Mass. Fair Plan to Refile Next Week

The Massachusetts Property Insurance Underwriting Association (the Fair Plan) will submit a request for new rates by the end of next week, just under the deadline.

Massachusetts Insurance Commissioner Julianne M. Bowler gave the Fair Plan 30 days from June 30 when she disapproved its 12.5 percent average homeowners insurance rate increase that included a 25 percent average increase for Cape Cod customers.

John Golembeski, president of the Fair Plan, told Insurance Journal a revised filing would be submitted July 29.

Golembeski would not share any details at this time but the numbers in a revised filing are not expected to differ dramatically from those contained in the original filing made last September.

“It appears the commissioner agreed with the case we presented except on reinsurance and non-modeled losses,” noted Golembeski.

The non-modeled losses refer to estimates of hurricane-related costs not captured by hurricane models used.

Reinsurance costs have emerged as a major factor. The Fair Plan had sought to cover the costs of purchasing reinsurance although it had not yet actually done so. That has changed– the Fair Plan now has reinsurance, although at a price well above what was asked for originally.

Bowler indicated she would approve rates with the net reinsurance cost of $13 million. However, the net cost for the reinsurance actually purchased is about $28 million, according to the Fair Plan.

Golembeski declined to indicate how the new filing would address reinsurance costs.

Despite indications that a 28.4 percent statewide rate hike was called for, the Fair Plan last September requested a 12.5 percent hike across all homeowners policies to account for hurricane forecasts and reinsurance costs.

The Fair Plan’s original request included an average hike of 12.9 percent on the major homeowners forms (HO-2,3,5) and a slight 0.3 percent jump for tenants’ policies (HO-6). The association has also asked for an increase of 6.4 percent on dwelling policies statewide. Officials said actuarial indications support a filing for an increase of 29.3 percent for homeowners and 9.3 percent for dwellings.

The biggest increases are in store for coastal Cape Cod, where the Fair Plan has become the leading property insurer rather than the insurer of last resort as intended. For Cape homes, it has filed for an average 25 percent hike, although its actuaries maintain that experience supports as much as a 68 percent increase.

The Fair Plan is not the only property insurer grappling with hurricane models and reinsurance costs. These same forces are also driving private insurers to exit markets and raise rates, making the Fair Plan the most affordable and often only option for many Cape Cod and other coastal homeowners.