Fair Plan, the state’s home insurer of last resort, is proposing to increase rates an average of 6.8 percent, citing greater vulnerability to major storms in coastal regions and the need to raise premiums after seven years without a rate increase.
Fair Plan, a consortium of the state’s insurers, provides policies to residents who cannot get coverage in the open market. It is the state’s largest home insurer, writing about 200,000, or 10 percent, of the state’s 2 million home policies.
Rate changes would vary among communities, but the proposal would cap both increases and decreases at 9.9 percent. Homes on the Cape and Islands — an area prone to storm and flood damage — and in New Bedford would experience the highest rate increases, at 9.9 percent, while policy holders in Lowell, where risks are not as great, could see theirs fall about as much.
The proposal must be approved by state regulators before the rates can take effect in July. Last year, Fair Plan proposed an average statewide increase of 7.2 percent, also citing the risks of hurricanes and other major storms and the lack of a rate increase in years. State Insurance Commissioner Joseph G. Murphy, however, rejected the plan.
“The commissioner's position was that we did not provide enough evidence of the reasonableness of each component of the rate filing,” said Bob Tommasino, general counsel for Fair Plan.
This time around, Fair Plan is providing additional data. Tommasino said the increases are based on the cost of reinsurance, essentially the insurance company’s insurance, and new hurricane models that suggest an increased risk of a natural disaster hitting Massachusetts.
But consumer advocates and homeowners are skeptical of the need to increase rates when Fair Plan earned more than $250 million from 2007 to 2012.
“I’d like to see them prove that these rate increases are justified,” said Paula Aschettino, founder of Citizens for Homeowners Insurance Reform, which represents many Cape and Islands residents who already pay high premiums.
Attorney General Martha Coakley has criticized Fair Plan rate increases in recent years, and called the reliability of hurricane models into question.
“We successfully urged the [Division of Insurance] to reject the last proposal by demonstrating how the insurance companies have been using unexplained hurricane models that do not accurately reflect the threat to Massachusetts,” said Brad Puffer, a Coakley spokesman. “We expect to closely scrutinize this latest request.”
Fair Plan, formally known as the Massachusetts Property Insurance Underwriters Association, was developed more than 40 years ago and requires companies writing insurance in the state to band together and insure homes in areas prone to crime, storm damage, and other risks that individual companies will not cover.
Fair Plan lost some of its grip on the market in recent years as the state experienced an influx of auto insurance providers that began bundling homeowner’s policies with auto coverage. The companies were lured here beginning in 2008, when Massachusetts gave auto insurers more freedom to set their rates. Since then some 27,000 Fair Plan customers have found new policies.