Rates for most FAIR Plan policyholders will increase effective Aug, 1, based on rate filings approved by Chief Deputy Insurance Commissioner Doug Slape on April 22. Despite the FAIR Plan Association noting overall rate deficiencies of 15 percent or more across several coverage lines, the board’s filings were for at most a 10 percent increase across homeowners, dwelling, tenant and condominium coverages. Rate needs varied by geographic zones.
In the homeowners line, rate needs varied by 9.5 percent in the Seacoast Tier to 50.3 percent in the Central North-Greater Dallas Fort Worth Zone. The board sought and obtained increases from the 9.5 percent to 10.0 percent, with the higher rate sought only in the areas with even greater rate deficiencies. Overall, the state average indicated rate need for homeowners was 15.1 percent; the statewide average rate increase in the line is 9.6 percent.
The rate need for fire coverage for dwelling policyholders did not vary by zone and was approved statewide at 6.8 percent, the amount the FAIR Plan indicated as the needed change. Extended coverage had varying indicated rate needs by zone, with a reduction indicated in the Seacoast-Tier 1 Zone and increases elsewhere in the state. While the approved rate brings the Seacoast-Tier 1 extended coverage down by 10.0 percent, extended dwelling coverage increases by 10.0 percent in all other zones. Overall, the statewide average rate increase for extended coverage is 9.5 percent.
Tenant coverage will increase by an average of 9.5 percent. The two Central North zones, including the Dallas/Fort Worth area, will see a 10 percent increase, along with Tiers 1 and 2 along the seacoast. Central South and North/Northeast zones will have 3.0 percent and 4.6 percent increases in this coverage. Both zones with the lower increase are being raised to the indicated rate need. Elsewhere, the rate increases trail the indicated rate need, which ranged from 19.3 percent in the North Texas-Greater Dallas/Fort Worth Zone to 39.1 percent in the Seacoast-Tier 1 Zone.
Condominium policyholders will see rate increases ranging from 4.1 percent in the Seacoast-Tier 1 Zone to 10.0 percent in all other zones, despite rate needs ranging from 4.1 percent along the Seacoast-Tier 1 Zone to 137.7 percent in the Central North Texas Zone that excludes Dallas/Fort Worth.
The FAIR Plan’s rate filings used premium and loss data for 2015-2019 and average actual expenses for 2017 – 2019.
Limiting any proposed rate changes to 10.0 percent, says the order granting rate increases and one decrease, “is a common actuarial practice that promotes rate stability.” The order also noted the FAIR Plan’s rate changes meet the statutory requirement “to set rates in an amount sufficient to (1) carry all claims to maturity and (2) meet the expenses incurred in writing and servicing of the business.”
As of the end of 2020, the FAIR Plan had 73,713 policies in force with 47,183 policies, or 64 percent of the policies, issued in Harris County. Harris County also has the lion’s share of the exposure, with 58 percent, or $7.27 billion, of the association’s total in force exposure of $12.62 billion.
Both total policies in force and total exposure are down from the prior year. The overall exposure of the FAIR Plan at the end of 2019 was $13.44 billion, down 6.2 percent, with 80,923 policies in force, an 8.91 percent decrease. Harris County’s trend was similar, with policies in force down 5.39 percent and written premium down 7.74 percent.
Total written premium for the FAIR Plan was $85.37 million in 2019 and $79.74 million in 2020. More than $47.32 million in premium was for homeowners policies; $30.77 million for dwelling; $1.29 million for condo policies and $346,000 for tenant policies.
According to TDI’s report on the FAIR Plan issued in April, the most notable hurricanes causing losses to the FAIR Plan were Ike in 2008, with $316 million in loss and loss adjustment expenses, and Harvey in 2017, with $85 million in loss and LAE. The 2020 season’s hurricane losses from Hanna, Laura and Delta remain below $4 million.
Since July 2020, the FAIR Plan has purchased reinsurance so that losses in excess of $40 million are shared by multiple reinsurers. Losses in excess of the $40 million retention and $385 million in reinsurance must be paid by assessment of private market insurers.
Private market insurers can be assessed if the FAIR Plan incurs a deficit. By law, the assessment is imposed based on insurers’ market share in the previous calendar year. The last time insurers were assessed for FAIR Plan deficits was in March of 2018 to fund the plan’s 2016 and 2017 deficits. Insurers are permitted to recoup the assessment by a premium surcharge on every property insurance policy issued on property located in the state.
The FAIR Plan provides coverage for most property perils in its policies, except the association does not cover windstorm and hail in the designated catastrophe areas. These perils can be obtained through Texas Windstorm Insurance Association. Replacement cost coverage under an endorsement carrying additional premium is available only in the homeowners HO-A policy.
Insureds are eligible for coverage in the FAIR Plan only after receiving two declinations in the admitted market. Policyholders can renew policies with the association; however, every two years the insured must reapply for residential property insurance in the voluntary market.
Maximum limits of policies issued by the FAIR Plan are: dwelling, $1 million; other structures, 10 percent of the dwelling coverage amount; contents, 50 percent of dwelling coverage unless increased by endorsement carrying additional premium that is available only to HO-A policyholders; liability, $100,000 or $300,000; medical payments, $5,000; and loss of use, 10 percent on dwelling coverage and 20 percent of personal property coverage amount on condo and tenant policies.
All licensed Texas P/C agents may submit policy applications to the FAIR Plan.
Management of the FAIR Plan is provided by TWIA. The FAIR Plan association is governed by an 11 member board of directors appointed by the commissioner, consisting of five insurance company members, four public members and two general property and casualty agents. Only two members of the TWIA board also serve on the FAIR Plan board, Corise Morrison, executive director of USAA, and Georgia Neblett, a public representative. Industry members John Miletti, Mark Solomon and Wendy Mueller serve as the officers of the board, holding the offices of chairman, vice chairman and secretary/treasurer.