Insurance rates for Cape Cod, Mass., homeowners will not increase as drastically as feared, but hikes will be larger than normal because the market is dominated by small domestic companies fearful of too much exposure, an official said today.
Kevin Beagan, director of the Massachusetts Insurance Department's State Rating Bureau, said the increases will be on the "40-to-50 percent level."
While there have been reports of rates that are going up by as much as 200 percent in the next year, Mr. Beagan said his office has "not seen rises that high," though over a five-year period a 200 percent increase is likely. The highest increase will be Vesta Insurance (their first increase in 9 years) which is expected to increase between 70- and 80 percent, he said.
Mr. Beagan tied the increases directly to the cost of reinsurance for the smaller, domestic insurance companies. These companies are more susceptible to regional issues as they have no way to balance their losses, he noted.
He said the small carriers' reinsurance rates have risen drastically due to predictions of major coastal storm activity along the coast. The state is therefore left more vulnerable to changes in the market, Mr. Beagan explained.
This is particularly evident in what Mr. Beagan referred to as this year's "exodus of companies."
While Andover Insurance pulled out of the Cape in 2004 leaving 14,000 policyholders nonrenewed, another five companies have pulled out this year alone--Vermont Mutual, Hingham Mutual, Quincy Mutual, Preferred Mutual and NGM (National Grange Mutual)--forcing clients back into a tight market.
Rate increases and dropped policies are forcing many homeowners to turn to the Massachusetts FAIR Plan. While this plan was at one point considered to be a last resort, it has become the region's largest insurer. It is not, however, designed to be a long-term solution to the problem of homeowner's insurance in the coastal and island regions of Massachusetts, he said.
What those areas need, Mr. Beagan noted, is the opportunity to obtain lower rates from a national homeowner's insurance carrier.
However, Massachusetts has a highly regulated auto-insurance industry with caps on rates, which has discouraged the big personal lines home and auto carriers from entering the market. None of these national insurance companies are willing to come into the state unless the market is available for both industries, according to Mr. Beagan.
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