40,921 were initiated by the policyholder
- 20,941 were initiated by the insurer
- 25,635 policies were cancelled in coastal areas
- 19,561 were initiated by the policyholder
- 6,074 were initiated by the insurer
- 61,862 policies were cancelled in urban areas
The following is a breakdown of which of the Top 25 Home Insurance companies in Massachusetts have the highest rate of Non-renewals in 2018.
More data points on Cancellations & NonRenewals
As part of its research into this report, the Division asked the top 25 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 are some key data points taken straight from the report:
- According to the DOI, of the reported 381,195 urban or coastal policies renewed by the top 25 insurers, approximately 30,072 claims were filed during this reporting period;
- This represents approximately 79 claims filed per 1,000 policies renewed;
- Insurers reported paying a total of $337,723,253 in claims during the reporting period for renewed policies in 2019, with an average claim size being $9,375;
- 101 claims filed per 1,000 coastal policies versus 68 claims filed per 1,000 urban policies. The average claim size for renewal policies was $10,780 per claim for coastal policies, and $8,397 per claim for urban policies;
- 2,305 policies nonrenewed by the top 25 insurance companies, with a total of 976 claims filed in 2019, or an average of 423 claims filed per 1,000 nonrenewed policies;
- The companies reported having paid $21,163,400 in claims during the reporting period, with an average claim size of $21,684;
- 96.8% of homeowner’s insurance policies with claims filed were renewed by their insurers in urban areas;
- 98.1% of homeowner’s insurance policies with claims in coastal areas were renewed by their insurers;
- The FAIR Plan did not renew 2,871 homeowner’s insurance policies in 2019 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:
- MA Home Insurance Report Part 1 | An Overview Of Total Premium & Policy Numbers
- MA Home Insurance Report Part II | MA FAIR Plan
- Home Insurance Report Part 3: Policy Numbers 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.
