Massachusetts Commissioner Says No to FAIR Plan

Massachusetts Insurance Commissioner Nonnie Burnes has denied the FAIR Plan’s request for a 25% increase in coastal homeowners’ insurance rates, bringing to a close a rate proceeding before the Division of Insurance that began in March 2007.

The Commissioner’s decision prevents hikes in homeowners’ insurance premiums for FAIR Plan policy holders across the state. The FAIR Plan had sought an overall statewide increase of 13.2%.

“Through the rate case, the FAIR Plan is required to prove that its request falls within a range of reasonableness and that its proposed rates are not excessive, inadequate or unfairly discriminatory,” said Burnes. “I have found that the FAIR Plan has failed to meet its burden on a number of critical fronts and will not be permitted to charge Massachusetts homeowners these increased rates.”

In the decision issued, Burnes found that the FAIR Plan failed to use reasonable, accurate and timely data to support its call for a rate increase. Specifically, Burnes noted that the FAIR Plan filed for new rates before it had carefully analyzed its current reinsurance needs and actually purchased reinsurance. Additionally, the FAIR Plan intended to pass on a greater share of its reinsurance costs to consumers. Reinsurance is insurance companies purchase in order to be able to pay out a large number of claims after a catastrophe.

Burnes also found that the FAIR Plan used dated loss data from 2001-2005 and filed for new rates just before loss data for 2006 became available. The FAIR Plan acknowledged that it had improved loss ratios in 2006, meaning that its request would have been different had the FAIR Plan waited to base its rate filing on timely information.

The FAIR Plan is allowed to exceed rate caps established in designated territories only if the increases are supported by predicted hurricane losses and reinsurance costs in those areas. Burnes ruled that the FAIR Plan did not provide any evidence to justify the need for rate increases that surpass these caps.

Pointing to the efforts of the parties in the case, the State Rating Bureau, a unit within the Division of Insurance, and the Attorney General’s Office, Burnes noted, “The teams of attorneys and staff worked incredibly hard throughout this proceeding and did a wonderful job presenting and clarifying the facts for both myself and the hearing officers.” The State Rating Bureau and the Attorney General’s Office submitted final briefs in March opposing the FAIR Plan’s request.

The state-created FAIR Plan was designed to be a fall-back insurer for homeowners who can not obtain insurance in the voluntary market. It now provides homeowners insurance on more than 40% of the residences on the Cape and the Islands.

All companies writing basic property insurance in Massachusetts are required to participate in the FAIR Plan and share losses in proportion to market share.