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Massachusetts AG Coakley Calls on Regulators to Re-examine Homeowners Rates

Source: A.M. Best - Jeff Jeffrey

Posted on 21 Nov 2011

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Massachusetts Attorney General Martha Coakley has called on state regulators to re-examine homeowners insurance rates, which she said are too high because they are based on flawed catastrophe models.

Coakley has sent the State Rating Bureau a letter urging it to hold a hearing to evaluate homeowners rates in the state. Coakley's letter says regulators should focus on rates in coastal areas like Cape Cod, Martha's Vineyard and Nantucket.

"Untested and unsupported forecast models should not be used to justify rates that are excessive," Coakley said in a statement. "Hurricane models have a significant impact on the premiums paid by all Massachusetts homeowners who could have paid millions in excessive rates as a result."

Coakley said in the letter that Massachusetts policyholders may have paid as much as half a billion dollars in overcharges since 2004 because of unreliable catastrophe models. Massachusetts has not been hit with a hurricane during that time period. The most recent tropical storm to hit the state was Hurricane Irene, which was downgraded before it hit the commonwealth.

Despite Coakley's criticism of catastrophe models used by homeowners insurers when setting rates, industry representatives said it would be "irresponsible" for them to avoid using models that have not been demonstrated to be flawed.

Paul Tetrault, northeast state affairs manager for the National Association of Mutual Insurance Companies, said that Coakley's call for a public hearing is "not necessary or productive."

"It suggests a lack of understanding about the use of models," he said. "Companies are making their best effort to ensure that their rates take into account their exposure, and catastrophe models are designed to do that. Besides, we have an insurance regulator in this state that has already looked at this issue and approved these rates."

He added, "Massachusetts has a very competitive market, and generally the whole idea that the rates are excessive is incorrect. Holding a public hearing like the one the Attorney General's Office has called for is a waste of energy."

Coakley has been critical of the insurance industry in the past.

In June, she took issue with a proposal calling for health insurers to transition from a fee-for-service contract with doctors and hospitals to global payments with the providers, meaning instead of paying a provider for each service, the insurers would pay them a one-time, per-insured-person payment up front. She said that move would be unlikely to lower rising insurance premiums without also addressing disparities in what health care providers charge for their services.

And in May, Coakley accused automobile insurers in her state of overcharging businesses by more than $1 billion over the past seven years. Coakley has called on Insurance Commissioner Joseph Murphy to use his authority to make significant cuts to commercial auto insurance rates in the state.

The top five writers of homeowners multiperil in Massachusetts in 2010, according to BestLink, were: Mapfre North America Group, which had a market share of 11.53%; Liberty Mutual Insurance Cos., with 9.23%; Travelers Group, with 6.98%; Chubb Group of Insurance Cos., with 6.82%; and Arbella Insurance Group, with 6.66%.