AG Coakley Urges Hearing on Excessive Homeowner Insurance Rates
Estimates Possible Overcharges of Half a Billion Dollars Due to Untested Hurricane Models
BOSTON - Urging closer scrutiny on homeowners’ insurance rates, Attorney General Martha Coakley urged the State Rating Board to trigger a hearing to more closely review the data insurers use to set those rates. In a letter to the State Rating Board, the AG’s Office claims that insurers use untested or discredited hurricane models, potentially driving up costs for all homeowners.
“Untested and unsupported forecast models should not be used to justify rates that are excessive,” said AG Coakley. “Hurricane models have a significant impact on the premiums paid by all Massachusetts homeowners who could have paid millions in excessive rates as a result. All insurers should be required to demonstrate that these models produce accurate estimates that are appropriate for Massachusetts.”
Between 2004 and 2010, the AG’s Office says rates increased based on the insurers’ hurricane predictions and caused consumers to pay an increase of $2.2 billion, half a billion of which could be overcharges. Massachusetts did not see any hurricanes in that time period. 2011’s Hurricane Irene was downgraded to a tropical storm before it hit Massachusetts.
Most Massachusetts insurers use private prediction models to estimate expected hurricane losses when rating and underwriting a policy. AG Coakley noted in her letter that the insurers are not appropriately detailing how the companies are using these models, and no regulatory body has reviewed most of these models to ensure that they are suitable for use in Massachusetts. Not only are models not being reviewed, the Commissioner is allowing the use of models that have been rejected in other states, such as Florida. Historically, these rejected models have inflated expected losses well above actual experience.
Coastal areas have seen the greatest increase in homeowner insurance rates, especially in the Cape and Islands. For many insurers, modeled hurricane loss estimates are as much as 600% higher than non-hurricane losses in these areas.
The Attorney General sent a similar letter to the Commissioner in 2009. The Commissioner did not respond and no hearings have occurred concerning the hurricane models.