A major hurricane hitting Massachusetts could strain the resources of the state-run insurer of last resort and policyholders could be hit with big surcharges, a research group warned today.
The Bay State could suffer billions of dollars worth of property damage from a big storm while also severely straining the resources of the state's FAIR (Fair Access to Insurance Requirements) Plan, according to Robert Hartwig, president of the Insurance Information Institute in New York.
"The number of Massachusetts residents living in hurricane-prone parts of the state has grown dramatically over the past three decades along with the value of the properties in which they live," Mr. Hartwig said in testimony before the Massachusetts state Legislature's Homeowner's Study Commission.
Excerpts of his remarks today were contained in a statement from I.I.I.
"These undeniable trends pose challenges to consumers, insurers and public policymakers. Massachusetts is also home to insured coastal properties valued cumulatively at almost $700 billion," Mr. Hartwig said. "Only three other states–Florida, New York and Texas–are at greater financial risk in this regard."
According to Mr. Hartwig, Barnstable County, which is mostly comprised of Cape Cod, has a population five times larger than it did during the last period of intense hurricane activity in Massachusetts, an era dating back to the middle of the 20th century.
He noted that AIR Worldwide, a nationally renowned risk modeling firm, estimates that Massachusetts faces a 15 percent chance of a catastrophic storm within the next decade that would cost insurers $5 billion or more.
Created in 1968, the state's FAIR Plan, known formally as the Massachusetts Property Insurance Underwriting Association (MPIUA), offers homeowner's policies comparable to ones offered by private-sector insurers.
Currently, MPIUA has more than one-third of the homeowners insurance market in Cape Cod, as well as Martha's Vineyard and Nantucket, with more than 60,000 policies. As such, the FAIR Plan's exposure to loss, which stood at $16.7 billion in 2001, grew to $68.6 billion in 2006, an I.I.I. analysis found.
I.I.I. said in a statement that the FAIR Plan's financial condition concerns all Massachusetts residents because private-sector insurers doing business in the state may recoup their FAIR Plan assessments by surcharging their policyholders.
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