For Immediate Release - January 19, 2012

AG’s Office Opposes Significant Home Insurance Rate Increase

Seeks Full Review of Proposed Rates, Hurricane Models and Reinsurance

BOSTON- Saying a proposed home insurance rate request for more than 150,000 consumers is illegally excessive, Attorney General Martha Coakley's Office strongly opposed that increase during testimony before the Commissioner of Insurance today.

The rate hikes are proposed by the Massachusetts Property Insurance Underwriters Association (FAIR Plan), consisting of the state’s insurance companies and is designed to provide coverage at reasonable rates to consumers who cannot obtain it in the open marketplace. This includes about 60,000 families on Cape Cod and other coastal areas where insurance companies are shedding business. It is a legal requirement that rates through the FAIR Plan cannot be excessive.

“The FAIR Plan is a crucial service for homeowners who are unable to find insurance coverage, and it is our job to make sure its rates are not excessive,” AG Coakley said. “We will continue to fight on behalf of homeowners to protect their right to affordable coverage.”

The insurance industry is seeking the Commissioner’s permission to raise rates for the FAIR Plan by an average of 7.4 percent across the state and by 10 percent in New Bedford, Fall River, Quincy, Lawrence, Brockton, Lynn, and parts of Boston. Homeowners on Cape Cod face a 6.7 percent rate hike under the industry proposal.

The increases include a “profit-provision” add-on that alone equates to $15 million of additional annual profit. Without the add-on the increases average 2 percent statewide. Between Fiscal Years 2007 and 2011, the FAIR Plan’s profit totaled more than $200 million.

During the testimony, the AG’s Office urged the Commissioner to block any additional rate increase noting that the proposal is “unsupported, and would contravene the statutory intent” of making insurance available to homeowners at reasonable rates.

The AG’s Office also noted that the proposed rate hike is largely based on undisclosed hurricane models that insurers claim predict the likelihood and damage of a major hurricane hitting Massachusetts. The rates also include significant amounts for “reinsurance,” under which the FAIR Plan pays to pass along its risk to other insurers, without providing justification for the projected costs of this coverage.

The AG’s Office has already intervened in this rate proceeding and will be litigating to block the proposed rate increases.

In 2007, AG Coakley litigated and obtained a decision rejecting a planned double digit increase by the FAIR Plan. That increase would have raised rates by 25 percent on the Cape and other coastal areas. In 2009, AG Coakley again moved to block an insurer rate hike, and obtained a settlement that saved Massachusetts homeowners more than $7 million.

The case is being handled by attorneys and technical staff in the AG’s Insurance and Financial Services Division including Division Chief Glenn Kaplan and Assistant Attorneys General Peter Leight, Monica Brookman, Alex Klibaner and mathematician Burt Feinberg, economist Bryan Lincoln, legal analyst Lydia French, and paralegal Erica Harmon.

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