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Senate panel wants homeowners insurance clarity

Home For Sale Sign in Front of New House.

Andy Dean Photography

The state’s closed process for setting homeowners insurance rates has been costly to consumers, prompting a Massachusetts Senate committee to recommend changing the system so residents and the Attorney General’s Office can challenge rates before they become permanent.

Many Massachusetts insurance companies raised rates on homeonwers by nearly 10 percent last year after the record snowfall, angering consumers and triggering a legislative hearing and proposals to change the way the state’s Division of Insurance approves higher premiums.

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But even before that, homeowners insurance premiums climbed nearly 22 percent between 2007 and 2013, even as home values dropped, according to the report scheduled to be released by the Senate’s Post Audit and Oversight Committee on Thursday.

“The process is stunningly resistant to transparency and public discussions,” said Senator Michael J. Barrett, a Lexington Democrat and chairman of the committee. “The result is a very lucrative area of the insurance business in the state. The companies do very well, the rates for the homeowners go up, even as the home values stagnated for years.”

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The average premium statewide was $1,263 in 2013, the most recent data available.

As rates have increased, homeowners insurers in Massachusetts have been among the most profitable in New England and the nation, the report noted.

Between 2004 and 2013, Massachusetts home insurers made a nearly 17.6 percent return on their capital and surplus, a measurement of profitability, while homeowner insurance companies nationwide earned about a 6.6 percent annual return, according to the report.

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The committee recommends that the Division of Insurance, which regulates the industry and grants rate increases, give consumers notice that companies want to raise their prices and allow residents to comment — something that doesn’t happen now.

When insurance companies first submit rate increase proposals to the Division of Insurance for review, they are unavailable to the public. Insurance regulators review the rate proposals administratively and can urge companies to lower their requests. The division can also reject rate increases, though it rarely does. It can also hold a public hearing, but hasn’t done so in recent memory.

In more regulated sectors of the insurance industry, including workers compensation and the homeowners insurance of last resort used primarily by coastal communities, the division holds public hearings and the Massahusetts Attorney General’s Office reviews the submission. Car insurance became unregulated in 2008 and it now more like home insurance, with rates approved administratively.

The Senate committee also said that the insurance division should challenge the weather models used by insurers to justify increases, as well as their cost estimates and policy cancellations. The insurance division should also create an online insurance shopping tool to help consumers compare coverage and charges, as Texas and California have done.

While Insurance Commissioner Daniel Judson has seen the report he declined to comment until it is formally released on Thursday, said Chris Goetcheus, a spokesman for the agency.

The agency is charged with ensuring that rates are fair to consumers and that companies receive sufficient hikes to remain solvent, able to pay future claims.

Division officials have in the past defended their rate-reviewing process and said it is comprehensive and fair.

‘“The process is stunningly resistant to transparency and public discussions.’

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Attorney General Maura Healey said in a statement that her office is studying the report’s recommendations, but agrees that the rate-setting process should be more “accountable to consumers.”

Last fall, Healey’s office analyzed the documents that some of the state’s largest insurers used to justify higher premiums and found that companies put too much emphasis on recent storms, ignoring longer-term trends that are traditionally used to calculate rates. The companies also requested rates to meet higher profit targets, according to Healey’s analysis.

“Consumers and stakeholders in Massachusetts deserve a meaningful public process before rate increases go into effect,” Healey said.

But insurance companies and Massachusetts independent insurance agents say the process works well and consumers have the option of switching among dozens of other carriers in the state if they are unhappy.

“We have a system that is competitive. It’s working now,” said Frank Mancini, president of the Massachusetts Association of Insurance Agents. The group is lobbying against a change to the state’s public records law that would make rate filings public as soon as a company submits them to the division.

Mancini questions whether consumers could decipher the actuarial tables insurance companies include in their filings to justify higher rates. He also argued that making proposed rates public could put a company at a competitive disadvantange.

“Unless the consumer is an actuary they’re not going to be able to make heads over tails of these rate filings,” he said.

But Paula Aschettino, founder of Citizens for Homeowners Insurance Reform, a state consumer advocacy group, said the lack of transparency makes it difficult for homeowners to object to higher rates.

“There’s no recourse,” she said.

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