FAIR Plan's Significant Home Insurance Rate Increase Rejected
Proposed 7.4 Percent Increase Based on Unexplained Hurricane Models
BOSTON – Having successfully argued that a proposed home insurance rate increase for more than 150,000 Massachusetts families was excessive, Attorney General Martha Coakley announced that the Division of Insurance (DOI) rejected the FAIR Plan’s rate request in a decision issued today.
Consisting of the state’s insurance companies, the Massachusetts Property Insurance Underwriters Association (FAIR Plan), 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 have declined to issue home insurance policies. The law requires that rates through the FAIR Plan are not excessive.
“Consumers in the FAIR Plan have nowhere else to go and should not be required to pay unjustified rates,” said AG Coakley. “We are very pleased that the DOI recognized that the insurance companies were using unexplained hurricane models that we believed were incorrect for Massachusetts. The rejection of this proposal will save thousands of Massachusetts residents hundreds of dollars and provide them with solid, more affordable insurance.”
The insurance industry sought the Commissioner’s permission to raise rates for the FAIR Plan by an average of 7.4 percent for homeowners across the state and by 10 percent in New Bedford, Fall River, Quincy, Lawrence, Brockton, Lynn, and parts of Boston. Homeowners on Cape Cod faced a 6.7 percent rate hike under the industry proposal.
After conducting extensive discovery, cross examining industry witnesses, utilizing its own experts and working in conjunction with the Massachusetts State Rating Bureau (SRB), the AG’s Office formally asked the Commissioner to reject the FAIR Plan’s proposed rate hikes on March 30. The SRB joined the AG’s Office in its opposition of the rate hikes and motion for dismissal.
At a public hearing in January the AG’s Office argued 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 proposed rates also included significant amounts for “reinsurance” that 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 argued that the industry failed to provide witness testimony and evidence in support of its hurricane predictions and reinsurance costs.
In addition to other problems with the FAIR Plan filing, the rate hike proposal included a “profit-provision” add-on that alone equated to $15 million of additional annual profit. Without the add-on, the increases averaged two percent statewide. Between Fiscal Years 2007 and 2011, the FAIR Plan’s profit totaled more than $200 million.
The case is being handled by attorneys and technical staff in the AG’s Insurance and Financial Services Division.