Coastal Homeowners Insurance - Distorting the Market or a FAIR Complaint?

Here's an interesting story today about the Massachusetts Attorney General challenging the rate increases that have been approved for the state's homeowners' insurer of last resort, the FAIR plan. The problem is one that is riling coastal homeowners' insurance markets up and down the eastern seaboard, namely the rate increases being imposed by insurers - and in particular state mandated insurers of last resort for homeowners who cannot obtain insurance in the private market - on coastal properties so as to account for hurricane risks. I have talked before about the real question with regard to what rate increases the FAIR plan should be allowed to impose, and the consumer and sometimes political opposition to what would otherwise appear to be appropriate increases by the FAIR plan and similar plans. The issue that it presents is to a large extent a question of the degree to which we should be comfortable letting the market set the rates, or even the availability, of insurance for such homes, or whether the market for such coverage should be distorted by state regulated insurers and the pressure on them to charge less than may be correct from an actuarial perspective.

While one might initially be inclined to view the Attorney General's response to the rate increases by the FAIR plan as being exactly this type of political pressure to distort the rates away from what a private carrier would charge for the same coverage, it is not that easy to immediately dismiss his assertions that there are problems with the hurricane models used to support the rate increases, at least without further independent investigation of that charge. Having saved a collapsing health insurer from dissolution some years ago, he has a certain credibility on these issues. And as a lawyer, and in particular an insurance coverage specialist, I am happy to consider a challenge to an insurer's decision that can be decided on the basis of a careful analysis of an insurer's underlying factual reasoning and evidence, which is all the Attorney General seems to be asking for.