News Currents

Parties far apart on Mass. homeowners’ residual market rates

Hearings to decide rates for the homeowners’ insurance residual market in Massachusetts have been going on since November and will continue for several more months, according to officials.

The three major parties-the residual market insurer Fair Plan, the State Rating Bureau and the Attorney General-have submitted their bids but lengthy cross-examination are expected. Their bids range from no increase to a high of 12.9 percent statewide, and from a low 1.2 percent to a 25 percent increase on coastal Cape Cod.

In past years, rates for the Fair Plan have been settled without lengthy proceedings. But the Fair Plan’s emergence as a top writer of coastal properties and differences over how to estimate future losses from hurricanes have complicated deliberations.

On Cape Cod, the Fair Plan market share has ballooned to more than 28 percent today. Statewide, it writes about 11 percent, or some 150,000 policies.

Last September, the Fair Plan filed for a 12.9 percent increase statewide. That included a 25 percent increase for Cape Cod. The insurer said it exercised restraint under a new law that lifts caps on how much of an increase it can seek, according to John K. Golembeski, president of the Fair Plan. “Indications are that we could have gone for a higher amount however we indicated we would do this gradually and have tempered our request because of those commitments,” Golembeski told Insurance Journal.

But Golembeski’s organization didn’t temper its request enough, according to the State Rating Bureau arm of the Division of Insurance and the office of Attorney General Tom Reilly.

Reilly is recommending no rate increase statewide and he is seeking reductions ranging from 2.1 to 14.2 percent in most urban areas. He is also proposing a slight increase of 1.2 percent for Cape Cod, where the risk of coastal storm damage is a factor. Reilly’s recommendation for Cape Cod is significantly lower than the 25 percent increase proposed by the Fair Plan.

The State Rating Bureau, meanwhile, is in the middle, with a statewide increase of about 9.1 percent, a “reasonable” figure, according to Kevin Beagan, SRB director. For Cape Cod, the SRB calls for a hike of 19.4 percent.

A major difference separating the factions concerns how to estimate future property damage from hurricanes. The Fair Plan averaged the estimates of two hurricane forecasting models, one by Risk Management Solutions and another by AIR Worldwide. The SRB and the AG, however, use just the AIR model.

After hearings are completed, Commissioner Julianne Bowler will have to make a final decision. A Fair Plan request to have any new rates applied retroactively has already been rejected by the regulatory hearing officer, so any final decision will only affect future rates, Beagan noted.