Home Insurance Report 2019 clean.docx

Massachusetts Division of Insurance

Massachusetts Division of Insurance Annual Home Insurance Report For Calendar Year 2019

Gary D. Anderson Commissioner of Insurance

Introduction

This report was prepared by the State Rating Bureau staff of the Massachusetts Division of Insurance (“Division”) (Matthew M. Mancini, State Rating Bureau Director, Gerald B. Condon, State Rating Bureau Researcher, Caleb E. Huntington, State Rating Bureau Mathematician, Bashiru Abubakare, State Rating Bureau Actuary / Statistician). The report is based primarily on responses from companies writing home insurance policies in Massachusetts and from statistical reporting organizations reflecting the experience of companies in the home insurance market. Unless otherwise noted in the report, references to “home insurance” include traditional homeowners insurance as well as condominium and rental insurance.

The Division makes all appropriate efforts to check the completeness and consistency of data reported by insurance companies and their statistical agents but does rely on the insurance companies for the accuracy of all reported information.

Annual Reports

The Division annually produces a home insurance report pursuant to M.G.L. c. 175, §§ 4A & 4B and has done so since 1996. For the current report, insurers and their statistical agents were required to provide aggregate 2017, 2018 and 2019 data sorted according to Massachusetts zip codes and Insurance Services Office, Inc. (“ISO”) territories.

It is important to note that while some of the results in this report apply to all home insurance policies in the Commonwealth, other results apply to policies written by only the 25 largest Massachusetts home insurance companies, FAIR Plan and/or only to particular zip codes in the Commonwealth. These particular zip codes are identified as “designated” zip codes because they are the zip codes that the Commissioner of Insurance (“Commissioner”) has specified to be included in the report due to historical skepticism regarding availability of coverage in these areas. The zip codes include both coastal areas and urban areas. This report provides specific scrutiny in response to such concerns. A list of the top 25 home insurance companies can be found under footnote 9. The full list of designated zip codes can be found in Exhibit 8A of the Statistical Supplement to this report.

Many of the statistical tables that were incorporated in previous versions of this report have been included in a separate Statistical Supplement. The Statistical Supplement can be found on the Division’s web site at https://www.mass.gov/service-details/the-commissioners-report-on-home-insurance and is available upon request.

TABLE OF CONTENTS

Title Page

Introduction ii

Table of Contents iii

Table of Figures iv

Executive Summary 1

TABLE OF FIGURES

Page Figure

Page iv Executive Summary

Among the material presented in this report:

· The total number of home insurance policies increased by 26,099 between 2018 and 2019. Home insurance policies decreased by 5,081, but tenant and condominium policies increased by 31,180.

· Total enrollment in the FAIR Plan[footnoteRef:2] decreased by 906 policies in 2019, with the FAIR Plan writing 9.7% of 2019 home insurance premium. [2: The FAIR Plan is the residual market for homeowners insurance operated by the Massachusetts Property Insurance and Underwriting Association (“MPIUA”).]

· For the Cape and Islands market, the FAIR Plan accounted for 34.8% of policies.

· There were five events that were classified as loss catastrophes[footnoteRef:3] in 2019, which resulted in estimated property losses in Massachusetts of approximately $174.3 million. [3: Property Claims Services, Inc. (“PCS”), a subsidiary of ISO, Inc., defines catastrophes in the United States, Puerto Rico, and the U.S. Virgin Islands as events that cause $25 million or more in direct insured losses to property and affect a significant number of policyholders and insurers. PCS has also provided Massachusetts property loss estimates as a result of a catastrophe.]

-Two severe winter weather events took place January 20 through January 23 and February 23 through February 26 consisting of flood, freezing, ice, snow and winds and resulted in estimated property losses in Massachusetts of approximately $88.3 million.

-Three events took place, one on July19 through July 23, a second on October 16 through October 17 and a third on October 31 through November 1, reflecting the diverse perils of flood, hail, tornado, wind and thunderstorm. These three events resulted in combined estimated property losses in Massachusetts of approximately $86.1 million.

Composition of the Massachusetts Market

Home insurance covers non-commercial property for the risks of damage to structural and personal property as well as for the risk of personal liability claims. In 2019, insurance companies collected approximately $42.5 billion in written premium for home insurance policies in Massachusetts, making it the largest line of property and casualty coverage after private passenger motor vehicle insurance.

Although it may be fiscally prudent to protect one’s assets from loss or damage, there are no laws that require property owners to purchase home insurance.[footnoteRef:4] Figure 1 shows the total number of households covered under the three major types of home insurance (condominium, traditional [4: Even though home insurance is not required by law, most lenders will require that an owner have sufficient home insurance as a condition of a mortgage on the property. However, according to Chapter 177 of the Acts of 2014, which became effective in November 2014, certain lenders are prohibited from requiring flood insurance coverage in an amount greater than the outstanding mortgage balance.] homeowners and rental insurance) in the past three years as calculated by “written house-years,” which is a measure equivalent to average number of homes insured.

Figure 1

Companies Offering Coverage

Just as an individual may choose whether or not to secure insurance for his/her home, an insurance carrier has the legal right to decide whether to offer, cancel, terminate or renew insurance coverage, provided that the decision adheres to statutory nondiscrimination and disclosure requirements.[footnoteRef:5] There were 84 licensed insurance companies actively writing home insurance in Massachusetts in 2019[footnoteRef:6] [5: See M.G.L. c. 175, §§ 4C and 99.] [6: A list of companies offering homeowners insurance by region in Massachusetts is on the Division’s website at http://www.mass.gov/ocabr/insurance/home-insurance/home-insurance-service-areas/. The companies are listed only if they have written ten or more HO-3 or similar type policies in a county between July 1, 2019 and December 31, 2019.]

The FAIR Plan

The FAIR Plan was a residual market mechanism originally created in 1968. See Acts 1968, c. 731. (Similar plans for “Fair Access to Insurance Requirements” FAIR were established in other jurisdictions during the same period pursuant to the federal Urban Property Protection and Reinsurance Act of 1968. See P.L. 90-448). The FAIR Plan was substantially restructured in 1976 and again in 1996 and is currently known as the Massachusetts Property Insurance and Underwriting Association (“MPIUA”). Due to continuity of mission, membership, and operations, the terms MPIUA and FAIR Plan are often used interchangeably. By statute, the FAIR Plan is required to offer coverage to homes with a replacement cost of up to $1 million.[footnoteRef:7] If an owner cannot obtain a policy from an admitted insurance company and the home’s value is beyond what the FAIR Plan will cover, an owner can seek coverage in the surplus lines market.[footnoteRef:8] [7: See M.G.L. c. 175C, §4(4a), which requires all home insurance companies licensed to and engaged in writing property insurance in the Commonwealth to be members of a joint underwriting association that shall provide basic property insurance to eligible applicants who are otherwise unable to obtain such coverage in the voluntary market. ] [8: Surplus lines companies are insurers which are not "licensed" or “admitted” in Massachusetts although they are "licensed" in another state (or country). Such insurers may issue coverage only through specially licensed surplus lines brokers. This document does not include statistical information on the surplus lines market.]

Figure 2

The FAIR Plan’s business, as reported by the FAIR Plan and which comprises owner, condominium and tenant policies, decreased by 906 policies issued between fiscal years 2018 and 2019.[footnoteRef:9] [9: The FAIR Plan’s fiscal year is between October 1st of one year and September 30th of the noted year.]

As noted in Figure 3 (below), the FAIR Plan accounted for 9.7% of written premium in 2019. Its market share peaked at 16.1% in 2007.[footnoteRef:10] [10: FAIR Plan market share is based upon FAIR Plan and total market written premium.]

Figure 3

As noted in Figure 4, in 2019, the FAIR Plan’s market share, at 9.7% of total premium written, is slightly less than the 11.9% market share of the largest commercial carrier, the Mapfre Insurance Group.

Figure 4

Relative Shares of the Private Insurance Market

As shown in Figure 5, which excludes the FAIR Plan, the top 10 insurance companies account for 64.3% of coverage written by the private insurance companies in the market.

Figure 5

A majority of coverage in Massachusetts is provided by local carriers, regional carriers or national carriers based in Massachusetts. Among the top 10 home insurance companies in the market, only five – the Travelers Group, the Liberty Mutual Group, Chubb Ltd Group, the Amica Mutual Group, and United Services Automobile Association Group – offer home insurance nationally. The remaining companies are regional companies offering coverage primarily in the Northeast.

The Mapfre Insurance Group, which is the parent company of Commerce Insurance Company, had the largest share of the 2019 voluntary (i.e., non-FAIR Plan) market with 13.2% of the home insurance premium written. Each of the next nine largest insurance groups had between 3.7% and 9.6% of the voluntary market. If the analysis is extended to the 25 insurance companies with the largest Massachusetts home insurance market share,[footnoteRef:11] the top 25 insurers are responsible for 92.3% of the non-FAIR-Plan insurance market. Each of the remaining 55 company groups accounts for less than 1.0% of the non-FAIR-Plan market.[footnoteRef:12] [11: The top 25 Massachusetts home insurers based upon overall direct written premiums for calendar year 2019 are:

] [12: Based on the National Association of Insurance Commissioners’ 2019 data on home insurance multiple peril direct written premium by company group. Company groups often have more than one licensed insurer writing home insurance.]

Changes in Coverage

As reflected in Figure 6, the reported number of total home policies written by insurance companies and the FAIR Plan increased between 2018 and 2019 by 26,098 or 1.29%.

Figure 6

Coverage by Geography

Comparing coverage totals by county,[footnoteRef:13] as in Figure 7, Middlesex County, which had the largest population,[footnoteRef:14] also had the highest number of home insurance policies in force: 468,527. After Middlesex County, the next three largest counties for home insurance are Worcester (247,131), Essex (230,106) and Norfolk (219,638). [13: For the purpose of reporting information by county, certain ISO statistical reporting territories were combined in the following ways:

Berkshire and Franklin Counties include ISO territory 50;

Hampden and Hampshire Counties include ISO territories 47, 48 and 49;

Worcester County includes ISO territories 45 and 46;

Middlesex County includes ISO territories 41, 42, 43 and 44;

Essex County includes ISO territories 38, 39 and 40;

Suffolk County (including the City of Boston) includes ISO territories 2, 3, 4, 5 and 11;

Norfolk County includes ISO territories 12, 30, and 31;

Bristol County includes ISO territories 32, 33 and 34;

Plymouth County includes ISO territories 35 and 36; and Barnstable, Dukes and Nantucket Counties include ISO territory 37.

Detailed information for each territory is included in the Statistical Supplement to this report.] [14: Source: Annual Estimates of the Resident Population for Counties of Massachusetts: April 1, 2010 to July 1, 2019, Population Division, U.S. Census Bureau. ]

Figure 7

The proportion of FAIR Plan policies written by area varies greatly. While the FAIR Plan writes 34.8% of the home insurance for the Cape and Islands (comprising Barnstable, Dukes and Nantucket counties) and 11.3% of the home insurance in Suffolk County, it writes 10.3% or less of the policies in each of the other counties in the state (see Figure 7).

Also, between 2018 and 2019, the number of home insurance policies remained fairly consistent in most counties (see Figure 8).

Figure 8

Impact of Private Passenger Automobile Insurance on Home Insurance Many property and casualty insurance companies actively participate in insurance markets when they can offer a wide array of their products to customers. In personal lines insurance markets, many companies will only actively market home insurance when they are also marketing private passenger automobile coverage to applicants. During regulatory hearings held in the mid-2000s, certain large national companies indicated that they were not interested in expanding their home insurance coverage in Massachusetts because they believed they could not operate within the rules then in place for the private passenger automobile insurance market. Following those regulatory hearings in 2008, the rules affecting private passenger coverage were rewritten to permit insurance companies to offer their own coverage options and rates.

As of the printing of this report, 21[footnoteRef:15] insurance companies have entered the Massachusetts private passenger automobile insurance market since the reform. Some of these offer home insurance or are affiliated with home insurance companies. It is expected that these and other companies will look to expand their writing of home insurance in order to increase the marketability of their private passenger coverage. [15:

In addition to the arrival of new companies, many insurance companies that were already writing personal lines also have begun offering expanded multi-policy premium discounts to insureds who buy both home insurance[footnoteRef:16] and automobile insurance coverage from the same company. In order to understand the effect that the changes to private passenger coverage may have had on the home insurance market, the top 25 home insurance companies were asked to report the level of home insurance premium credits provided in 2018 and 2019 for those policyholders who also had motor vehicle coverage with the same or an affiliated insurer.[footnoteRef:17],[footnoteRef:18] [16: Home insurance in this case includes owner, condominium and tenant policies that combine liability insurance with one or more other types of insurance, such as property damage, personal property damage, medical payments, and additional living expense. ] [17: The composition of the top 25 home insurance companies has changed between 2018 and 2019. In addition, a number of companies have corrected or updated their 2018 data as reported in the Division’s calendar year 2018 report, and the corrected or updated data is reflected in this year’s report. ] [18: This report does not include the level of expanded premium discounts that are provided on private passenger automobile policies for those persons who also have home insurance with the same company. The Division is aware that many private passenger automobile companies did file such premium discounts with their private passenger automobile rate filings.]

As illustrated in Figure 9, insurers reported that premium credits on home insurance coverage for those with a related auto insurance policy decreased marginally from $74.0 million in 2018 to $73.4 million in 2019.

Figure 9[footnoteRef:19] [19: For a complete listing of the zip codes, please refer to Exhibit 8A in the Statistical Supplement.]

When looking at the number of policies affected, as illustrated in Figure 10 (below), there were 7,923 fewer home insurance policies in 2019 that had premium credits from related private passenger coverage than did in 2018.

Figure 10

The overall average credit increased from $279 per policy in 2018 to $286 per policy in 2019.

As illustrated in Figure 11, between 2018 and 2019, the average percentage level of premium credit per policy increased from 15.1% to 15.6% of the average policy premium in urban areas and decreased from 16.1% to 16.0% in coastal areas.

Figure 11

Coverage Options and Limitations Policy Form Options Wind Deductibles In order to reduce their risk, many home insurance companies have amended their standard policies to include mandatory wind deductibles.[footnoteRef:20] These deductibles may apply to any wind-related damage that occurs in specified coastal territories, typically located in Bristol, Plymouth, Barnstable, Dukes and Nantucket counties, or within a certain distance from the shore. These deductibles are imposed either as flat dollar amounts or as a percentage of the covered dwelling amount.[footnoteRef:21] The Division requires that insurers provide consumers with clear disclosures of the deductibles before they purchase coverage. [20: A wind deductible is a deductible that applies only to losses caused by wind.] [21: The FAIR Plan, for example, currently requires certain insureds to have a minimum named storm percentage deductible of 1% to 5% of the coverage amount for the dwelling and attached structures, or a minimum fixed dollar named storm deductible of up to $5,000, depending on the property’s county, distance from the coast and coverage.]

According to information submitted to the Division from the FAIR Plan and the top 25 companies in the market, all but four companies reported that they have mandatory wind deductibles that are part of the coverage they offer in the market, with deductibles as high as 5% of the coverage for the main structure.[footnoteRef:22] The largest wind deductibles are in the coastal parts of Bristol, Plymouth, Barnstable, Dukes and Nantucket counties. [22: Additional detailed information is included in the Statistical Supplement to this report.]

Of all policyholders living in a coastal or urban area who are covered by the FAIR Plan or the top 25 home insurance companies, 40.9% had a mandatory wind deductible applicable to their coverage in 2019. In coastal areas, 68.0% had a mandatory wind deductible. In urban areas, 24.4% had a mandatory wind deductible.

The Division encourages insurance companies to allow consumers to reduce or eliminate their wind deductibles by taking steps to mitigate the potential exposure of their property in the event of a wind event. Drawing upon the experience of other states, most notably Florida, the Division encourages companies to reduce wind deductibles for policyholders who install hurricane shutters or shatterproof glass, hurricane-proof garages or patios, and other doors and/or roof/foundation anchor bolts. The Division has worked with many carriers to establish clear rules for mitigation programs and to establish ways to document that mitigation steps have been taken.

Flood Exclusions In the United States, home insurance policies have not traditionally covered damage associated with floods.[footnoteRef:23] Recognizing this lack of protection, Congress enacted legislation in 1968 to create the National Flood Insurance Program (“NFIP”), which is administered by the Federal Emergency Management Agency (“FEMA”). Under the program, the government plays the role of underwriter and assumes the financial risk for damages while relying on private insurance agents to sell policies. [23: Automobile insurance policies, cover flood damage to a motor vehicle under optional comprehensive coverage.]

Flood insurance is mandatory only for those homes that have been identified by FEMA mapping as located in high-risk flood areas and that are mortgaged through a federally-backed lender. However, the NFIP makes flood coverage available for all property holders as long as the property is located in an approved NFIP community. The property does not need to be in a flood plain to qualify for coverage.

Prior to the current re-mapping of flood zones in Massachusetts, FEMA had estimated that more than 11 million U.S. homes were in flood zones and that about one-fourth of the homes located in Special Flood Hazard Areas (“SFHA”)[footnoteRef:24] were covered by NFIP-issued or NFIP-backed flood insurance. The proportion of property with flood coverage is believed to be low because many people underestimate the risk of flooding. [24: There are two types of Special Flood Hazard Areas: (1) a V-zone or coastal high hazard area including “the inland limit of a primary frontal dune along an open coast and any other area subject to high velocity wave action from storms or seismic sources" and (2) an A-zone area that is expected to be flooded once every 100 years.]

As presented in Figure 12, FEMA reports that 58,711 policyholders in Massachusetts had flood insurance in 2019, which is a decrease of 4.1% from the 61,245 reported for 2018.

The NFIP continually updates statistics on national purchases of flood insurance and periodically will produce special reports on the matter. According to the NFIP’s monthly countrywide policy statistics, as of 5/29/2020 Massachusetts ranked 13th in the country in the number of policies in place through the flood insurance program. The U.S. Census Bureau ranked Massachusetts as the 15th most populous state.[footnoteRef:25] [25: Massachusetts population ranking is based on estimates as of July 1, 2019 the 2019 U.S. Census Bureau statistics, available at https://www.census.gov/data/tables/time-series/demo/popest/2010s-state-total.html]

Although the Division issued Bulletin 2006-05 to remind insurers and insurance producers to offer flood insurance to all state residents, the Division estimates that the number of Massachusetts homes with flood insurance continues to be relatively low for 2019. Barnstable County, with 9.2% NFIP coverage, continuing a decline in participation from a high of 10.3% in 2015. (See Figure 13).

Figure 13

In July 2012, reflecting the experiences following Hurricane Katrina and Super Storm Sandy, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters”) to require the NFIP to develop procedures which will ensure its long-term actuarial soundness. Among the key provisions, the NFIP was required to make the program more financially stable by increasing flood insurance premiums to reflect true flood risk and updating the Flood Insurance Rate Map (“FIRM”). In 2013, many homeowners, particularly in coastal communities, were required to buy flood insurance for the first time or pay a significantly higher premium on their existing flood insurance policies due to changes implemented since Biggert-Waters.

In 2014, the U.S. Congress passed two acts that altered Biggert-Waters. The Consolidated Appropriations Act of 2014 prohibited the implementation of certain sections of Biggert-Waters, effectively stopping certain rate increases while new laws were being developed to address rate concerns. The Homeowner Flood Insurance Affordability Act of 2014 repealed certain parts of Biggert-Waters, restored grandfathering, placed limits on certain rate increases, continued the use of subsidized (lower) premiums for some new NFIP policies (resulting in premium refunds), updated the approach to ensuring the fiscal soundness of the fund through an annual surcharge to all policyholders, authorized FEMA to designate a position of Flood Insurance Advocate for NFIP policyholders, and allowed a higher policy deductible option of up to $10,000.

In 2013, the Massachusetts legislature enacted a law limiting the amount of flood insurance that could be required of consumers whose loans are held by state-regulated banks. Chapter 177 of the Acts of 2014 specifies that such residential property owners may only be required to purchase flood insurance in the amount of their mortgage or home equity loan balance and that the amount of such insurance must be based on the value of the structure only and not the building’s contents.

Financial Results Premiums

In 2019, Massachusetts insureds purchased approximately $2.6 billion in home insurance coverages, as measured in premium paid, which is 4.5% more than was reported for 2018. Of the total premium, 92.6% was for traditional homeowners insurance. Between 2018 and 2019, traditional homeowners insurance premiums increased by approximately $112.6 million.

Figure 14

Average premiums increased in 2019 for traditional homeowners and decreased for tenant coverage and condominium coverages.

Figure 15

Costs Insurance rates are based on individual company projections of future claims and expenses, which are, in turn, based on prior years’ experience. This section looks at past claims and expense trends.

Filed Claims

In 2019, insureds filed a total of 64,031 claims with their home insurance companies, 31.1% fewer than the 92,921 filed in 2018. Approximately 86% of these claims were filed on traditional homeowners insurance policies. As illustrated in Figure 16, the condominium and tenant coverage types also experienced a decrease in the number of reported claims between 2018 and 2019.

Figure 16

Claim trends tend to fluctuate with damage-causing weather patterns. In 2019 there were five designated Massachusetts catastrophes resulting in total estimated Massachusetts property catastrophe losses of $174.3 million compared to $487.8 million of catastrophe losses in 2018. The total number of filed claims decreased correspondingly from 2018 to 2019.

As illustrated in Figure 17 (below), the average size of incurred claims increased 26.4% for traditional home insurance, increased by 10.2% for condominiums, and by 5.6% for tenants. The increase in average claim size for traditional home insurance reflects the particular mix of causes of loss causing claims in 2019 (see following section discussing cause of loss).

Figure 17

Analysis of Claims Experience

When recording reported claims, companies categorize submitted claims according to the cause of loss in order to project future claims and to develop loss control programs aimed at reducing future losses. Although companies track losses from both natural events (such as earthquakes) and man-made events (such as thefts) to develop loss controls that are tailored to various events, in general, company groups categorized claims as follows:

· Fire, lightning and removal;

· Wind and hail;

· Water damage and freezing;

· Theft;

· Liability and medical; and

· All other.[footnoteRef:26] [26: The “all other” category is used when: (a) the claim does not fit one of the other causes of loss, (b) there is some question as to which cause of loss among several possible causes of loss caused the claim, or (c) the cause of loss is not known initially.]

As illustrated in Figure 18, 28,160, or 44.3%, of total claims, were submitted for water losses for non-flood related water damage. Policyholders also submitted 4,747 claims for fire, lightning and removal damages and 8,519 claims for damages classified as “all other losses,” accounting respectively for 7.5% and 13.4% of total claims filed. There were a total of 17,850 claims filed under the wind category, which represents 28.1% of total claims filed.

Figure 18

When considering the total dollar cost of claims, as illustrated in Figure 19, the distribution of losses reflects the fact that certain types of claims (particularly wind and water) are subject to wide variation in claim counts from year to year.

Figure 19

Additional Detail on Each Cause of Loss

Fire, Lightning and Removal dollar losses as a percentage of statewide losses increased from 25.8% in 2018 to 32.6% in 2019. The statewide average fire, lightning and removal claim cost was $61,867 in 2018, increasing to $71,447 in 2019.

Wind & Hail losses accounted for 15.0% of total losses in 2019, down from 21.6% in 2018. The statewide average claim cost for wind and hail increased from $7,798 in 2018 to $8,725 in 2019.

Non-Flood Water Damage and Freezing losses accounted for 37.7% of total losses in 2018 and 37.2% of total losses in 2019. The statewide average claim cost for non-flood water damage and freezing increased from $12,440 in 2018 to $14,111 in 2019.

Theft losses accounted for 0.6% of total losses in 2018 and 0.7% of total losses in 2019. The total number of theft claims decreased from 2,278 in 2018 to 2,062 in 2019, and the average statewide theft claim cost increased from $3,394 in 2018 to $3,763 in 2019.

Liability and Medical Payments dollar losses accounted for 6.5% of total losses in 2018 and 6.6% of total losses in 2019. The average statewide liability and medical claim cost increased from $29,369 in 2018 to $30,132 in 2019.

All Other claims losses accounted for 6.9% of total losses in 2019, compared to 7.7% in 2018. Total filed claims decreased from 11,429 in 2018 to 8,519 in9. The average claim cost was $8,175 in 2018, increasing to $8,382 in 2019.

Loss Ratios

Loss Experience Compared to Earned Premiums Loss ratio (incurred losses divided by earned premium) is a generally accepted measure of the underwriting success or failure of property insurance. The higher the cost to the company of reinsurance and other expenses, the lower the company’s loss ratio must be for it to continue to operate. The higher the loss ratio, the more likely companies will have overall losses after paying for administrative expenses. Based on the submitted loss data, the 2019 overall loss ratio for all FAIR Plan and insurance company policies was 41.8% across all types of residences (traditional homes, condominiums, rentals).

Figure 20 presents a history of the loss ratios for the entire market since 2010:

Figure 20

Non-weather events do not usually cause major shifts in loss trends.[footnoteRef:27] Weather-related events can cause significant shifts, depending on the severity of the events. For example, in 2010 and in 2011 there were four “catastrophe” events that resulted in losses in Massachusetts, one in 2012, none in 2013, two in 2014, six in 2015, three in 2016, one in 2017, five (four weather-related) in 2018 and five in 2019, with the resulting losses varying with the severity of the events. The loss ratio for 2019 is lower than in 2018, primarily due to the variability of the weather and of the number of homes impacted. As presented in Figure 21, the traditional homeowners loss ratio was 42.2%, the condominium loss ratio was 43.9%, and the tenant coverage loss ratio was 24.5% in 2019. [27: Fire losses are an exception since fires involving multiple dwellings can significantly impact losses for a year.]

Figure 21

Combined Ratios: Loss and Expense Experience Compared to Premiums Collected The combined ratio (the combination of company expenses and incurred claims costs divided by earned premium) is a measure of the overall experience of property insurance companies in a market. A lower combined ratio corresponds with a higher potential profit for the company. The research which forms the basis for this report does not include information on insurance company operating expenses. In order to get a more complete picture of insurers’ financial results, the Division has incorporated industry expense data that insurance companies submit as part of their annual financial statements. Figure 22 calculates the percentage of premium that insurance companies paid out for Massachusetts home insurance losses and the percentages of premium that can be attributed to various operating expenses. The result is an “Adjusted Combined Ratio” for the Massachusetts home insurance market.

Figure 22

Figure 22 also presents various home insurance company expenses as a percentage of premiums. The adjusted combined ratio illustrates how other necessary expenses, when combined with losses, can be compared to homeowners insurance premiums.[footnoteRef:28] The adjusted combined ratio of 79.1% for 2019 shows a decrease from 87.8% for 2018. These combined ratios reflect an increase in the number of major catastrophes from 2018 to 2019. [28: Insurance companies pay claims handling expenses (also known as “loss adjustment expenses”) which, if added to incurred losses to calculate an adjusted loss ratio, provide a clearer picture of the proportion of premium dollars that are devoted to claims and claims handling expenses. In addition to claims, companies need to pay other expenses, including producer commissions, taxes and licensing fees, other acquisition costs, and general administrative expenses in order to run their businesses. These expenses, when combined with the adjusted loss ratio, generate a combined ratio reflecting the overall costs of business during a calendar year. Finally, some mutual insurance companies make payouts to policyholders in the form of dividends that should be factored into the analysis, as these are real expenses paid out by companies to their policyholders.]

This analysis does not include what insurance companies pay to reinsurers for catastrophe and hurricane reinsurance, information which is not readily available within the aggregate financial statements for Massachusetts homeowners business. Based upon information submitted as part of individual company rate filings, the Division estimates that reinsurance expenses could account for as much as 25% of a company’s premiums, depending on that company’s portfolio of coastal exposures. The analysis also omits reinsurance recoveries, or payments from reinsurers to insurance companies that partially reimburse the insurance company for losses paid.

Figure 23

Figure 23 illustrates that weather-related disasters can cause significant fluctuations in the market’s adjusted combined ratio, as observed, for example, in the higher combined ratio in 2015 when Massachusetts was impacted by winter storms/ice dams.

FAIR Plan Financial Results

During its 2019 fiscal year, the FAIR Plan had an underwriting profit of $12,288,000[footnoteRef:29] (see accompanying Statistical Supplement). The FAIR Plan had an underwriting gain the two prior years, following a substantial loss in 2015. Please note that the FAIR Plan underwriting results are on a direct basis and do not reflect reinsurance premiums paid by the FAIR Plan or reinsurance recoveries. [29: The FAIR Plan fiscal year runs from October 1st of one calendar year to September 30th of the noted calendar year. ]

Figure 24

Figure 25 illustrates on a per policy basis the FAIR Plan’s fiscal year underwriting profit – sometimes called the charge against surplus[footnoteRef:30] – of $67 per policy in fiscal year 2019 as compared to an underwriting loss of $121 per policy in fiscal year 2018. [30: The MPIUA (and the FAIR Plan in its post-1976 structure) is not an insurance company or legal entity but, instead, a statutorily mandated association of all the insurance companies writing homeowners insurance in the Commonwealth. The FAIR Plan refers to its underwriting profit as its contribution to surplus and its underwriting loss as its charge against surplus. For the purpose of this analysis, the report will continue to refer to these as underwriting profit and underwriting loss for owner, condominium and tenant policies, as reported by the FAIR Plan.]

Figure 25[footnoteRef:31] [31: Fair Plan underwriting gain (loss) per policy is calculated by dividing the fiscal year’s underwriting profit (loss) by the number of fiscal year owner, condominium and tenant policies issued.]

Changes in FAIR Plan Rates

Between 1996 and 2010, the FAIR Plan filed to revise its rates 11 times. Each of these filings was reviewed according to the standards in M.G.L. c. 175C and hearings were scheduled as required by that statute. In most of the years between 1996 and 2010, the proceedings on those filings were ultimately resolved by rate stipulations agreed to by the interested parties. In 2005 the FAIR Plan submitted a request for a 12.5% statewide rate increase, including a request for a 25.0% rate increase in Barnstable, Dukes and Nantucket counties.[footnoteRef:32] Following an administrative hearing, the FAIR Plan was granted a 12.4% statewide increase, including a 25.0% rate increase in Barnstable, Dukes and Nantucket counties to take effect in 2006. [32: Identified as ISO statistical territory 37 and is commonly known as the Cape Cod and Islands area.]

FAIR Plan Home Insurance Rate Changes

*Years not shown had no rate change

Figure 26

In November 2011 the FAIR Plan filed to request an overall statewide increase of 7.2% for home insurance forms. The filing was reviewed according to the standards in M.G.L. c. 175C with the proceedings concluding in 2012. The filing was disapproved by the hearing officers in May 2012.

In April 2013, the FAIR Plan submitted a request for an overall statewide increase of 6.8% for home insurance forms. The filing was reviewed per M.G.L. c. 175C with the hearing on this rate proceeding concluding in 2014. The filing was disapproved by the hearing officers in June 2014.

There have been no filings to revise annual average rates by the FAIR Plan since 2013.

FAIR Plan Clearinghouse

The Massachusetts Property Insurance Underwriting Association (MPIUA) the successor to the FAIR Plan -- is established as a joint underwriting association established by Massachusetts General Laws Chapter 175C that serves as a residual market issuing policies on behalf of its member insurers. If the MPIUA were a traditional insurer, its book of business would be one of the largest in Massachusetts. Many of the homes currently insured through the MPIUA could potentially qualify for voluntary market coverage from one or more Massachusetts licensed insurers.

In July 2018, the MPIUA Board of Directors authorized and implemented the clearinghouse initiative to help insurance companies work with homeowners’ producers to give more residual market (i.e., FAIR Plan) policyholders the opportunity to find coverage in the voluntary market.

In order for an insurance company to participate in the Clearinghouse, the company must be an admitted carrier, licensed to write homeowners insurance in Massachusetts and must sign a Clearinghouse Agreement containing the terms and conditions under which the MPIUA will provide information to the company.

The information provided to the company does not include any personally identifiable information, but does include certain information about the insured and about the property to assist the member company in determining whether to offer homeowners insurance, through the policy's listed producer, to an existing FAIR Plan policyholder.

The Clearinghouse Agreement and procedure recognizes the producer's ownership of the renewal rights in the policy by permitting a MPIUA member company to participate only if the company first has a contractual relationship with the producer under an agency agreement or a limited servicing agreement. Further, any offer must be made through the insurance producer listed on the FAIR Plan policy. Additionally, the company may contact the listed producer to obtain more information on a risk it is interested in insuring.

The objective of this initiative is to aid in depopulating the Massachusetts FAIR Plan, which currently insures 9.7% of home insurance premiums statewide and as much as 34.8% of policyholders in some territories. According to the FAIR Plan, these efforts are reflected in the reduction of -6.7%, or 9,113 homeowners policies as of December 31, 2019, from the policy count at the start of the Clearinghouse Program in July of 2018. Territory 37-- Barnstable, Dukes and Nantucket counties -- saw the largest territory decrease of 3,858 policies, or -8.4%. The dwelling policy program has seen a small reduction of -2.3%, or 745 policies, since dwelling policies were added to the Clearinghouse Program in February of 2019.

Cancellations and Nonrenewals

Under M.G.L. c. 175, §4B, the Division collects information from the top 25 insurers[footnoteRef:33] and the FAIR Plan regarding policies in force, total cancellations, and total nonrenewals for each urban and coastal zip code designated by the Commissioner for additional review and reporting. The data is collected on a calendar year basis for policies written during the reporting period.[footnoteRef:34] [33: The top 25 insurers, primarily insurer groups that were writing homeowners insurance in Massachusetts in 2019 based on written premium data from the National Association of Insurance Commissioner’s database for homeowners multiple peril, are listed within footnote 12. Some of these insurer groups are better known by the names of their individual insurance companies. ] [34: The designated zip codes are identified in Exhibit 8A of the Statistical Supplement to this report.]

Aggregate Cancellation/Nonrenewal Data for Urban/Coastal Areas[footnoteRef:35] [35: Statutory cancellation and nonrenewal provisions can be found in M.G.L. c. 175, §§ 4C, 99 and 193P. Detailed information identifying the number of cancellations and nonrenewals by zip code for each of the noted companies is included within the Statistical Supplement to this report.]

Figures 27A and 27B depict the percentage of cancellations and nonrenewals in the designated areas. The top 25 companies and the FAIR Plan reported that they had a total of 496,492 policies in force in urban and coastal areas as of December 31, 2019. Of the total policies in force, there were 308,920 policies in urban areas and 187,572 policies in coastal areas. The top 25 companies covered 381,195 homes and the FAIR Plan covered 115,297 homes.

A policy cancellation is the termination of a policy before its one year effective period has expired. The policies may be cancelled by the insured, or, under certain circumstances, the policy can be canceled by the insurance company. During 2019, there were a total of 87,497 policies cancelled in urban or coastal areas, with 62,541 cancellations among the top 25 companies and 24,956 cancelled FAIR Plan policies. Of the total number of cancellations, 61,862 policies were cancelled in urban areas and 25,635 policies were cancelled in coastal areas.

Figure 27A Figure 27B

For purposes of this report, policy nonrenewal refers to the insurance company not offering to renew a policy when it expires. The top 25 companies and the FAIR Plan report that there were a total of 5,176 policies nonrenewed in the urban and coastal designated zip codes in 2019, with 2,305 policies nonrenewed among the top 25 companies and 2,871 nonrenewed FAIR Plan policies. Of the total number of nonrenewals, 3,530 policies were nonrenewed in urban areas and 1,646 policies were nonrenewed in coastal areas.

When examining the information submitted on a company-by-company basis, as illustrated in Figure 28, four companies – Barnstable Group, National Insurance Group, New London County Group, and Preferred Mutual Insurance Company– had the highest numbers of nonrenewals in 2019.

Figure 28

Cancellations for Urban/Coastal Areas

In examining cancellations in urban and coastal areas, the Division asked companies to report whether cancellations were policyholder-initiated or insurer-initiated, and if insurer-initiated, whether they were made in the first 60 days (when an insurer may do so without reason) or were due to nonpayment or for other permitted reasons after the first 60 days of a policy. The Division requested information regarding the number of cancellations specifically associated with geographic concerns, as opposed to those undertaken for any other reasons.

The top 25 companies and the FAIR Plan reported:

· 87,497 cancellations during 2019.

· 60,482 were initiated by the policyholder; and

· 27,015 were initiated by the insurer, of which:

· 2,964 initiated by the insurer in the first 60 days,

· 19,202 cancelled due to nonpayment, and

· 4,849 cancelled for other reasons permitted by law.

Figure 29

From an examination of those policies that were in urban areas:

· 61,862 cancellations occurred during 2019.

· 40,921 were initiated by the policyholder; and

· 20,941 were initiated by the insurer, of which:

· 2,122 initiated in the first 60 days,

· 15,049 cancelled due to nonpayment, and

· 3,770 cancelled for other reasons permitted by law.

From an examination of those policies that were in coastal areas:

· 25,635 cancellations occurred during 2019.

· 19,561 were initiated by the policyholder; and

· 6,074 were initiated by the insurer, of which:

· 842 initiated in the first 60 days,

· 4,153 cancelled due to nonpayment, and

· 1,079 cancelled for other reasons permitted by law.

Home insurance products are term products, almost always written with a one-year policy period. At the end of the one-year period, insurance companies and insureds must decide whether to continue the coverage for another policy period or to nonrenew the policy. There are no Massachusetts statutes that limit the reasons for the nonrenewal of coverage by an insurer, but an insurer must provide the policyholder or policyholder’s insurance producer with at least 45 days advance notice.

The Division requested that companies not report data where a renewal offer was made and the policyholder did not accept the offer, instances where the policyholder requested that the policy not be renewed, and any nonrenewals connected to an insurance agency that did not produce business for the company during the years 2017, 2018, and 2019. The Division requested that companies distinguish nonrenewals of particular policies from nonrenewals that were made based on (a) the risk of natural perils (i.e., windstorm, hurricane) that are usually covered under the standard homeowner’s policy and (b) all other reasons.

The top 25 companies reported that there were a total of 2,305 insurer-initiated policies nonrenewed in the urban and coastal designated zip codes in 2019,[footnoteRef:36] with 0 of the nonrenewals resulting from insurer withdrawal from certain geographic areas. This compares with a total of 3,082 policies insurer-initiated nonrenewed in urban and coastal designated zip codes in 2018, with none nonrenewed due to insurers withdrawing from certain geographic areas. Of the reported 2,305 nonrenewals in 2019, there were 761 nonrenewals in those zip codes identified as coastal areas and 1,544 nonrenewals in those zip codes identified as urban areas [36: The designated zip codes are identified in Exhibit 8A of the Statistical Supplement to this report.]

In addition to the top 25 company nonrenewals, the FAIR Plan did not renew 2,871 policies according to what is permitted within its Plan of Operations, including properties whose value exceeds the FAIR Plan’s $1,000,000 cap.

Claims History of Policyholders Renewed and Nonrenewed in Urban/Coastal Areas in 2019

In the 2019 survey, the Division asked the top 25 home insurance companies to separately report the claims history of policies that were renewed or nonrenewed.[footnoteRef:37] [37: In collecting the claims history for those policies renewed in 2019, the Division requested in its survey that the company report the number of claims reported and…