MA Attorney General, Rating Bureau Oppose FAIR Plan Rate Hikes

Massachusetts Attorney General Martha Coakley and the State Rating Bureau are recommending that the Division of Insurance not approve rate hikes proposed by the state's insurer of last resort because the rates are "excessive and insupportable," Coakley said. 
 
In a brief filed with the Division of Insurance as part of a hearing on the rates, Coakley said the Massachusetts Property Insurers Underwriting Association, called the FAIR Plan, seeks a rate increase of up to 25% for homeowners along the coast. Coastal properties made up 35% of FAIR Plan premium, Coakley said the brief. 
 
The MPIUA said it writes more than half of its business on the coast and is the second-largest residual market homeowners insurer in the nation. 
 
The MPIUA seeks a 12.8% increase statewide but the increase is unnecessary because the MPIUA is "highly profitable," with $127.5 million profit over the past three fiscal years, Coakley said. The attorney general also accuses the MPIUA of excessive loss projections, an unsupported hurricane model and overcharging for reinsurance costs. 
 
"The proposed rates are not supported by credible evidence of risk, and seek instead to take advantage of market disruption in areas such as coastal Massachusetts to seek inflated rates," Coakley said in a statement. 
 
In its own brief, the State Rating Bureau also requested Insurance Commissioner Nonnie Burnes reject the MPIUA rate proposal but that she leave the door open for approval later if certain recommendations are met, including that the insurer revisit its reinsurance calculations. 
 
"The methodology used by the MPIUA to calculate the net cost of reinsurance is faulty and yields an unreasonable and excessive result," the SRB brief said. 
 
However, the SRB disagrees with the attorney general's office reasoning behind its urging to disapprove the rates because of excessive reinsurance costs. For example, the SRB said Coakley compared the MPIUA with other FAIR Plans in the New England area -- an "unreasonable" evaluation because the MPIUA's exposure "dwarfs" those in other states within the region, the SRB said. The plan's exposure was about $68.8 billion in 2006, said the SRB, citing the Property Insurance Plans Insurance Organization. The next highest exposure was New York with about $12.9 billion. 
 
The MPIUA said it needs the rate hikes because current rates reflect those proposed in 2005, which underestimate current reinsurance costs. The rates in 2005 were approved by the commissioner and were upheld in state Supreme Court, the MPIUA said. Therefore, there is a "heavy burden" on opposition to begin questioning the MPIUA methodology in calculating rates. 
 
Division of Insurance spokeswoman Kimberly Haberlin said there is no statutory deadline on Burnes' decision whether to approve of the FAIR Plan proposed rate increases. Burnes is currently reviewing the docket, Haberlin said.