BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley's office told the Commissioner of Insurance that a proposed home insurance rate request for more than 150,000 consumers is illegally excessive.
The rate hikes, proposed by the Massachusetts Property Insurance Underwriters Association, or FAIR Plan, includes approximately 60,000 families on Cape Cod and other coastal areas where insurance companies are reducing business. The FAIR Plan consists of the state's insurance companies and was created to provide coverage to consumers who cannot obtain it in the open marketplace at reasonable rates. Massachusetts law requires that rates through the FAIR Plan cannot be excessive.
"The FAIR Plan is a crucial service for homeowners who are unable to find insurance coverage, and it is our job to make sure its rates are not excessive," Coakley said Thursday. "We will continue to fight on behalf of homeowners to protect their right to affordable coverage."
The industry is requesting that the commissioner raise rates for the FAIR Plan by an average of 7.4 percent across the state, by 6.7 percent on Cape Cod and by 10 percent in Lynn, Brockton, Lawrence, Quincy, Fall River, New Bedford and parts of Boston. The increases would include a profit-provision add-on that equates to $15 million of added annual profit. Minus the add-on, the increases average two percent statewide. Between the fiscal years of 2007 and 2011, the profit of the FAIR Plan totaled more than $200 million.
Coakley's office urged the commissioner to block any additional rate increase during the testimony and said that the proposal is allegedly "unsupported, and would contravene the statutory intent" of making insurance available at reasonable rates to homeowners. Coakley's office also alleged that the proposed rate hike is mainly based on undisclosed hurricane models that insurers claim predict the damage and likelihood of a major hurricane hitting the state. Additionally, the rates allegedly include significant amounts for reinsurance, under which the FAIR Plan pays to pass risk along to other insurers without giving justification for the potential costs of this coverage.
Coakley's office has already intervened in the rate proceeding and will be using litigation to block the potential rate increases. In 2007, Coakley litigated and obtained a decision that rejected a planned double digit increase by the FAIR Plan. The increase would have raised rates 25 percent on the Cape and in other coastal areas. Coakley moved to block an insurer rate hike again in 2009 and obtained a settlement saving homeowners in the state more than $7 million.