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State senators question home insurance rate hikes

State Senator Jason Lewis, a Winchester Democrat, has questioned whether home insurance rate hikes are necessary, given the industry’s profitability.

Lane Turner/Globe Staff/File 2015

State Senator Jason Lewis, a Winchester Democrat, has questioned whether home insurance rate hikes are necessary, given the industry’s profitability.

A key state lawmaker said Tuesday that he will file a bill that would require the state Division of Insurance to provide consumers with more information about proposed rate hikes and allow the attorney general to weigh in on them before they are approved.

Senator Michael J. Barrett, a Lexington Democrat who is chairman of the Senate Post Audit and Oversight Committee, raised the need for a new state law during a hearing on big increases in homeowner insurance premiums that followed the bruising winter.

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Barrett and other lawmakers questioned whether the Division of Insurance, the industry’s primary regulator, considered consumers at all when it approved recent increases.

After the hearing, Barrett said the problem is that regulators see much of their job as protecting the health of the industry and ensuring that companies remain solvent and able to pay claims.

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“Right now, the Division of Insurance is hopelessly compromised,” Barrett said.

The division recently approved average increases of 9 percent for Mapfre USA Corp., formerly Commerce Insurance, and Boston-based Safety Insurance Co., both among the largest home insurance companies in the state. Bunker Hill Insurance Co. in Boston, a subsidiary of Plymouth Rock Co., received approval to raise its premiums by an average of nearly 8 percent.

Together, the three companies have almost 400,000 customers in Massachusetts.

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Officials with the Division of Insurance told the senators that they reviewed the requests and determined they were reasonable, based on the cost of making repairs, other losses the companies experienced in the past five years, and the rates companies had sought in recent years.

In some cases, the insurance companies may have not appropriately priced their policies in the past to cover all of their costs and needed the rate increases, said Cara Blank, an actuary at the Division of Insurance.

Regulators said they have not held a public hearing on a home insurance rate increase since 1991, but they do push back on requests from insurers that are too high.

After receiving some rate increase proposals, Blank said, “I’ve gotten on a call with companies and said, ‘You’re kidding right?’ ”

The companies have then withdrawn or reduced their rate-hike requests, she said.

Officials in the insurance industry told lawmakers that the division scrutinizes rate proposals thoroughly and that adding new rules could slow the process and discourage competition.

Insurers compared last winter, when more than 110 inches blanketed the Boston area, to a hurricane-scale event. Companies were hit with millions of dollars in claims this year, on top of unexpected losses in the recent past, including tornadoes and a fall snowstorm in 2011.

‘For the past decade, it had a very low loss ratio. How can we square that we are seeing these rates increases?’

State Senator Jason Lewis, Winchester Democrat 
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The rate increase was not to recoup losses, but to prepare for losses in the future, based on the increasing frequency of severe storms, said Matthew C. Wilcox, senior vice president at Mapfre. The record snowstorms this year suggest more wild weather in the future, he said, and policies need to be priced for that risk. “2015 is unprecedented,” he said. “It was a wake-up call to the industry.”

But Senator Jason Lewis, a Winchester Democrat, questioned whether the insurers needed the rate increase to cover costs and claims, considering how profitable they have been in Massachusetts for the past decade.

Between 2004 and 2013, the return on capital and surplus, a measure of profitability for home insurers in Massachusetts, was about 18 percent, the second-highest in New England, Lewis said. Nationwide, the return for home insurance companies was 6.6 percent in that same period.

“This is seemingly a very healthy, profitable, industry,” Lewis said. “For the past decade, it had a very low loss ratio. How can we square that we are seeing these rates increases?”

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.
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