Bid to raise high-risk insurance rates rejected

State says Fair Plan did not prove need

The Massachusetts insurance commissioner on Monday rejected plans by a consortium of high-risk insurers to raise rates by almost 7 percent, a move that state officials estimate could save consumers at least $16 million in premiums.

The Massachusetts Property Insurance Underwriting Association, known as Fair Plan, provides coverage to homeowners, typically in coastal areas and urban neighborhoods, who can’t get insurance on the open market. Fair Plan, which covers more than 130,000 homeowners statewide, holds the largest share of the home insurance market in Massachusetts.

State insurance officials said Fair Plan failed to show that a premium increase was needed. “They simply didn’t make their case,” Commissioner Joseph Murphy said in a statement.

The last time Fair Plan sought an increase, an average of more than 7 percent in 2011, Murphy rejected that proposal, too.

Attorney General Martha Coakley, who acts as ratepayer advocate, praised Murphy’s decision. She noted that Fair Plan has made an average profit of $40 million a year recently and did not need higher premiums to remain solvent.

“Homeowners should not be required to pour their money right into the pockets of insurers,” Coakley said. “We are pleased that [state insurance officials] recognized that the insurers’ proposal was excessive and would significantly harm Massachusetts ratepayers.”

Because Fair Plan consumers cannot buy home insurance in the traditional marketplace, state regulators set the rates in a complex process that includes hearings throughout Massachusetts and testimony from outside experts.

Regulators also review rate proposals from marketplace insurers, but the scrutiny is less extensive, since consumers can switch to a competitor.

Robert Tommasino, general counsel for Fair Plan, said he was disappointed by the state’s decision. He said the rate request was reasonable and necessary to keep the insurers solvent over the long term and able to pay claims should a major natural disaster hit the state.

He said Fair Plan will probably file another rate request next year, when a new governor and administration are in place. The bar for rate increases, he said, is currently set too high under Murphy, who was appointed by Governor Deval Patrick. Patrick is not seeking reelection. “I believe we need a hurricane before we can [meet] this commissioner’s standards,” Tommasino said.

State officials questioned the computer models Fair Plan used to project losses from hurricanes. Regulators also raised concerns about how Fair Plan determines its reinsurance costs, or the cost of buying its own insurance. Tommasino said Fair Plan uses the same models as every other insurer.

Barbara Anthony, the undersecretary of consumer affairs and business regulation, defended the decision to reject the rate increase and hailed it was good news for consumers. “It was a very rigorous process,” she said. The insurers “just didn’t meet their burden of proof.”