25% hike in Cape insurance rejected

The Massachusetts insurance commissioner yesterday rejected a request from the state's home insurer of last resort for a 25 percent price increase on Cape Cod, but she indicated a slightly modified proposal could gain quick approval.

Opponents of the Massachusetts Fair Plan's rate request said the decision by Insurance Commissioner Julianne M. Bowler probably means the Fair Plan will eventually get its 25 percent increase on the Cape. The Fair Plan's current average premium on the Cape is $1,306.

``Today's decision essentially gives the industry everything it wanted and homeowners -- particularly those on Cape Cod and in coastal communities -- will suffer for it," said Attorney General Thomas F. Reilly , a Democrat running for governor.

The Fair Plan has become the top insurer of homes on the Cape and in many seaside communities over the past two years as startling new storm damage projections have led private insurers to cancel or scale back their coverage and charge far more for the policies they do issue.

The Fair Plan currently insures roughly a third of all homes on Cape Cod and more than 100,000 across the rest of the state. It was created by statute to provide coverage to those homeowners unable to secure insurance in the private market.

Last September, the Fair Plan asked Bowler to approve a 12.5 percent average statewide rate increase for 2006.

In her 39-page decision, Bowler approved much of the methodology used in the Fair Plan's rate request. For example, she said, it is reasonable to average the results of the two leading hurricane damage computer models, an approach fiercely opposed by Reilly and the State Rating Bureau, a unit within the Division of Insurance.

Reilly had called for a 1.2 percent Fair Plan premium increase on Cape Cod and no increase, on average, statewide. The State Rating Bureau had backed a 20 percent increase on Cape Cod.

Bowler ultimately rejected the Fair Plan filing because it prospectively included $13 million for reinsurance, which insurers purchase to protect themselves against catastrophic losses. She said the Fair Plan also included post-hurricane projected losses ``that were determined to be outside the range of reasonableness."

The commissioner indicated she would quickly approve a revised Fair Plan filing incorporating an actual purchase of reinsurance and adjusting the post-hurricane loss estimates.

Officials at the Fair Plan did not return calls yesterday. Previously, the Fair Plan's president, Jack Golembeski , had said the company intended to purchase a substantial amount of reinsurance this month. Several industry officials said the Fair Plan had purchased $30 million to $40 million of reinsurance.

Kevin Beagan , director of the State Rating Bureau, said his initial reading of Bowler's decision suggests the Fair Plan will probably get much of what it sought. ``It could be close to 25 percent" on Cape Cod, Beagan said.

Alan R. Long , president of the Eldredge & Lumpkin insurance agency in Chatham, said the Fair Plan's market share on the Cape will keep on rising unless its rates increase so other insurers can compete against it.

``It's supposed to be a market of last resort, but right now it's a market of first and maybe only resort," Long said.

Bruce Mohl can be reached at mohl@globe.com.