Mass. FAIR Plan Rate Increases Approved to Start Oct. 1

The residual market insurer for Massachusetts property owners has been given the green light to raise rates an average 12.4 percent for homeowners and 5.7 percent for dwellings to help cover the potential costs of hurricanes.

The new rates for the Massachusetts Property Insurance Underwriting Association, or FAIR Plan, will hit coastal property owners hardest, as much as 25 percent in Barnstable, Dukes and Nantucket counties (Cape Cod) where the FAIR Plan writes about 30 percent of the market. Rates for parts of Bristol and Plymouth counties, including New Bedford, will go up 20 percent.

Most urban areas will see either no increase or modest hikes up to about 5.9 percent.

The effective date for the new rates is Oct. 1. Commercial fire and allied lines rates will not change.

This rate decision is the first since the Massachusetts Legislature amended the FAIR Plan statute in 2004 to eliminate rate caps for the 13 largest share territories by allowing predicted hurricane losses and the cost of reinsurance to be factored into the rate.

Insurance Commissioner Julianne Bowler issued her decision on Friday after rejecting a similar FAIR plan request on June 30. When she rejected the earlier filing she told the FAIR Plan to come back with a new filing showing proof it actually purchased reinsurance for which it wanted $13 million reimbursement and lower estimates of costs associated with post-hurricane demand surge and debris removal not captured by hurricane rate modeling software.

The revised filing approved by Bowler took into account modifications for reinsurance costs and the “nonmodeled” hurricane losses.

The revised filings document the MPIUA’s purchase of reinsurance for a one-year period with an effective date of July 1, 2006. The MPIUA board of directors purchased reinsurance through Guy Carpenter, a reinsurance broker, to be effective on July 1, 2006. The total premium dollar amount for this coverage is $38.375 million, an amount that exceeds the $17.5 million value in its rate filings. However, only $13 million is included in the MPIUA’s revised filings.

The MPIUA negotiated the purchase of a reinsurance program that offers $455 million in total coverage. MPIUA will pay the premium in quarterly installments of $9,593,750, and that a first payment has been made.

As for the non-modeled hurricane losses, the MPIUA’s revised filing reduces the rate component from 17 percent to 8.2 percent. The FAIR Plan cut its “demand surge” component to 3.2 percent, eliminated a debris removal factor and limited the nonmodeled losses for “other expenses” to a 5 percent provision for the effect of undervaluation.

Territorial Comparison of MPIUA Homeowners Premiums
Territory Current Revised Change
02-Boston District A 1,061 1,102 3.9%
03-Boston District B 1,180 1,195 1.3%
04-Boston District C 1,266 1,341 5.9%
05-Suffolk Remainder 1,205 1,276 5.9%
11-Rest of Boston 891 943 5.9%
12-Brookline 1,309 1,385 5.9%
30-Quincy 905 955 5.6%
31-Norfolk Remainder 899 1,038 15.5%
32-Fall River 892 976 9.5%
33-New Bedford 834 1,002 20.0%
34-Bristol Remainder 1,156 1,387 20.0%
35-Brockton 1,196 1,267 5.9%
36-Plymouth Remainder 951 1,141 20.0%
37-Barnstable,Dukes, Nantucket
895 1,117 25.0%
38-Lawrence 1,000 1,019 2.0%
39-Lynn 930 986 5.9%
40-Essex Remainder 961 1,046 8.9%
41-Cambridge,Somerville 722 722 0.0%
42-Lowell 930 984 5.9%
43-Newton 949 988 4.2%
44-Middlesex Remainder 876 891 1.6%
45-Worcester City 940 940 0.0%
46-Worcester Remainder 923 998 8.1%
47-Springfield 1,129 1,196 5.9%
48-Chicopee & Holyoke 936 936 0.0%
49-Hampden & Hampshire Remainder
846 905 7.0%
50-Franklin & Berkshire 855 921 7.6%